Question

President Obama in 2010 passed law as a part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act. This act allowed business (one of many things the law allowed) to claim depreciation expense at a much fast rate than had been previously allowed. Businesses could claim up to 50% of the new asset put into use during the year it was purchased. How did this act help in capital budgeting of new projects?

Answer 1

Tax Relief, Unemployment Insurance Re-authorization and Job creation Act of 2010

Tax Relief, Unemployment Insurance Re-authorization and Job creation Act of 2010 which is also called as Tax Relief Act 2010 was signed to become a law by President Barack Obama on 17.12.2010 which was passed by the US Congress on 16.12.2010. The Act extends to a wide variety of ;

• Tax rate cuts for Individual and Corporations
• Tax benefits for Individual and Corporations
• Includes No Revenue offsets.

The Act discussed about a wide variety of elements such as follows:

1. Temporary Extension through 2012 of :

• Bush Era cuts in tax rates in case of Individuals.
• Bush Era relief in rates in case of ordinary income.
• Bush Era in case Capital Gains and dividends.
• Certain other Bush Era tax relief in case of individual.
• Certain Obama Era tax relief in case of individual which is enacted in 2009.
• Certain Investment incentives (2012).

2. Temporary reduction in Payroll rate for 2011 of 2% on Social Security Tax (on employees portion).

3. Temporary extension of unemployment insurance (2011).

4. Alternate Minimum Tax Relief (2010 & 2011).

5. Temporary Estate tax relief (2012).

6. Temporary Gift Tax reliefs etc (2012).

As per the Law in force which is previous to the Act which includes the extension provision including in Small Business Jobs Act of 2010, an additional depreciation which is allowed in the First Year is equal to 50% of Qualified Asset which is laced in service during 2008,2009 &2010. The Act widely expanded and extended the additional depreciation in the first year equals to 100% of Total Cost of Qualified Asset which is placed in service after September 8 2010 and before January 1 2012. Then additional depreciation equals to 50% on the Total Cost of Qualified Asset placed in service in 2012.

The Act provides as a great relief while starting up or initiating new projects. As while investing in new capital assets the relief granted through the Act, is very much a benefit to the individuals and corporations. This tends to the individuals and corporations to make huge investments in New Capital projects so that the individuals and corporations can develop innovative ideas and also avail relief under the Act. Like this way tax Relief Act helps in capital budgeting of new projects.