2013 Tax Depreciation Limits

I thought it might be nice to publish a summary of the 2013 tax depreciation limits for accounting and finance personnel to be able to reference.

The 2013 tax depreciation limits for Section 179 and bonus depreciation have not changed from 2012.  The American Taxpayer Relief Act of 2012 extended the Section 179 amounts for the 2012 and 2013 tax year.  The 50% bonus depreciation was also extended to the 2013 calendar year.

FEDERAL TAX

1.    Section 179 for 2013 tax year (see below) - Maximum Sec. 179 deduction $500,000.  Investment limit $2,000,000.  (If more than $2M of fixed assets additions of qualifying Sec. 179 assets, the Sec. 179 deduction phases out dollar-for-dollar, e.g., if there is $2,000,001 in additions, the Sec. 179 is reduced to $499,999 – Sec. 179 is completely phased out when total additions exceed $2.5M).  Most common non-qualifying Sec. 179 assets are Leasehold Improvements (with exceptions).

2.    50% Additional First Year Bonus Depreciation – Asset must be new.  The bonus depreciation is 50% for the 2013 calendar year.  (For example, if you have a 6/30/14 FYE client, 50% bonus depreciation will apply for 7/1/13 – 12/31/13, and as of now, there is no bonus depreciation for 1/1/14 – 6/30/14.  Congress has yet to extend bonus depreciation to the 2014 calendar year.)

CALIFORNIA – California never conforms to federal.

1.    Section 179 – Maximum Sec. 179 deduction $25,000.  Investment limit $200,000.  (Same dollar-for-dollar phase out applies – at $225k new additions, Sec. 179 is completely phased out).

2.    No bonus depreciation allowed.

TAX YEARS

The basic rule for tax years – it is determined by when the fiscal year starts.

The 2013 tax year for Section 179 is applicable for 12/31/13, 1/31/14, 2/28/14, 3/31/14, 4/30/14, 5/31/14, 6/30/14, 7/31/14, 8/31/14, 9/30/14, 10/31/14, and 11/30/14 clients.

COMMON ASSET LIVES (BNA)

1.    3 year SL – off-the-shelf software

2.    5 year MC200 – cars & trucks (see note below for limitations), computers, machinery and equipment

3.    7 year MC200 – furniture, phones

4.    15 year MC150 – land improvements (parking lot, fencing, sidewalks)

5.    27.5 year SL – Residential Real Property

6.    39 year SL – Commercial Real Property (including leasehold improvements that are structural and affixed) – certain LHI can utilize a shorter 15-year life for federal if certain criteria are met.

NOTE ON CARS & TRUCKS (SEE ATTACHMENT)

1.    Most cars and trucks are limited to the amount of depreciation (including Sec. 179 and bonus depreciation) you can take each year.  The code for listed property in BNA is “AL.”  For 2013, autos are limited to $3,160 depreciation in the first year.  If bonus depreciation is taken (auto needs to be new), the first year depreciation limit is increased to $11,160.

2.    For trucks having gross vehicle weight rating >6,000 lbs. and bed length >6 feet – can take Sec. 179 for entire cost.

3.    For (a) SUVs >6,000 lbs., (b) vans >6,000 lbs., and (c) trucks >6,000 lbs. with bed length < 6 feet – Sec. 179 is limited to $25,000.

SECTION 179 LIMIT & MID-QUARTER RULES

If Sec. 179 is being limited, and you are trying to figure out which assets to apply the Sec. 179 and which assets to not, the basic steps to take are:

1.    First, choose all the assets with the longer class life (e.g., choose the 7-year asset vs. 5-year).

2.    Second, choose the asset closer to year end (e.g., choose the asset purchased on 12/31 vs. the asset purchased on 1/1).

