The additional 30% bonus depreciation allowed in 2002 increased to 50% for qualifying property placed in service after May 5, 2003, and before January 1, 2005. Qualifying property must be brand new property with a class life of 20 years or less. This effectively eliminates real estate from the definition of qualifying property.

The new law increased the bonus depreciation amount that may be taken with respect to passenger automobiles from $4,600 to $7,650 (if using 30% bonus depreciation) or up to $10,710 (if using 50% bonus depreciation).

Only the 30% bonus depreciation is available for new property purchased between September 11, 2001, and May 6, 2003.

NOTE: The IRS rules ASSUME a taxpayer is claiming the highest percentage bonus depreciation available UNLESS the taxpayer specifically elects out.  If a taxpayer elects out of 50% bonus depreciation, the IRS ASSUMES the 30% bonus depreciation is taken.  If you wish to take NO bonus depreciation, you must specifically elect out of both the 50% and 30% bonus depreciation for each class life of depreciable asset purchased during each tax year.

The bonus depreciation, whether 30% or 50%, is not an alternative minimum tax adjustment.

The adjusted basis of property acquired in a like-kind exchange or involuntary conversion is also eligible for the additional first-year depreciation.