Eligibility Requirements for Claiming First-Year Expensing

  • You must use qualified property more than 50% for business the first year the property is placed in service to qualify for the first-year expensing deduction.
  • The equipment may be pre-owned as long as it was purchased and placed in service in the year you take the expensing deduction.
  • You may not take the deduction for property you used personally before converting it to business use.
  • Property must be both purchased and placed in service in the year your claim the deduction.
    • If you purchased property in a prior year then place it in service in the following year, you may not take the deduction for that property. You may use regular MACRS depreciation.
  • Although the first-year expensing limit for 2013 (and 2012) is $500,000, you don't have to claim the entire amount.
  • If you place in service more than one item of qualified property, you may arbitrarily allocate the $500,000 deduction to each item of property.
    • You may depreciate an remaining basis that you did not claim a first-year expensing deduction under MACRS rules.

50% Bonus Depreciation for 2013

For 2013 (and 2012), you may claim a 50% first-year bonus depreciation deduction in addition to the first-year expensing deduction. .

Property Must Be New:

To claim bonus depreciation, the property must be purchased new and placed in service in the same year it is purchased. On the other hand, you can claim a Section 179 deduction for new or used property purchased and placed in service in the same year.

Computing Bonus Depreciation:

Multiply the adjusted basis of the property (cost minus first-year expensing) by 50%. You must reduce the basis by the amount of bonus depreciation claimed.

Keep in mind, you are deemed to have claimed bonus depreciation even if you did not and must reduce the basis of property by the amount of the deduction you could have claimed.

If you don't want to claim bonus depreciation, you must make an election in writing by attaching a statement to your return expressing your desire to opt out of bonus depreciation and specifying the class of property for which you do not want to claim bonus depreciation (i.e. passengers cars a 5-year property).

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