When deciding how much depreciation to use this year for tax planning, taxpayers have direct expensing up to $500,000 of qualified property, regular depreciation and bonus or special, first year depreciation.

Bonus depreciation is an additional amount of tax deductible expense that is awarded above and beyond what would normally be available as depreciation.

Bonus depreciation is always taken in the first year that the depreciable item is placed in service. In fact, bonus depreciation is required to be taken unless a taxpayer elects out of it. 

Congress passed legislation in September 2010 that reinstated 100 percent bonus depreciation for 2011. For the 2012 calendar year bonus depreciation will return to 50 percent.

To qualify, the property must be property to which Modified Accelerated Cost Recovery System (MACRS) applies with an applicable recovery period of 20 years or less. MACRS is the current depreciation system used for federal taxes.

Examples of this kind of property are farm buildings, machinery, livestock, trucks, tile and single purpose agricultural or horticultural structures. The property also must have original use commence prior to Jan. 1, 2012. It can be taken on new property only. Therefore used farm machinery would not qualify.

For example if a farmer purchases a new tractor or builds a new machine shed for $100,000, the total bonus depreciation taken as an expense on the schedule F would be $100,000.