How do the new depreciation rules interact with pre-existing cost-recovery rules?
The IRS has acknowledged that questions may arise as taxpayers evaluate the benefits of the new 50 percent bonus depreciation. As this ‘new’ bonus depreciation is patterned after prior provisions, and to keep it simple, the IRS is allowing taxpayers to rely on prior regulations (with appropriate adjustments for dates, etc.) until new guidance is issued. How do the new depreciation rules interact with the increased expensing election? The interaction of the expensing and the bonus deprecation rules make for some fat deductions. The sections must be applied in a specified sequence to purchases of qualifying assets that are placed in service in 2008: first, expensing under Section 179 (an elective provision); second, the bonus depreciation (a mandatory provision unless one elects out); finally, MACRS depreciation applies. The basis of the asset is reduced after each step, decreasing the basis before application of the next rule. How can a company best take advantage of the new tax rules?
