Q: I understand that that the rules for bonus depreciation and Section 179 expensing were changed by Congress in late December 2010. Can you explain what these changes were and how they apply to income-producing real estate assets? What are the practical implications for small-business owners with or without rental properties?
A: In late December Congress passed the Tax Relief Act of 2010. Among the many provisions in this law were two that extended and increased bonus depreciation and Section 179 expensing — laws that allow all or most of the cost of many types of business property to be deducted in a single year rather than depreciated over several years.
There are two different deductions involved.
First, there is the Section 179 deduction, also called "first-year expensing." This allows business owners to deduct the entire cost of new or used business property in a single year, up to an annual limit. However, there are significant limitations on when Section 179 can be used.