50% First Year Bonus Depreciation Allowance for Certain Property
The 2003 Act allows an additional first-year depreciation deduction—for both regular tax and alternative minimum tax purposes—equal to 50% of the adjusted basis of qualified property for the taxable year in which the property is placed in service.

As discussed further below, this deduction applies generally to the same types of property eligible for the 30% first year bonus depreciation as enacted last year in the Job Creation and Worker Assistance Act of 2002. Examples of such property include equipment, machinery, furniture, cars and trucks, and off-the-shelf computer software. To qualify for the 50% bonus, in addition to other requirements, the property must be acquired after May 5, 2003, and placed in service before January 1, 2005 (January 1, 2006, for certain self constructed property).

Property for which the 50% additional first-year depreciation deduction is claimed is not eligible for the 30% additional first-year depreciation deduction.

If the property also qualifies for the Section 179 expense deduction (discussed above) and the taxpayer elects to use that benefit, the 50% bonus depreciation is still available, but the property’s basis is first reduced by the amount of the Section 179 benefit before applying the 50% bonus.

The basis of the property must be reduced by the 50% deduction before computing the otherwise allowable depreciation for the first year and later years. The depreciation deduction for the remaining basis is allowed for both regular tax and alternative minimum tax purposes.

A taxpayer may elect out of the 50% bonus depreciation for any class of property for any taxable year, and the election will apply to all property in the same class placed in service in that year.

The following examples show how the provision works.

Example (1.) | No Section 179 deduction. On May 6, 2003, a taxpayer buys and places in service office furniture that costs $400,000. Without the 50% first-year bonus depreciation (and assuming the taxpayer does not use the 30% additional first-year depreciation deduction or the Section 179 expense deduction), the maximum depreciation allowance generally would be 14.29% of $400,000, or $57,160. (Annual depreciation percentages are prescribed by the IRS based on rules spelled out in the tax code. Office furniture is seven-year class property subject to the 200% declining balance method, switching to the straight line method in the year that maximizes the depreciation allowance, and the half-year convention.)

Example (2.) | Section 179 deduction taken. Assume the same facts as above, except that the taxpayer also uses the Section 179 expense deduction, which for 2003, as noted above, is $100,000. By using both the first-year expensing allowance and the 50% first-year bonus depreciation, the taxpayer can deduct even more. The amount is computed as follows. First the taxpayer deducts the Section 179 benefit of $100,000 from the original cost basis of $400,000, leaving an adjusted basis of $300,000, on which the 50% first-year depreciation bonus is calculated. This depreciation amount is $150,000 (50% of $300,000), which is subtracted from the $300,000 adjusted basis, leaving an adjusted basis of $150,000. The general first-year depreciation on the remaining basis of $150,000 is 14.29%, or $21,435. The result is a total deduction of $271,435 ($100,000 plus $150,000 plus $21,435), or $214,275 more than under the general rule.

Dollar limit increase for passenger automobiles

For passenger automobiles that qualify for the 50% first-year bonus depreciation, the limitation on depreciation for the first year is increased by $7,650. Thus the first-year depreciation deduction for any passenger automobile may not exceed $10,710 ($7,650 plus $3,060 general limitation—the latter amount is estimated, based on the 2002 limit).

Qualifying property

In order for property to qualify for the additional first-year depreciation it must meet all of requirements 1 through 3 below:

1. The property must be property to which the general depreciation rules apply and must be:

	property with a recovery period of 20 years or less,
	computer software to which the general depreciation rules apply,
	water utility property, or
	qualified leasehold improvement property.

The last of these, qualified leasehold improvement property, is any improvement to a part of the interior of a nonresidential building if made under a lease either by the lessee (or sub-lessee) or the lessor of that part of the building, if that part of the building is to be occupied exclusively by the lessee (or any sub-lessee), and if the improvement is placed in service more than three years after the date the building was first placed in service. But qualified leasehold improvement property excludes enlarging a building, an elevator or escalator, a structural component benefiting a common area, or the internal structural framework of a building.

2. The original use of the property must begin with the taxpayer after May 5, 2003 and before January 1, 2005. (If the property is subject to a sale/leaseback, it will be treated as originally placed in service not earlier than the date the property is used under the leaseback.) An extended placed-in-service date, before January 1, 2006, applies for property that has a recovery period of ten years or longer or is tangible personal property used in the transportation business, but only if the property has a production period exceeding two years or an estimated production period exceeding one year and a cost exceeding $1 million. For this property, only the portion of the basis attributable to the costs incurred before January 1, 2005, is eligible for the 50% additional first year depreciation.

3. The taxpayer must acquire the property after May 5, 2003, and before January 1, 2005, but only if no written binding contract for the acquisition was in effect before May 5, 2003, or must acquire it under a binding written contract entered into after May 5, 2003, and before January 1, 2005. For property manufactured, constructed, or produced by the taxpayer for its own use, the taxpayer must begin manufacture, construction, or production after May 5, 2003, and before January 1, 2005.

Extension of Time for 30% First-Year Bonus Depreciation Allowance

As mentioned above, in 2002, the tax code was amended to allow 30% first-year depreciation for certain property acquired after September 10, 2001, and before September 11, 2004. The 2003 Act extends this acquisition deadline to January 1, 2005. The property must be placed in service by January 1, 2005 as well.

Generally, this 30% first year bonus depreciation is available for the same type of property that is eligible for the 50% first-year bonus depreciation described in 1, above, and except for the acquisition and placed-in service dates, is subject to the same rules.

Corporate Estimated Tax Payments for 2003
For corporate estimated tax payments due September 15, 2003, 25% of the required payment is not required to be paid before October 1, 2003.