GUIDANCE DOCUMENT
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Bonus Depreciation Examples
Revised: 08/26/05
SUMMARY OF BONUS DEPRECIATION AND SECTION 179 EXPENSE INCOME MODIFICATIONS
Prior law required that the effect of any bonus depreciation claimed at the
federal level be reversed for Maine purposes, through use an addition modification
in the year the bonus is claimed. This addition modification was to be subsequently
recovered evenly over three years beginning with year three of depreciation.
The one exception to the law was with 3-year property, which was allowed a
full recovery of the addition modification in year three.
The 2003 budget law left the addition modification the way it was, but it
alters the recovery period to spread out over the entire asset-life of the
property. For property placed in service in 2002, the recapture modifications
begin with year-three of depreciation. For property placed in service in 2003
or later, 5% of the addition modification is recaptured in year 2, while the
other 95% is evenly distributed over the remaining life of the asset, beginning
in year 3.
This law change does not affect property placed in service in 2002 with an
asset life of three or five years. Some examples follow.
EXAMPLE # 1 - property placed in service in 2002:
| Asset purchase price = $10,000 3-year life |
1st
year depreciation = 33.33% |
| |
Regular MACRS depreciation = $3,333 |
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Depreciation with bonus = $5,333 |
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| Addition modification in year 1 = $2,000 |
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| Recovery = $2,000 in year 3 |
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The law change does not affect 3-year depreciable property |
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| Sample 3-year depreciable property: |
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Tractor units for use over-the-road |
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Race horses |
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Certain special handling devices used in manufacturing |
EXAMPLE # 2 - property placed in service in 2002:
| Asset purchase price = $10,000 5-year life |
1st year depreciation = 20.00% |
| |
Regular MACRS depreciation = $2,000 |
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Depreciation with bonus = $4,400 |
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| Addition modification in year 1 = $2,400 |
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| Recovery = $800 in each of years 3-5 |
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The law change does not affect 5-year depreciable property |
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| Sample 5-year depreciable property: |
| |
Computers and peripheral equipment |
| |
Vehicles (cars, buses, trucks) |
EXAMPLE # 3 - property placed in service in 2002:
| Asset purchase price = $10,000 7-year life |
1st year depreciation = 14.29% |
| |
Regular MACRS depreciation = $1,429 |
| |
Depreciation with bonus = $4,000 |
| |
| Addition modification in year 1 = $2,571 |
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| Recovery = $514 in each of years 3-7 |
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| Sample 7-year depreciable property: |
| |
Office furniture, fixtures and equipment |
| |
Horses other than race horses |
| |
Mining assets |
EXAMPLE # 4 - property placed in service in 2002:
| Asset purchase price = $10,000 10-year life |
1st year depreciation = 10.00% |
| |
Regular MACRS depreciation = $1,000 |
| |
Depreciation with bonus = $3,700 |
| |
| Addition modification in year 1 = $2,700 |
| |
| Recovery = $338 in each of years 3-10 |
| |
| Sample 10-year depreciable property: |
| |
Vessels, barges and tugs not used in marine construction |
| |
Ship and boat building dry docks |
EXAMPLE # 5 - property placed in service in 2002:
| Asset purchase price = $10,000 15-year life |
1st year depreciation = 5.00% |
| |
Regular MACRS depreciation = $500 |
| |
Depreciation with bonus = $3,350 |
| |
| Addition modification in year 1 = $2,850 |
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| Recovery = $219 in each of years 3-15 |
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| Sample 15-year depreciable property: |
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Land improvements |
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Industrial steam and electric generation and/or distribution systems |
For the following examples, assume that the 30% bonus depreciation option is selected and that no additional section 179 expensing is involved.
EXAMPLE # 6 - property placed in service in 2003:
| Asset purchase price = $10,000 3-year life |
1st year depreciation = 33.33% |
| |
Regular MACRS depreciation = $3,333 |
| |
Depreciation with bonus = $5,333 |
| |
| Addition modification in year 1 = $2,000 |
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| Recovery = $100 in year 2 $1,900 in year 3 |
| |
| Sample 3-year depreciable property: |
| |
Tractor units for use over-the-road |
| |
Race horses |
| |
Certain special handling devices used in manufacturing |
EXAMPLE # 7 - property placed in service in 2003:
| Asset purchase price = $10,000 5-year life |
1st year depreciation = 20.00% |
| |
Regular MACRS depreciation = $2,000 |
| |
Depreciation with bonus = $4,400 |
| |
| Addition modification in year 1 = $2,400 |
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| Recovery = |
$120 in year 2 |
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$760 in each of years 3-5 |
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| Sample 5-year depreciable property: |
| |
Computers and peripheral equipment |
| |
Vehicles (cars, buses, trucks) |
EXAMPLE # 8 - property placed in service in 2003:
| Asset purchase price = $10,000 7-year life |
1st year depreciation = 14.29% |
| |
Regular MACRS depreciation = $1,429 |
| |
Depreciation with bonus = $4,000 |
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| Addition modification in year 1 = $2,571 |
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| Recovery = |
$129 in year 2 |
