Job Creation and Worker Assistance Act of 2002.

• Author: Karlinsky, Stewart S.
• Position: Depreciation and net operating loss provisions

The depreciation and net operating loss (NOL) provisions of the Job Creation and Worker Assistance Act of 2002 (Act), signed into law on March 9, 2002, will have a profound effect on corporate and individual regular and alternative minimum tax (AMT).

Depreciation

Taxpayers can claim additional depreciation deductions for new tangible personal property and software placed in service after Sept. 10, 2001 and before Sept. 11,2004. Essentially, a taxpayer can claim a Sec. 179 deduction (if applicable) first, followed by a 30% depreciation deduction (based on original cost); the taxpayer can then apply regular depreciation for that year based on the asset's reduced basis.

Example: X, a small business (or an individual, partnership, C or S corporation) placed $100,000 of new computers in service on March 20, 2002. X did not place in service more than $200,000 of tangible personal property for that year. The following depreciation is permitted on the computers for 2002:

In effect, 57.44% of the asset's cost is depreciable in the year the taxpayer placed the asset in service.

AMT Effect

The Sec. 179 and 30% depreciation deductions are also available for AMT purposes; there is no AMT adjustment for those two portions of depreciation. As for the 20% portion, the taxpayer must make a small AMT adjustment to the extent it uses the double-declining balance (DDB) method, instead of the AMT's 150% declining-balance (DB) method. In the example, the DDB method yields a $10,640 deduction; the DB method would yield a $7,980 deduction. The $2,660 difference is an AMT adjustment on the total $57,440 depreciation deduction.

The Act also allows taxpayers to increase first-year Sec. 280F automobile depreciation by $4,600 if they place a vehicle in service between Sept. 11,2001 and Sept. 10, 2004.

If a calendar-year taxpayer placed in service $1 million of furniture and fixtures in November 2001, it can take $300,000 depreciation (30% x $1 million) on its 2001 return; the basis will be $700,000. It can also take the normal 14.3% depreciation for the year placed in service, $100,000 ($700,000 x 0.143), for a total of $400,000 depreciation in the year placed in service (40%). For 2001, the IRS suspended...