The cost of qualified property purchased for exclusive use in an enterprise zone may be deducted as a business expense in the first year it is placed in service.

Qualified Property

Tangible, personal property (excluding buildings and inventory) which is used for business purposes and is eligible for depreciation -- includes most equipment and furnishings purchased for exclusive use within an enterprise zone.

Maximum Deduction

The maximum deduction is $50,000 per year. Depreciation of property value beyond the maximum allowed may be claimed using any method normally permitted.

The election to treat the cost of qualified property as a business expense must be made in the year the property is first placed in service. The maximum business expense for all qualified property is the lesser of 40 percent of the cost of the property or the maximum $20,000 deduction. The election is not allowed if the property was . . .

• transferred between members of an affiliated group; or

• acquired as a gift or inherited; or

• traded for other property; or

• received from a personal or business relation

Example

A taxpayer purchases machinery for use in the zone at a cost of $45,000 with a useful life of 10 years. The zone business expense deduction that may be claimed is $18,000 ($45,000 x 40%). Next year the business may claim $3,000 of normal depreciation ($45,000 - $18,000 : 9 years = $3,000).

Note:  Amounts elected to be expended under the business expense deduction will NOT qualify for the Manufacturer's Investment Credit. However, the cost of property that is capitalized, and not expended, may qualify. See explanation of Manufacturer's Investment Credit for more information.