How the expiration of depreciation allowances may affect economic growth
November 08, 2011
Third-quarter figures indicating a growth in fixed asset
business investment have led some to believe that the economy is recovering. However, temporary depreciation
allowances that are set to expire at the end of the year may have boosted this - and their expiration could cause what Forbes terms "a dramatic reversal."
Specifically, Forbes explains, accelerated depreciation under Section 179 of the Internal Revenue Service Code and bonus depreciation under Section 168 "are set to fall back by 75 percent and 50 percent respectively in January 2012, and will be virtually phased out completely in 2013."
As the expiration deadlines approach, businesses scramble to replace their equipment within the time period so they can reap the benefits of the allowances. According to the news source, the resultant surge of investment may be matched by a "collapse" after the expiry dates are reached.
When purchasing new fixed assets
, it's important to add them to the books and remove the items they're replacing. Failure to do this can lead to the presence of ghost assets - those that are on the books but not in service - which can raise insurance premiums and cause the company to pay higher taxes.