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Security Stimulus Provisions Signed into Law
Companies to Receive Faster Write-off for Purchases of Alarm/Security Equipment
(Source: Bill Signer, Chambers Associates)

On Saturday, March 9, President Bush signed H.R. 3090, the "Job Creation and Worker Assistance Act of 2002." The Act includes a 30% bonus depreciation provision that will make the purchase of alarm and security equipment more attractive. The Security Industry Association (SIA) and CSAA members lobbied for the inclusion of these provisions into the signed bill.

After nearly six months of bickering, it took Congress less than 24 hours to overwhelmingly pass this scaled back $42-billion package. The Bill passed the House on Thursday by a vote of 417 to 3; and then passed the Senate by a vote of 85 to 9.

The signed legislation will allow businesses that purchase equipment (including alarm/security systems) to take an accelerated depreciation write-off. Under the provision, businesses would be allowed to write-off an additional 30% of the adjusted basis in the year the equipment is purchased.

Normally, businesses purchasing 20-year or less life equipment depreciate that equipment under the 200% (alarms/security equipment) or 150% declining balance method. Under the provisions of the Job Creation and Worker Assistance Act of 2002, a bonus amount of 30% of the cost can be taken in the first year. The remaining adjusted basis in the property would be depreciated starting in the year in which the item is purchased. Generally, alarm/security equipment is depreciated over 5 years utilizing the 200% declining balance method.

To qualify, the equipment must be purchased between September 11, 2001 and before September 11, 2004, and it must be placed in service before January 1, 2005.

Any equipment purchased under the bonus depreciation rules would not be included for the purposes of calculating the alternative minimum tax.

The 30% bonus depreciation rule may be utilized on equipment that an alarm company purchases and leases to their customers.

The Bonus Depreciation rules apply to all equipment that has a 20-year or less life, as well as Section 167 (f) (1) computer software which is recoverable over 3 years, and leasehold improvement property. In addition, the depreciation deduction for passenger automobiles is increased in the first year from $2,560 to $4,600.

The 30% bonus depreciation also applies to the purchase of trucks.

EXAMPLE 1. Those businesses which purchase less than $200,000 of equipment in a year are entitled under Section 179 to expense $24,000 in the year the equipment is purchased. Under bonus depreciation, they would be entitled to the $24,000 write-off; plus 30% of the remaining adjusted basis in the property purchased; plus for alarm/security systems, 200% of 5 year straight line depreciation. ($50,000 of alarm equipment purchased and placed in service - $24,000 under the Section 179 expensing rules; plus $7,800 in 30% bonus depreciation of the remaining adjusted basis of $26,000, plus $7,280 which represents 200% of the 5-year, straight line depreciation of the remaining adjusted basis. For a total first year write off of $39,080.)

EXAMPLE 2. Companies that purchase more than $200,000 of equipment would be entitled to a 30% bonus depreciation of the purchase price, and the normal 200% declining balance method of depreciation would apply to the alarm/security system purchased, starting in the year of purchase. ($1,000,000 of equipment purchased, of which $50,000 is alarm equipment. The alarm/security portion write off would be $15,000 in 30% bonus depreciation; plus 200% of 1/5 of the remaining alarm equipment adjusted basis or $14,000 for a total first year alarm/security write-off of $29,000.)

We will keep you informed of any additional details as we get them.

For a complete analysis of the provisions, visit http://www.house.gov/jct/x-12-02.pdf.

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