2012 Critical Year for Tax Policy

2012 is a critical year for expired and soon-to-expire tax relief provisions, not to mention speculation about sweeping tax reform that could be on the horizon for the next Congress and President. For example, 50 percent bonus depreciation is still available for qualifying plant and equipment, but will expire on Jan. 1, 2013.

The bonus depreciation rate of 100 percent that was available during 2011 expired on Jan. 1, 2012, and it remains to be seen whether it will be extended as a part of the House/Senate conference report on H.R. 3630, Temporary Payroll Tax Cut Continuation Act of 2011, legislation passed at the end of 2011 that extended until Feb. 29, 2012 the temporary payroll tax holiday, unemployment insurance benefits, and the so-called “doc fix” sustainable growth rate (SGR) formula, which determines how much doctors are paid to treat Medicare patients.

Other expired or expiring tax relief provisions that could also be considered for inclusion in the conference committee report include the Alternative Minimum Tax exemptions, Research and Development Credit, IRC Section 179 Expensing, Estate Tax relief, Individual Marginal Rate reduction, Capital Gains tax rate, and Dividends tax rate.

Following are key capital investment tax incentives that may be obtained for 2012 and beyond:

• IRC Section 168(k) 50 percent bonus depreciation (enacted in 2009 as part of the American Recovery and Reinvestment Tax Act of 2009 and extended in The Small Business Jobs and Credit Act of 2010) continues for equipment placed-in-service before Jan. 1, 2013.

* Qualifying property continues to include depreciable tangible personal property purchased for use in the active conduct of a trade or business including, printing, publishing and converting equipment, as well as off-the-shelf computer software.

• IRC Section 179 expensing (set at $500,000/year with a phase-out starting at $2 million/year for tax years beginning in 2010 and 2011) continues through tax years beginning in 2012, but at the lower level of $125,000/year with a $500,000 phase-out.

* The expensing cap and phase-out amounts will revert to $25,000 and $200,000 respectively in 2013.

* Unlike bonus depreciation, expensing applies to both new and used qualifying property, and is subject to annual dollar, investment and taxable income limits.

• The refundable corporate AMT (Alternative Minimum Tax) credit continues.

* Specifically, corporations will be able to utilize their AMT credits in lieu of bonus depreciation on property placed-in-service in 2011 and 2012.

* This election will allow a taxpayer to “monetize” its AMT credits generated before 2006, and will equal the lesser of 20 percent of the additional first-year bonus depreciation foregone, or 6 percent of the AMT credits generated before 2006 that were available for the first taxable year ending after March 31, 2008.

* However, in no event will the credits be allowed to exceed $30 million, and straight-line depreciation must be used for such property. There are also special rules for corporations that are part of controlled groups or partnerships.

NPES cautions that this article is solely informational and does not constitute legal, financial, investment or other advice from NPES. Readers are advised to seek professional counsel from their own financial, accounting and legal advisors to apply these incentives and other tax laws to their particular circumstances.

For more information, contact NPES Government Affairs Director Mark J. Nuzzaco at (703) 264-7235 or mnuzzaco@npes.org.

Source: NPES.