Bonus depreciation allows you to take extra or bonus depreciation amounts during the first year that the asset is placed in service and depreciated. Bonus depreciation is only available for depreciation books - not value models - and is always taken before any other depreciation calculations.
You can calculate bonus depreciation using the proposal process or you can create manual bonus depreciation transactions. You cannot create bonus depreciation transactions if depreciation transactions or depreciation adjustment transactions exist for that asset depreciation book.
When you use the proposal process to calculate bonus depreciation, all existing bonus transactions will be included in the calculation of the basis, including any previous bonus depreciations that you entered manually for the asset.
When there is more than one bonus depreciation to be taken for an asset, the priority will be considered. Each bonus reduces the asset basis for the next bonus. Salvage value is not considered in the asset basis for bonus depreciation calculations and the depreciation convention does not apply for bonus depreciation.
Currently in the United States, certain property qualifies as Section 179 property. The Section 179 deduction is the election to recover all or part of the cost of certain property, up to a limit, by deducting it in the year that you place the property in service. There is a new bonus depreciation for the areas in the United States that were affected by the 2005 hurricanes. The additional 50% bonus depreciation after any Section 179 bonus amounts is for qualified Gulf Opportunity (GO) Zone property. The qualified assets must be placed in service after August 27, 2005. Refer to Publication 4492 from the Internal Revenue Service (IRS) for more information on the new bonus. There might be new bonus depreciation opportunities enacted in the future.
Example
Suppose that the following bonus depreciations are associated with an asset depreciation book:
Section 179: $1000.00, Priority 1
Liberty Zone: 30%, Priority 2
Assume that the asset acquisition cost is $5000.00. When bonus depreciation is calculated, the first bonus depreciation amount will be $1,000.00 for the Section 179 depreciation.
The next bonus depreciation amount – for the Liberty Zone depreciation – is calculated using the following calculation:
Acquisition cost – $1000 (Section 179 depreciation) x 30% =$1,200
If the bonus depreciation amount is greater than the remaining acquisition cost, the bonus depreciation amount will be either the bonus depreciation calculation or the remaining acquisition cost, whichever is less.
If the remaining acquisition cost is zero or less, bonus depreciation transactions will not be generated.
When bonus depreciation is calculated using the proposal process, a bonus depreciation transaction will be created for all applicable bonus depreciation records associated with the asset depreciation book.
When book depreciation transactions are derived from a value model, bonus depreciation will not be generated automatically by the system. Bonus depreciations are not supported by value models.
You can create an unlimited number of bonus depreciation records. After you assign them to the asset group depreciation book, they will be applied to the asset depreciation book.
Bonus depreciation is entered as a percentage or a fixed amount. When you post depreciation proposals, bonus depreciation transactions will be posted to the depreciation book as transactions separate from the depreciation transactions.
