Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Section 401

Where this comes from

From 2008 through 2009, Congress had revived bonus depreciation at the 50% rate. When those windows closed, the economy was still sluggish. Congress extended and expanded the benefit in December 2010 as part of a larger tax-and-stimulus package.

Section 401 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 did something new. It set the bonus rate at 100% for qualified property placed in service from September 9, 2010 through December 31, 2011. No prior bonus law had reached 100%.

What it established

The 100% rate applied to qualified property acquired after September 8, 2010 and placed in service before January 1, 2012. The law used the existing 168(k) framework. Property had to have a MACRS recovery period of 20 years or less. It had to be original-use, meaning placed in service new.

The law also extended the 50% bonus for property placed in service in 2012 under the prior 50%-rate rules. And it added Section 168(k)(5), which allowed certain specified plants (like orchards and vineyards planted or grafted after 2009) to qualify for the bonus at the taxpayer's election.

For property placed in service in 2010 that missed the September 9 acquisition window, the 50% rate from prior law remained available.

How it shows up in a study

For property placed in service in the September 2010 through December 2011 window, a cost segregation study could produce a 100% first-year deduction on all reclassified 5-year, 7-year, and 15-year components. The building shell stayed on 27.5 or 39 years, but the study-identified short-life property could be fully deducted.

This was a step change in study value. Before 2010, the best result was a 50% bonus on short-life components. After Section 401, the full cost of those components landed in year one. Studies from this period could produce very large first-year deductions on new construction or acquisition.

What it does not mean

The 100% rate was not permanent. It applied to property placed in service before January 1, 2012. After that date, the rate dropped back to 50% for 2012 under the same law.

The full write-off also did not mean no future tax. Recapture rules still applied at sale. Depreciation taken on short-life property comes back as ordinary income when the property is sold, up to the gain. And the deduction was still a timing benefit. Total depreciation over the property's life was the same as always. Taking it in year one, rather than over 5 or 15 years, is where the value lies.