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Christine Ziomek
(201) 796-7788
Oct. 18, 2010

Fifty Percent Bonus Depreciation Deduction Is Back!

Valuable Tax Break Reinstated for Qualified Capital Expenditures

By Eli Loebenberg, CPA, CEO

Madison SPECS

Oct. 18, 2010 – President Obama recently signed into law the Small Business Jobs Act of 2010 which, among other provisions, reinstates the 50% bonus depreciation tax deduction for capital expenditures. Intended to encourage investment by increasing current-year cash flow, the bonus depreciation deduction was first enacted in 2008, was extended through the end of 2009, and now reinstated for 2010. This valuable tax break allows businesses to immediately write off 50% of the adjusted costs of their qualified capital expenditures.

Businesses have long been accustomed to recovering the costs of capital expenditures over time according to a fixed depreciation schedule. However, the additional first-year depreciation deduction now permits businesses to immediately write off significantly more of a deterioration and obsolescence than the standard depreciation schedule would allow.

In today’s economy of tight credit and lowered revenues, this increase in a company’s cash flow through a reduction in its tax pay-out can have a major impact on the bottom line. Businesses are taking advantage of the generated cash flow to perform capital improvements on properties they own, or to buy into new business opportunities.

Increased Cash Flow
How does the additional first-year depreciation deduction translate into dollars and cents? One example would be if a company acquires $100k of 5-year property, which is going to be depreciated using the MACRS percentages under the Half-Year method. In the year of acquisition, the company would normally get a depreciation deduction of 20%, or $20k.

Under the new law, however, the company’s asset qualifies for the 50% bonus depreciation. In year one, before any depreciation is calculated using the MACRS percentages, the company gets to depreciate 50% of that $100k acquisition, or $50k. That’s nice, but it gets even better. The company can then take the remaining $50k and apply the standard first-year MACRS write-off of 20%, which will give $10k of additional depreciation ($50k x 20%). The company now has a total of $60k that can be deducted in year one as opposed to $20k. In other words, the company sees a 40% increase in its first-year depreciation deduction.

Leverage the Value of Money Today
How do you determine if your property qualifies for the bonus depreciation deduction? If you have newly constructed, renovated or expanded facilities or facilities with significant construction in progress, you should certainly consider your eligibility for this tax break. A Cost Segregation feasibility analysis can be performed to identify all eligible assets. This analysis is performed at no-cost to determine if it makes sense to do the study. Performed by Cost Segregation specialists with both engineering and accounting expertise, a feasibility study allows property owners to make an informed decision as to whether a full Cost Segregation study will generate a financial benefit. 

Time is of the essence. The additional depreciation deduction is not currently slated to extend past 2010. 


Eli S. Loebenberg is Chief Executive Officer of Madison SPECS, LLC, an affiliate of Madison Commercial Real Estate Services (MCRES) of Lakewood, NJ. A CPA with many years of broad-based tax experience, Mr. Loebenberg partnered with MCRES to form Madison SPECS, LLC in 2006 to provide expert cost segregation and fixed asset review services. He is a member of the American Institute of Certified Public Accountants. Most recently, Mr. Loebenberg was selected as a "2010 Industry Leader" by Real Estate Weekly, a publication serving the real estate industry.

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