2012 INVESTMENT INCENTIVES
50% BONUS DEPRECIATION – Applies to new qualified depreciable property that is purchased and placed in service in 2012.
Example: An individual purchases five yearlings for $500,000 and a new tractor for $50,000 in 2012 and places the yearlings in training and uses the tractor in 2012. The purchaser can write off (depreciate) half of the cost of each on his or her 2012 tax return.
$500,000 yearlings
$50,000 new tractor
TOTAL qualified purchases = $550,000 x .50 bonus depreciation = $275,000 write-off $125,000 EXPENSE ALLOWANCE – Applies to new or used qualified depreciable property that is purchased and placed in service in 2012 ($500,000 investment threshold applies).
Example A: An individual purchases a $100,000 broodmare and a $25,000 tractor in 2012 and places both in service in 2012. The purchaser makes no other qualifying purchases of horses or other business property during the year. The individual can expense (write off) the entire $125,000 cost of the broodmare and tractor in 2012.
$100,000 broodmare
$25,000 tractor
TOTAL qualified purchases = $125,000; minus $125,000 expense allowance = $0 balance
Example B: An individual purchases three broodmares for $500,000 and a $25,000 tractor in 2012
and places all of this property in service in 2012. The purchaser makes no other qualifying purchases
of horses or other business property during the year. If purchases exceed the $500,000 investment
threshold, the expense allowance is reduced by $1 for every dollar over $500,000 in qualifying
property. In this case, purchases total $525,000 and the expense allowance drops to $100,000.
$500,000 broodmares
$25,000 tractor
TOTAL qualified purchases = $525,000; minus $500,000 threshold = $25,000 excessive investment; $125,000 expense allowance minus $25,000 excessive investment = $100,000 expense allowance permitted in Example B. The remaining balance ($525,000 in qualified purchases minus $100,000 expense allowance = $425,000) would be depreciated using normal depreciation rules.
50% BONUS DEPRECIATION & $125,000 EXPENSE ALLOWANCE USED TOGETHER –
These two incentives are not mutually exclusive and may be used together in some cases.
Example: An individual purchases a yearling for $300,000 in 2012 and places it in service in 2012. The purchases can expense $125,000 and also take 50% bonus depreciation. The remaining balance would be depreciated using normal depreciation rules.
$300,000 yearling
TOTAL qualified purchases = $300,000; minus $125,000 expense allowance = $175,000; minus 50% bonus depreciation ($175,000 x .50) = $87,500; total write-off = $212,500 ($125,000 expense allowance + $87,500 bonus depreciation). The remaining $87,500 balance ($300,000 yearling purchase minus $212,500 write-off) would be depreciated using regular depreciation rules.