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Calculating Bonus Depreciation for 2008 Fixed Assets (Part 1)

With the recent passage of the Economic Stimulus Act of 2008 this past February, SAP customers who have to manage their US based fixed assets in ERP will have an opportunity to claim additional depreciation related to their 2008 acquisitions.  For those of you that have worked with fixed assets (FI-AA) before, you may recall a similar provision that existed in 2002 and 2003.  I’ll review both topics in this blog as they relate to SAP.


Overview of the 2008 Economic Stimulus Act 

This bill has several provisions intended to help stimulate the US economy.  Among them is a provision targeted at US companies to encourage more capital spending in 2008 by offering additional depreciation allowances for their tax returns. 

Here are the highlights of the bill as it effects the calculation of US Tax depreciation.  You’ll notice that these specifications are very similar to the 2002 and 2003 Economic Stimulus Bills.

  • An additional 50% “bonus” depreciation is allowed to taxpayers for new property acquired and placed in service during 2008.  This 50% bonus amount is in addition to the regular depreciation already calculated for US tax purposes (both MACRS and AMT)
  • The asset must be acquired and placed in service after Dec 31, 2007 and before Jan 1, 2009.  Assets that are purchased within this timeframe but are based on contracts that originated prior to these dates are not applicable. 
  • Property purchased used is not applicable.  The asset’s bonus depreciation is only allowed to be recorded by the taxpayer who made the original purchase.
  • The US convention for luxury autos has also been increased.  The amount allowed for qualified vehicles has been increased by an additional $8,000 USD.
  • This applies to both US MACRS and AMT calculations.  Based on SAP’s standard chart of depreciation for the US, this refers to depreciation areas 10 and 11.
  • Only certain types of assets are covered by the bill.  The main groups of assets are those that are tangible property with a life of 20 years or less.  Certain items such as purchased software, water utility property, and applicable leasehold improvements are also covered.
  • The bill was passed by the US government so it obviously is only applicable to US based taxpayers.
  • The bonus depreciation is not required.  Taxpayers can choose not to take it if they so choose.


Calculating Bonus Depreciation in SAP ERP for 2002 and 2003

Back in 2002 and 2003 when the US issued similar provisions, SAP issued note 505069.  This note contains the required configuration and steps to support the proper calculation of bonus depreciation.  In order to show how this is done in an R/3 system, I’ll briefly review the major configuration settings…  but the note is definitely the official guide and should cover most customer requirements.

To summarize the note, the bonus depreciation is calculated separately using SAP’s standard functionality of Special Depreciation.  This is computed at the same time as the Ordinary Depreciation as defined in the system delivered depreciation keys for US Tax (M200 et al).

First, the ability to calculate Special Depreciation for each area must be made.

Activate Special Dep


Then the system is configured so that Special Depreciation is calculated prior to Ordinary Depreciation

Calculate Special First


The next step involves the proper configuration of the Depreciation Keys.  A new Multi-Level method is first created that defines the 50% calculation.

Create MultiLevel Key

Create Multi Level Key


Then new copies of the tax depreciation keys are made so that a new phase can be inserted which calculates Special Depreciation.  Notice the 4th line below is defined for Special Depreciation and references the Multi-Level method Z02 created earlier.

Create Dep Key 


There are also some slightly different configuration options in terms of defining the Multi-Level key.  In the third image above I’ve defined a key that is applicable during the first year of any acquisition (Acq Year = 9999) but it is also possible to make this entry year specific.  There are some other specifics about the configuration of this process but they are adequately explained in OSS Note 505069. 


Calculating Bonus Depreciation in 2008

For those customers that are on a release prior to SAP ERP 6.0, the solution contained in note 505069 should still apply.  Simply update the Multi Level key with a specific Acquisition Year for 2008, or if you use the 9999 approach, be selective in how you assign the custom depreciation key to the appropriate asset records.

For those customers on ERP 6.0 but not utilizing the New DCP, this same approach should work.  For more information on the New DCP go New Ways to Depreciate Fixed Assets in ERP 6.0 (Part 1), New Ways to Depreciate Fixed Assets in ERP 6.0 (Part 2), New Ways to Depreciate Fixed Assets in ERP 6.0 (Part 3), and New Ways to Depreciate Fixed Assets in ERP 6.0 (Part 4).


Next Blog

I’ll review the settings and configuration required to calculate the Bonus Depreciation using the New DCP in ERP 6.0

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  • Our tax department has elected to use a straight line, mid quarter convention for tax depreciation over the existing mid-year MACRS convention or the bonus depreciation as available from legislation earlier this year.  Have you heard of other companies doing this? 

    As a note, I had to create a new depreciation key to meet the requirements, but the 1st year depreciation is off by 1/16.  I posed a question and have details on the asset accounting forum.

    • MACRS is not required for US tax filing although it is widely used and reported.  US companies can elect to use other forms of depreciation such as straight line but it is not advantageous to do so unless you want to preserve the expense for a later fiscal year.  I’ve only seen this done one time and that was for a company that reported a fiscal loss and didn’t want to take the additional double-declining depreciation.  But in all other cases I’ve only seen MACRS, AMT, ACE and other accelerated methods used for US tax reporting.
  • Nathan,

    Thanks for the excellent documentation. I am setting up the tax depreciation for the first time in our system. We have assets from 2005. I took one asset from 2012 and applied the bonus % on M200. System is calculating the special depreciation for 2014 instead of 2012. Is it possible to backdate the bonus calculation?

    • It depends on how you configured the key (there are alternative approaches to what I’ve detailed above).  But if you configured it as shown above, yes, it’s possible to do so.  Read the online help about recalculating values for more information.