Governments occasionally allow businesses to take on the extra depreciation on a few fixed assets for the purpose of taxes. These deductions – called Section 179 or bonus deduction – are incentives for businesses to capitalize on their investments in equipment and property. In this post, learn about utilizing Dynamics AX special depreciation allowance functionality to take advantage of this opportunity.
According to the IRS, by electing a Section 179 deduction, a business "can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year business place the property in service. This is the section 179 deduction. You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions."
An important item to note is that Section 179 or bonus depreciation can only be taken in the year that the property was placed in service and not afterwards.
Dynamics AX 2012 R3 provides a robust functionality to configure the bonus depreciation for the fixed assets and claim the depreciation in the first year that the property was placed in service by special depreciation proposal.
To configure the special depreciation navigate to Fixed Asset > Setup > Depreciation > Special depreciation allowance.
Click New to give the name and description to the Depreciation allowance. Specify the percentage of the value of property acquisition cost or the amount that can be taken as the deduction in the first year the property was placed in service.
Multiple special depreciation allowances can be configured in the above window.
The allowance thereafter is associated with the depreciation books like "FED", "State" or whatever name the business prefers for its depreciation books. Mostly, special depreciations are taken for federal books. For state books, some adopt the federal provisions for immediate expensing under Section 179, others impose a lower limit than the federal amount, and some have fully decoupled from this federal provision.
Since only a few and not all properties qualify for the Section 179 or other depreciation allowance, it's advisable to group these assets in buckets to form fixed asset groups. Additionally, by placing them into fixed asset groups, they will be associated with the depreciation books, thereby associating the special depreciation with the preferred depreciation book, such as Federal or State.
Once the groups and depreciation books are setup, the special depreciation allowance can be associated with the fixed asset groups within the depreciation books.
Note that the priority or precedence in the case of more than one special depreciation allowance can be defined in Step 4 and not before, as the precedence can be on case to case basis.
To run the special depreciation allowance proposal, navigate to Depreciation book journal.
Click Proposal & Special depreciation allowance proposal.
To specify the criterion, click Select, specify the query, and hit OK.
You'll see the journal line being populated and it's then ready to be validated and posted.
One of the best features of this functionality is the control around it. The proposal will yield results only for the assets that were acquired and placed in service this year and not in any other past year.
I hope your teams are able to utilize this functionality to your advantage, henceforth!
