The Job Creation and Worker Assistance Act of 2002

The Job Creation and Worker Assistance Act of 2002 provides an additional depreciation deduction for qualifying MACRS property in the first year you place an asset in service. The additional allowance is 30% of an asset’s depreciable basis. This additional 30% depreciation allowance applies to assets acquired on or after September 11, 2001.

Here are the highlights of the new law:

• Taxpayers can take an additional first-year depreciation deduction in the year in which they place qualified property in service. The deduction is equal to 30% of the qualifying property’s depreciable basis.
• Generally, qualifying property includes: 1) MACRS property with a recovery period of 20 years or less, 2) Section 167(f)(1)(B) computer software, 3) Qualified leasehold improvements, and 4) Water utility property, which has a 25-year recovery period.
• The property must be acquired after September 10, 2001. If a binding contract to acquire the property existed before September 11, 2001, the property does not qualify.
• The property must be placed in service before January 1, 2005, except for certain property having longer production periods. Such property must be placed in service before January 1, 2006. Qualifying property within the New York Liberty Zone must be placed in service before January 1, 2007.
• The first-year depreciation limitation on automobiles increases by $4,600 on luxury autos that take the additional 30% deduction.
• The additional depreciation deduction will be allowed when computing the Alternative Minimum Tax (AMT). In addition, no AMT adjustment is made regarding the yearly depreciation on the remaining basis of qualifying assets after the 30% deduction has been taken.
• The adjusted basis of the property is reduced by the 30% special allowance before regular depreciation is calculated in the placed-in-service year and following years.
• The new calculation is standard for qualifying assets, but taxpayers can elect out of the rules. You make the election for each class of property (that is, 3-year, 5-year, 7-year, etc.).

How does this affect state depreciation rules?

Some states have decided to adopt the first-year depreciation allowance, and some have decided against adopting the allowance. You should check with the Department of Revenue in your state(s) to determine if your state(s) have adopted the new rules.

• Depreciation Methods
  
• State Tax Information
• FAS 100 Asset Accounting
• FAS 50 Asset Accounting
• FAS 500 Asset Accounting