2014 TAX YEAR

As of today (1/12/14), Congress has not passed extensions of the §179 amounts or bonus depreciation.  This means that as of now, §179 deduction dropped back to $25,000 with a $200,000 investment limit.  Also, there is no more bonus depreciation.  We will keep you updated on the changes.I thought it might be nice to publish a summary of the 2013 tax depreciation limits for accounting and finance personnel to be able to reference.  If these limits don't particularly excite you, please forward to those tasked with knowing such things.

The 2013 tax depreciation limits for Section 179 and bonus depreciation have not changed from 2012.  The American Taxpayer Relief Act of 2012 extended the Section 179 amounts for the 2012 and 2013 tax year.  The 50% bonus depreciation was also extended to the 2013 calendar year.

FEDERAL TAX

1.    Section 179 for 2013 tax year (see below) - Maximum Sec. 179 deduction $500,000.  Investment limit $2,000,000.  (If more than $2M of fixed assets additions of qualifying Sec. 179 assets, the Sec. 179 deduction phases out dollar-for-dollar, e.g., if there is $2,000,001 in additions, the Sec. 179 is reduced to $499,999 – Sec. 179 is completely phased out when total additions exceed $2.5M).  Most common non-qualifying Sec. 179 assets are Leasehold Improvements (with exceptions).

2.    50% Additional First Year Bonus Depreciation – Asset must be new.  The bonus depreciation is 50% for the 2013 calendar year.  (For example, if you have a 6/30/14 FYE client, 50% bonus depreciation will apply for 7/1/13 – 12/31/13, and as of now, there is no bonus depreciation for 1/1/14 – 6/30/14.  Congress has yet to extend bonus depreciation to the 2014 calendar year.)

CALIFORNIA – California never conforms to federal.

1.    Section 179 – Maximum Sec. 179 deduction $25,000.  Investment limit $200,000.  (Same dollar-for-dollar phase out applies – at $225k new additions, Sec. 179 is completely phased out).

2.    No bonus depreciation allowed.

TAX YEARS

The basic rule for tax years – it is determined by when the fiscal year starts.

The 2013 tax year for Section 179 is applicable for 12/31/13, 1/31/14, 2/28/14, 3/31/14, 4/30/14, 5/31/14, 6/30/14, 7/31/14, 8/31/14, 9/30/14, 10/31/14, and 11/30/14 clients.

COMMON ASSET LIVES

1.    3 year SL – off-the-shelf software

2.    5 year MC200 – cars & trucks (see note below for limitations), computers, machinery and equipment

3.    7 year MC200 – furniture, phones

4.    15 year MC150 – land improvements (parking lot, fencing, sidewalks)

5.    27.5 year SL – Residential Real Property

6.    39 year SL – Commercial Real Property (including leasehold improvements that are structural and affixed) – certain LHI can utilize a shorter 15-year life for federal if certain criteria are met.

NOTE ON CARS & TRUCKS

1.    Most cars and trucks are limited to the amount of depreciation (including Sec. 179 and bonus depreciation) you can take each year.  For 2013, autos are limited to $3,160 depreciation in the first year.  If bonus depreciation is taken (auto needs to be new), the first year depreciation limit is increased to $11,160.

2.    For trucks having gross vehicle weight rating >6,000 lbs. and bed length >6 feet – can take Sec. 179 for entire cost.

3.    For (a) SUVs >6,000 lbs., (b) vans >6,000 lbs., and (c) trucks >6,000 lbs. with bed length < 6 feet – Sec. 179 is limited to $25,000.

SECTION 179 LIMIT & MID-QUARTER RULES

If Sec. 179 is being limited, and you are trying to figure out which assets to apply the Sec. 179 and which assets to not, the basic steps to take are:

1.    First, choose all the assets with the longer class life (e.g., choose the 7-year asset vs. 5-year).

2.    Second, choose the asset closer to year end (e.g., choose the asset purchased on 12/31 vs. the asset purchased on 1/1).

2014 TAX YEAR

As of today, Congress has not passed extensions of the §179 amounts or bonus depreciation.  This means that as of now, §179 deduction dropped back to $25,000 with a $200,000 investment limit.  Also, there is no more bonus depreciation.