intensive companies can benefit from the liberalization of Sec. 179 expensing elections and temporary 100% bonus depreciation provisions found in the
Tax Cuts and Jobs Act (TCJA).
Temporary 100% depreciation on qualifying business assets
- Pre-TCJA, companies could claim an additional 50% first-year bonus depreciation deduction for qualified new assets placed in service. Certain qualified improvement property may be eligible for 50% bonus depreciation.
- Post-TCJA, qualified property placed in service between September 28, 2017, and December 31, 2022 (or by December 31, 2023, for certain property with longer production periods), the first-year bonus depreciation percentage increases to 100% for both new and used qualifying property.
- Beginning 2023, bonus depreciation is scheduled to be reduced 20 percentage points each year.
- 80% for property placed in service after Dec. 31, 2022 and before Jan. 1, 2024.
- 60% for property placed in service after Dec. 31, 2023 and before Jan. 1, 2025.
- 40% for property placed in service after Dec. 31, 2024 and before Jan. 1, 2026.
- 20% for property placed in service after Dec. 31, 2025 and before Jan. 1, 2027.
- Fully eliminated in 2027.
- For certain property with longer production periods, the reductions are delayed by one year. For example, 80% bonus depreciation would apply to long-production-period property placed in service in 2024.
- For the first tax year ending after Sept. 27, 2017, a taxpayer can elect to claim 50% bonus first-year depreciation (instead of claiming a 100% first-year depreciation allowance). The election to accelerate AMT credits in lieu of bonus depreciation is repealed.
Liberalized Sec. 179 Expensing
A taxpayer can, deduct, or expense, the cost of qualifying property, rather than recover costs through depreciation deductions.
- Pre-TJCA, the maximum amount a taxpayer could expense was $500,000 of the cost of qualifying property placed in service for the tax year. The $500,000 amount was reduced by the amount by which the cost of qualifying property placed in service during the tax year exceeds $2 million.Qualifying property is depreciable tangible personal property purchased for active use in trade or business, and includes off-the-shelf computer software and qualified real property. Additional vehicle limitations apply.
- Post-TJCA, property placed in service beginning in 2018 may be expensed up to $1 million, and the phase-out threshold amount is increased to $2.5 million. The definition of qualified real property is expanded to include certain depreciable tangible personal property for lodging, and includes various nonresidential real property improvements, such as roofs, HVAC, and alarm systems.
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