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$489 in each of years 3 & 4 |
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$488 in each of years 5-7 |
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| Sample 7-year depreciable property: |
| |
Office furniture, fixtures and equipment |
| |
Horses other than race horses |
| |
Mining assets |
EXAMPLE # 9 - property placed in service in 2003:
| Asset purchase price = $10,000 10-year life |
1st year depreciation = 10.00% |
| |
Regular MACRS depreciation = $1,000 |
| |
Depreciation with bonus = $3,700 |
| |
| Addition modification in year 1 = $2,700 |
| |
| Recovery = |
$135 in year 2 |
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$321 in each of years 3-7 |
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$320 in each of years 8-10 |
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| Sample 10-year depreciable property: |
| |
Vessels, barges and tugs not used in marine construction |
| |
Ship and boat building dry docks |
EXAMPLE # 10 - property placed in service in 2003:
| Asset purchase price = $10,000 15-year life |
1st year depreciation = 5.00% |
| |
Regular MACRS depreciation = $500 |
| |
Depreciation with bonus = $3,350 |
| |
| Addition modification in year 1 = $2,850 |
| |
| Recovery = |
$143 in year 2 |
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$209 in each of years 3-5 |
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$208 in each of years 6-15 |
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| Sample 15-year depreciable property: |
| |
Land improvements |
| |
Industrial steam and electric generation and/or distribution
systems |
Also in 2003, a bill was enacted to reverse the effect of the federal increase
in bonus depreciation (from 30% to 50%) and the increase in section 179 expense
limits (PL 2003, c. 479). The addition and subtraction modifications for the
50% bonus depreciation are calculated exactly as they are for the 30% bonus
depreciation in the examples above. The modifications for the increase in allowable
section 179 expense is calculated in the same manner, in that any expense claim
above the previous $25,000 limit is reversed, with a similar calculation as
used for bonus depreciation. Some examples follow.
EXAMPLE # 11 - property placed in service in 2003:
| Asset purchase price = $110,000 3-year life |
1st year depreciation = 33.33% |
| |
Section 179 expense claimed = $100,000 |
Section 179 (prior law) = $25,000 |
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Depreciation with § 179 = $103,333 |
Depreciation with prior § 179 = $53,331
[((110,000 – 25,000)
* 0.3333) + 25,000] |
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| Addition modification in year 1 = $50,002 |
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| Recovery = |
$2,500 in year 2 |
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$47,502 in year 3 |
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| Sample 3-year depreciable property: |
| |
Tractor units for use over-the-road |
| |
Race horses |
| |
Certain special handling devices used in manufacturing |
EXAMPLE # 12 - property placed in service in 2003:
| Asset purchase price = $110,000 5-year life |
1st year depreciation = 20.00% |
| |
Section 179 expense claimed = $100,000 |
Section 179 (prior law) = $25,000 |
| |
Depreciation with § 179 = $102,000 |
Depreciation with prior § 179 = $42,000
[((110,000 – 25,000)
* 0.2) + 25,000] |
| |
| Addition modification in year 1 = $60,000 |
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| Recovery = |
$3,000 in year 2 |
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$19,000 in each of years 3-5 |
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| Sample 5-year depreciable property: |
| |
Computers and peripheral equipment |
| |
Vehicles (cars, buses, trucks) |
EXAMPLE # 13 - property placed in service in 2003:
| Asset purchase price = $110,000 7-year life |
1st year depreciation = 14.29% |
| |
Section 179 expense claimed = $100,000 |
Section 179 (prior law) = $25,000 |
| |
Depreciation with § 179 = $101,429 |
Depreciation with prior § 179 = $37,147
[((110,000 – 25,000)
* 0.1429) + 25,000] |
| |
| Addition modification in year 1 = $64,282 |
| |
| Recovery = |
$3,214 in year 2 |
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$12,214 in each of years 3-5 |
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$12,213 in each of years 6 & 7 |
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| Sample 7-year depreciable property: |
| |
Office furniture, fixtures and equipment |
| |
Horses other than race horses |
| |
Mining assets |
EXAMPLE # 14 - property placed in service in 2003:
| Asset purchase price = $110,000 10-year life |
1st year depreciation = 10.00% |
| |
Section 179 expense claimed = $100,000 |
Section 179 (prior law) = $25,000 |
| |
Depreciation with § 179 = $101,000 |
Depreciation with prior § 179 = $33,500
[((110,000 – 25,000)
* 0.1) + 25,000] |
| |
| Addition modification in year 1 = $67,500 |
| |
| Recovery = |
$3,375 in year 2 |
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$8,016 in each of years 3-7 |
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$8,015 in each of years 8-10 |
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| Sample 10-year depreciable property: |
| |
Vessels, barges and tugs not used in marine construction |
| |
Ship and boat building dry docks |
EXAMPLE # 15 - property placed in service in 2003:
| Asset purchase price = $110,000 15-year life |
1st year depreciation = 5.00% |
| |
Section 179 expense claimed = $100,000 |
Section 179 (prior law) = $25,000 |
| |
Depreciation with § 179 = $100,500 |
Depreciation with prior § 179 = $29,250
[((110,000 – 25,000)
* 0.05) + 25,000] |
| |
| Addition modification in year 1 = $71,250 |
| |
| Recovery = |
$3,563 in year 2 |
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$5,207 in each of years 3-11 |
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$5,206 in each of years 12-15 |
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|
| Sample 15-year depreciable property: |
| |
Land improvements |
| |
Industrial steam and electric generation and/or distribution
systems |
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