The 2010 Tax Relief Act Highlights for BusinessJanuary 27, 2011
100 Percent Bonus Depreciation
The 2010 TRA (Tax Relief Act) boosts 50% bonus depreciation to 100% for qualified investments made after September 8, 2010 and before January 1, 2012. The 2010 TRA also makes 50% bonus depreciation available for qualified property placed in service after December 31, 2011 and before January 1, 2013. Certain long-lived property and transportation property is eligible for 100% depreciation if placed in service before January 1, 2013. This provision is one of the most expansive for businesses. Unlike Code Sec. 179 expensing, it is not limited to use by smaller businesses or capped at a certain dollar level.
The 2010 Small Business Jobs Act also increased the Code Sec. 179 dollar and investment limits to $500,000 and $2 million respectively, for tax years 2010 and 2011. The new law provides for Code Sec. 179 expensing at a level of $125,000 for 2012. Bonus depreciation is not limited by the size of a taxpayer’s investment in qualified property and it can generate net operating losses. Bonus depreciation, however, applies only to new property and is not exempt from certain uniform capitalization rules as is small business expensing.
Small Business Stock
The 2010 Small Business Job Act enhanced the exclusion of gain from qualified small business stock to non-corporate taxpayers. For stock acquired after September 27, 2010 and before January 1, 2011, and held for at least five years, the 2010 Small Business Jobs Act provided an exclusion of 100%. The 2010 TRA extends the 100% exclusion for one more year, for stock acquired before January 1, 2012. With the 100% exclusion, none of the gain on qualifying sales or exchanges of small business stock is subject to federal income tax. In addition, the excluded gain is not treated as a tax preference item for AMT purposes, so none of the gain will be subject to AMT. Investors, however, must be patient to realize this benefit because they must hold the qualified shares for at least five years (or rollover proceeds to other qualified shares).
Certain baseline requirements for the exclusions continue to apply:
– To qualify as small business stock, the stock must be issued by a C corporation that invests 80% of its assets in the active conduct of a trade or business and that has assets of $50 million or less when the stock is issued.
– Qualified stock must be held for more than five years (rollovers into other qualified stock are allowed).
– The amount taken into account under the exclusion is limited to the greater of $10 million or ten times the taxpayer’s basis in the stock.
– Any taxpayer, other than a C corporation, can take advantage of the exclusion.
The 2010 TRA temporarily extends for one or two years a number of energy tax incentives, including credits for biodiesel and renewable diesel, new energy-efficient home credit for qualified builders, and extends the credit, but reduces the benefit thereof to pre-2009 levels, for individuals making energy-efficient home improvements.