What is Bonus Depreciation?

Bonus Depreciation is a tool provided by law to accelerate depreciation of short-life assets (20 years life and shorter) and taking that available depreciation 100% in the first year of study use. What kind of study? A Cost Segregation study! Cost segregation is a conservative, IRS-defined approach for depreciating commercial properties thereby reducing your federal incomes taxes, and is the most accurate way to depreciate improved commercial property acquired or built after 1986.

Accelerate depreciation, reduce your tax liability and increase cash flow in your business..
~O’Connor Bonus Depreciation

Assets are reviewed and selected improvements (Tangible Personal Property and/or Land Improvements) are depreciated over 5, 7 or 15 years, rather than 39 years for commercial property or 27.5 years for apartments.  The identified short items identified are depreciated via either 200% declining balance (5 & 7 year assets) or 150% declining balance (15 year assets) thereby further enhancing your depreciation.

This accelerated depreciation can significantly reduce your tax liability, leading to increased cash flow for your business.

Bonus Depreciation can be utilized at the time of construction or purchase of an asset, and for assets owned for several years.  U.S. tax law allows an owner to recover previously under-reported depreciation using a “Look-Back” study, and deduct the “catch-up” depreciation on the current year’s return without filing amended returns for prior years.

This requires the filing of a Form 3115 (Change in Accounting Method) and a 481(a) adjustment.

Direct Quote from the IRS:

“Accordingly, a taxpayer could request “automatic consent” for a change in accounting method through the filing of a Form 3115 with a timely filed return (including extensions), and deduct the “catch-up” depreciation in the year of change with a 481(a) adjustment.”

Most of our studies return savings equivalent to many multiples of the bonus depreciation study cost in the very first year.