Guidance on Electing Not to Take 50% Bonus Depreciation

The IRS released guidance on how taxpayers can elect not to claim 50% bonus depreciation under Sec. 168(k)(1) but instead increase their credit limitation under Sec. 38(c) and their AMT credit limitation under Sec. 53(c) (Rev. Proc. 2009-33). The revenue procedure gives guidance on what property is eligible is for the election, the time and manner for making the election, and the computation of the amount by which the business credit limitation and the AMT credit limitation may be increased if the elections provided by Sec. 168(k)(4)(H) are or are not made.

The American Recovery and Reinvestment Act, P.L. 111-5 (ARRA), extended 50% first-year depreciation under Sec. 168(k) to apply to property placed in service before 2010 (or before 2011 for certain property). The act also allows corporations to elect not to take the bonus 50% depreciation but to increase their business credit and AMT credit limitations. Generally, if a corporation elects not to take the bonus depreciation, its business credit and AMT credit limitations are increased by the bonus depreciation amount.

If a corporation has made the bonus depreciation election for its first tax year after March 31, 2008, it may nevertheless make an election not to apply bonus depreciation to property affected by the ARRA extension. The election not to take bonus depreciation on such “extension” property must be taken by the federal income tax return due date (including extensions) for the taxpayer’s first tax year ending after December 31, 2008. The taxpayer makes the election by attaching a statement to the income tax return indicating that the taxpayer is electing not to take the bonus depreciation and notifying in writing any partnership of which the taxpayer is a partner.

The revenue procedure provides limited relief for late elections.