Bonus Depreciation: Making Informed Decisions About Upcoming Capital - PowerPoint PPT Presentation

Presenting a live 110 ‐ minute teleconference with interactive Q&A Bonus Depreciation: Making Informed Decisions About Upcoming Capital Investments About Upcoming Capital Investments Mastering the Latest Guidance and Navigating the Complexities of the Qualifying Rules TUESDAY, AUGUST 9, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Mary Burke Baker, Government Affairs Advisor, K&L Gates , Washington, D.C. Mary Burke Baker Government Affairs Advisor K&L Gates Washington D C Tom Windram, Managing Director, RSM McGladrey Inc. , Washington, D.C. David McGuire, Director, McGuire Sponsel , Indianapolis Edward Meyette, Partner, Crowe Horwath , Grand Rapids, Mich. Edward Meyette, Partner, Crowe Horwath , Grand Rapids, Mich. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .

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Bonus Depreciation: Making Informed Decisions About Upcoming Capital D i i Ab t U i C it l Investments Seminar Aug. 9, 2011 Mary Burke Baker, K&L Gates Tom Windram, RSM McGladrey Inc. maryburke.baker@ klgates.com tom.windram@ mcgladrey.com David McGuire, McGuire Sponsel Edward Meyette, Crowe Horwath dmcguire@ mcguiresponsel.com edward.meyette@ crowehorwath.com

Today’s Program Background On 2010 Enabling Legislation Slide 7 – Slide 12 [Edward Meyet t e, Mary Burke Baker] Rev. Proc. 2011-26 Review Slide 13 – Slide 21 [Tom Windram, David McGuire] Related Compliance, Planning Issues To Consider Slide 22 – Slide 36 [Mary Burke Baker, David McGuire] Slide 37 – Slide 41 State Matches Or Decouplings [Tom Windram]

Edward Meyette, Crowe Horwath Ed d M C H h Mary Burke Baker, K&L Gates BACKGROUND ON 2010 BACKGROUND ON 2010 ENABLING LEGISLATION

B Bonus Depreciation D i i • T ax Relief, Unemployment Insurance Reaut horizat ion, and Job Creat ion Act of 2010 (2010 Tax Relief Act) extended and expanded bonus depreciation for federal income tax purposes. ― A 100% bonus first-year depreciation allowance for property acquired and placed in service after Sept. 8, 2010 and before Jan 1 2012 2010, and before Jan. 1, 2012 ― A 50% bonus first-year depreciation allowance under for A 50% bonus first year depreciation allowance under for property placed in service after Dec. 31, 2011, and before Jan. 1, 2013 8

Bonus Depreciation (Cont.) B D i i (C ) Property qualifying for bonus depreciation • ― Must be originally placed in service by the taxpayer ― Used property does not qualify. ― P Purchase of the property cannot have been subject to a h f h h b bj binding written contract commencing on or before Dec. 31, 2007. ― Real property does not qualify for bonus depreciation. ― Exception for qualified leasehold improvement property ― Property purchased from a related party does not qualify for Property purchased from a related party does not qualify for bonus depreciation. ― Exception for certain sale-leaseback transactions ― The property may not be held by a controlled foreign corporation. 9

Bonus Depreciation (Cont.) B D i i (C ) Rules for claiming the deduction • ― If 50% bonus depreciation is claimed, the remaining basis of property is depreciated under normal tax rules of property is depreciated under normal tax rules. ― Sect. 179 expense is applied before bonus depreciation. ― A taxpayer may elect out of bonus depreciation for all p y y p assets or for specific classes of assets. ― Certain long-production period properties (e.g., airplanes ships large production equipment) have airplanes, ships, large production equipment) have extended placed-in-service dates of one year. 10

Background: Economy, Politics And Policy  Economy y  Economy stalled  Unemployment rate still creeping up - 9.6% in September to 9 8% in December 9.8% in December  GDP grew 1.3% for the entire year.  P liti Politics  White House and members under tremendous pressure  Spark the economy  Job creation  Help small business 11

Background: Economy, Politics And Policy (Cont.)  Policy  Jump-start the economy NOW  Improve cash flow through reduced taxes  Improve cash flow through reduced taxes  Increase demand for qualifying property  Create jobs through increased manufacturing hires  Improve competitiveness  Support small business  Make it easy for taxpayers to qualify y p y q y  Cost affects scope 12

T Tom Windram, RSM McGladrey Inc. Wi d RSM M Gl d I David McGuire, McGuire Sponsel REV PROC 2011 26 REVIEW REV. PROC. 2011 ‐ 26 REVIEW

Bonus Depreciation: 50% Vs. 100% Requirements 50 percent 100 percent Qualified property • MACRS property with Same recovery period ≤ 20 years • Certain computer software • Water utility property • Qualified leasehold improvements Original use After 12/31/2007 After 9/8/2010 Acquisition date 1/1/2008 – 12/31/2012* 9/9/2010 – 12/31/2011* Placed in service date Placed in service date Before 1/1/2013* Before 1/1/2013 Before 1/1/2012* Before 1/1/2012 * Extended one year for longer production period property and certain aircraft. 14

Bonus Depreciation: Rev. Proc. 2011-26  Rev. Proc. 2011-26 - Interpretive guidance on the 100% bonus depreciation provisions provisions - Manufacture, construction or production of self- constructed property must begin after 9/8/2010 for property to meet 100% bonus depreciation acquisition requirement to meet 100% bonus depreciation acquisition requirement. • Physical work of a significant nature must commence, or 10% safe harbor be met, after 9/8/2010. 15

Rev. Proc. 2011-26: Components Of Self-Constructed Assets  New election to qualify components of self-constructed property for 100% bonus depreciation - Components must meet ALL requirements of Sect 168(k) Components must meet ALL requirements of Sect. 168(k), including original use and placed-in-service date. - An election must be attached to timely-filed return (including extensions) for tax year larger self-constructed (including extensions) for tax year larger self constructed property is placed in service. • Must state taxpayer is making the component election and which eligible components it is being made for and which eligible components it is being made for 16

Rev. Proc. 2011-26: Clarifications  Dual character leasehold improvements eligible for bonus p g depreciation  Qualified restaurant property AND qualified leasehold improvement property p p p y  Qualified retail improvement property AND qualified leasehold improvement property  Basis first reduced for Sect 1603 grants then reduced for Basis first reduced for Sect. 1603 grants, then reduced for bonus depreciation  Basis eligible for bonus depreciation included in mid-quarter convention determination convention determination 17

Rev. Proc. 2011-26: Administrative Relief Taxpayers with fiscal and short years ending in 2010 that did not claim bonus depreciation and either: claim bonus depreciation and either: Did not make valid election out of Made valid election out of bonus bonus depreciation depreciation • Amend tax return before filing Amend tax return before filing • Amend tax return to revoke Amend tax return to revoke return for next succeeding year, election and claim bonus • File Form 3115 with tax return for depreciation by later of: next or 2 nd succeeding year, OR • June 17, 2011, or • Make deemed election out of f • Filing of return for next f f bonus depreciation succeeding year 18