Imagine being able to fully deduct 20-40% of your new building, addition, or remodel.  Think of the effects the reduced tax liability would have on your cash flow and ultimately on your bottom line.  During 2011, there is a unique opportunity that can make this a reality.  With the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, Congress created an unprecedented opportunity for taxpayers through the extension and increase of bonus depreciation.  This provision increases bonus depreciation for qualifying property from 50% to 100% for assets placed in service after 9/8/2010 and before 1/1/2012.

With the application of a cost segregation study, an IRS-approved method of reclassifying components and improvements of your commercial building from real property to personal property, assets can be depreciated on a 5, 7, or 15 year schedule instead of the traditional 27.5 or 39 year deprecation schedule.  Typical cost segregation studies result in 20% to 40% of building costs being reclassified to shorter life periods. 

Furthermore, qualified property acquired between 9/8/2010 and 1/1/2012 is also eligible for 100% bonus depreciation, assuming all other requirements are met.  Additionally, corporations are permitted to increase the minimum tax credit limitation by the bonus depreciation amount by simply electing to forgo bonus depreciation for property placed in service in 2011 or 2012.

The cost segregation team at Smith & Gesteland is adept at determining how bonus depreciation can positively affect your bottom line.  For more information about how this could benefit your business, please contact us.

By Peter Soman, CPA - Smith & Gesteland, LLP