Guidance on Electing Not to Take 50% Bonus Depreciation


The IRS on Tuesday released Rev. Proc. 2009-33, providing guidance on how taxpayers can elect not to claim 50% bonus depreciation under IRC § 168(k)(1) but instead increase their credit limitation under section 38(c) and their AMT credit limitation under section 53(c). The revenue procedure gives guidance on what property is eligible for the election, the time and manner for making the election, and the computation of the amount by which the business credit limitation and AMT credit limitation may be increased if the elections provided by section 168(k)(4)(H) are or are not made.

 

The American Recovery and Reinvestment Act (ARRA) extended 50% first-year depreciation under section 168(k) to apply to property placed in service before 2010 (or before 2011 for certain property). The act also allows corporations to elect not to take the 50% bonus depreciation but to increase their business credit and AMT credit limitations. Generally, if a corporation elects not to take the bonus depreciation, its business credit and AMT credit limitations are increased by the bonus depreciation amount.

 

If a corporation has made the bonus depreciation election for its first tax year after March 31, 2008, it may nevertheless make an election not to apply bonus depreciation to property affected by the ARRA extension. The election not to take bonus depreciation on such “extension” property must be made by the federal income tax return due date (including extensions) for the taxpayer’s first tax year ending after Dec. 31, 2008. The taxpayer makes the election by attaching a statement to the income tax return indicating that the taxpayer is electing not to take the bonus depreciation and notifying in writing any partnership of which the taxpayer is a partner. The revenue procedure provides limited relief for late elections and explains how a taxpayer that qualifies for relief should make the election.

 

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