As in years past the US has issued a tax act that impacts SAP customers and how they track their fixed assets in ERP. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA) contains new provisions regarding how depreciation is calculated for US tax purposes. For more information you can read the official summary of the act from the US Senate Committee on Finance.
Overall, the requirements are very similar to what has been specified in previous years (2001, 2003, 2008, and 2009). There are a few key differences:
- The Jobs act of 2010 was extended through the end of 2011. Qualified acquisitions now get a full 100% depreciation allowance for 2011. This is a significant increase over the previous 50% bonus allowance.
- for 2012, the bonus depreciation allowance returns to the normal 50%.
If you want to account for bonus depreciation, and remember that it is not required to do so, the configuration to support this in SAP is straight forward and documented in SAP Note 1542280. I’ll step through the configuration and the process in this blog.
Unlike the requirement for 2008 for 50% bonus depreciation, the configuration to support the 2010-11 requirement is not dependent on which depreciation engine is being used. Only a single configuration is required regardless of which engine you use. I’ve given an overview of the New Depreciation Engine in this New Ways to Depreciate Fixed Assets in ERP 6.0 (Part 4) if you need more information on what it is.
Officially speaking, this blog is not meant to give specific tax advice. I’m not an auditor nor a tax professional so any detailed questions or decisions should be reviewed with a tax professional. That said, I’d like to review the requirements because most of the difficulty with this regulation is not in the calculation but in the application of the key to the appropriate asset records.
The first thing is to determine what type of property is applicable. To be considered as qualified property, the asset must meet the requirements of section 168(k)(2). Section 168 says that qualified property is either:
- an asset with a life of 20 years or less, or
- computer software (as defined in section 167(f)(1)(B)) for which a deduction is allowable under section 167(a) without regard to this subsection, or
- a water utility property, or
- a qualified leasehold improvement proeprty.
The next item to review is the relevant dates of the asset record. You need to determine the asset’s original use, acquisition date, and placed in service date before determining what assets should receive the 100% bonus depreciation.
- The original use of the asset must be after September 8, 2010.
- The asset must be placed in service after September 8, 2010 and before January 1, 2012.
- There is an extension period out to January 1, 2013 for qualified property that a taxpayer manufactures, constructs or produces (so called, self-constructed property). I’m not going to go into the detailes of self-constructed property because the application of the regulation gets much more difficult and it impacts far fewer SAP customers.
- The asset must meet the special acquisition rules set forth in IRS Revenue Procedure 2011-26. Note that the trigger to determine if the asset is applicable is based on when the cost was incurred. However, if there is a written binding contract between 9/8/2010 – 1/1/2012, then the asset will be treated as having met the acquisition requirement.
The first item to review is the base method. It can be configured in one of two ways. Either the depreciation method should be set to Immediate Depreciation or Stated Percentage. There is a good chance that an existing base method may already be configured with these settings so do not immediately create a new entry if you don’t have to.
The next item to look at are the period control methods. A method is required that is configured so that the depreciation always starts as of the beginning of the year (period control 06). Again, first review the existing methods and re-use one if possible. You might also want to view the actual calendar assignments at transaction code [OAVH] to ensure that the 06 period control is defined correctly for your fiscal year variant.
Two multi-level methods are required, one each for 2010 and 2011. Both methods should be created using APC as the base method and should start based on the special depreciation start date. You can configure the multi-level method to use either a 100% depreciation rate or leave the rate empty. It depends on how you configured the base method in the previous step. If it was configured with a depreciation method of Immediate Depreciation, then the rate entered in the multi-level method is ignored and should be left empty. If the base method was based on stated percentage, then you’ll need to define the multi-level with a 100% rate.
The last thing to maintain are the depreciation keys themselves. A new key is required that has a single phase referencing the three methods that were created previously. As always, What Happens When You Don’t Activate Your Depreciation Keys when you are done processing it. This image is for the key to be used for 2010 qualified acquisitions. Another similar key would have to be created for 2011 that references the other multi-level method Z91.
How does the calculation look? The followingasset has a simple $10,000 USD acquisition in 2010. All 100% of the acquisition cost has been recorded as special depreciation. Very simple.
Here is how it looks in the depreciation trace with the NewDCP. Notice that a single interval is created for the whole year and only for the special depreciation value type (S).
The configuration that I’ve shown in this blog and that SAP advises in the note are not the only way to calculate 100% bonus depreciation. It would also be possible to define a single multi-level method for acquisition year 9999. This would then require only a single depreciation key which might be easier to report on but more difficult to administor because it puts more of a burden on whomever is assigning the key to the appropriate assets. The solution in the Note helps in that there is a control point to stop the calculation for those assets that don’t apply. I generally prefer this approach because I prefer to have the control (or buden) to make the assignment of the key to the asset as the only requirement for the calculation. It also provides a small benefit for any master data reporting… but either approach works.