Tax Alert

Treasury Issues Guidance on 100 Percent Bonus Depreciation

(April 8, 2011)

Under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act), taxpayers may deduct 100 percent of their investments in certain assets. The 2010 Tax Relief Act extended and expanded bonus depreciation rules to allow qualifying assets that were acquired and placed in service after Sept. 8, 2010, and before Jan. 1, 2012, to be written off. On March 29, 2011, the U.S. Treasury issued Revenue Procedure 2011-26 providing additional guidance on how taxpayers should apply the new bonus depreciation rules. The guidance covers topics including how to determine whether self-constructed and acquired assets qualify for 100 percent bonus depreciation, treatment of qualified restaurant and retail property, how to make the bonus depreciation election for 2010 and 2011, and how the bonus depreciation rules apply to luxury automobiles.

Two of the most significant items provide taxpayer-favorable answers to questions about implementing the new law. First, for self-constructed property, the guidance permits taxpayers to claim 100 percent bonus depreciation on components of self-constructed property acquired after Sept. 8, 2010, even if construction of the property began before that date. Taxpayers must make a formal election to claim 100 percent bonus depreciation on the qualifying components. Second, the guidance clarifies that when property is both a qualified leasehold improvement and a qualified retail improvement or restaurant property, the property will qualify for bonus depreciation.

For more information about how this might affect you, please contact Ed Meyette at 616.752.4234 or or any Crowe Horwath LLP tax professional.

Under U.S. Treasury rules issued in 2005, we must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer.

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Edward D. Meyette