The Small Business Jobs Act of 2010 (SBJA), signed into law in September, adds or renews several attractive tax incentives for small business. This is Part II of our series explaining key provisions of the SBJA with tax experts from CBIZ.
Expensing Election Extended and Expanded: Under prior law, the Section 179 expensing election allowed businesses with active trade or business income to immediately expense (write off)up to $250,000 of tangible personal property placed into service in the 2010 tax year. The maximum amount of the deduction would begin to phase out when total eligible purchases exceeds $800,000. SBJA enhances this deduction in several ways for assets placed in service in tax years beginning in 2010 and 2011:
- The maximum amount subject to the election is increased from $250,000 ($25,000 in 2011) to $500,000;
- The phase-out starting point is increased from $800,000 ($200,000 in 2011) to $2,000,000, and;
- A taxpayer may elect to expense up to $250,000 of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.
According to CBIZ, this provision marks the first time that the expensing election has been extended to any type of real property. It does, however, come with some caveats. Generally, if a taxpayer cannot deduct the full amount of the Section 179 deduction due to taxable income limitations, the excess carries forward to future years until there is sufficient taxable income to absorb the remainder of the deduction. With respect to qualified real property, any amount subject to the election that cannot be utilized in the tax year beginning in 2010 will be carried forward to 2011.
Any amount subject to the election that cannot be utilized in the tax year beginning in 2011 (including any carryover from 2010), will be deemed to be placed in service as of the first day of the year and will be subject to normal depreciation rules for the ensuing tax years as if no Section 179 election had been made.