The Act establishes a new 50% bonus depreciation provision for certain property acquired after May 5, 2003. The Act also extends the availability of the 30% bonus depreciation deduction for property acquired through the end of 2004.

The Act allows a 50% bonus depreciation deduction -- rather than 30% -- for qualified property acquired by the taxpayer after May 5, 2003, and before 2005, if the original use of the property commences with the taxpayer after May 5, 2003, and if the property is placed in service before 2005. An extended placed-in-service date (before 2006) applies for certain longer-lived property and "transportation property."

The 50% bonus deduction does not apply if there was a written binding contract to acquire the property before May 6, 2003, or, for self-constructed property, if construction began before May 6, 2003. Property that does not qualify for the 50% bonus deduction (e.g., because there was a binding contract to acquire the property before May 6, 2003) can still qualify for the 30% bonus deduction.

As under prior law, a taxpayer can make a year-by-year election out of the bonus depreciation deduction for any class of property placed in service in the tax year. The Act provides that separate elections can be made for qualified property subject to the 30% bonus deduction and qualified property subject to the 50% bonus deduction placed in service in the same tax year. Alternatively, a taxpayer may elect to take a 30% bonus deduction, instead of 50%, for any class of qualified property placed in service in a tax year.

Example

Depreciation deductions that a taxpayer may take each tax year on an investment of $1,000 in qualified property, for 5-year property and 7-year property, assuming a half-year convention applies, are as follows:

5-Year Property
Tax Year	1	2	3	4	5	6
No Bonus	$200	$320	$192	$115	$115	$58
30% Bonus	440	224	134	81	81	40
50% Bonus	600	160	96	58	58	29

7-Year Property
Tax Year	1	2	3	4	5	6	7	8
No Bonus	$143	$245	$175	$125	$89	$89	$89	$45
30% Bonus	400	171	122	87	63	63	63	31
50% Bonus	571	122	87	62	45	45	45	22

Automobiles for which a 50% bonus depreciation deduction is allowed are provided a higher limitation on the amount of depreciation and section 179 expensing than otherwise permitted in the year the vehicle is placed in service. The general limitation is increased by $7,650 (compared to a $4,600 increase for automobiles subject to the 30% bonus).

The Act also makes property acquired as late as December 31, 2004, eligible for the 30% bonus depreciation deduction.

The Act does not change the separate 30% bonus depreciation deduction for qualified New York Liberty Zone property (i.e., property affected by the attacks on the World Trade Center site).

New York Liberty Zone property is defined more broadly than qualified property eligible for the general 30% bonus deduction; however, property eligible for the general bonus depreciation deduction is excluded from being qualified New York Liberty Zone property. Prior law also provides an additional section 179 expensing limitation for qualified New York Liberty Zone property, and a 5-year straight-line recovery period for qualified New York Liberty Zone leasehold improvements, instead of bonus depreciation. These Liberty Zone provisions apply generally to property placed in service on or before December 31, 2006, and even later for certain real property. The Act also does not affect these other New York Liberty Zone provisions.