Tax Reform Increases Bonus Depreciation for 2017 Taxes
Emily Zizzi CPA President + Tax Director
Tax Reform Increases Bonus Depreciation for 2017 Taxes
Most of the tax law changes in the Tax Cuts and Jobs Act affect 2018 and future tax years. Depreciation is one of the enhanced benefits in the revised tax law available for 2017.
Bonus depreciation has been around for a while. Under pre-reform tax law, you can claim 50% depreciation during the first year on the cost of assets placed into service only if those assets are purchased new. Used assets do not qualify.
The Tax Cuts and Jobs Act changed the 50% bonus depreciation on new assets to 100% depreciation on new and used assets purchased and placed into service after 09/27/2017. That’s right. Machinery, equipment and qualified improvement property, whether new or used, are available for 100% immediate expensing after 09/27/2017.
It gets even better for 2017.
On your 2017 tax return, the options for bonus depreciation are:
1. 50% Bonus Depreciation (new assets 01/01/2017 – 09/27/2017; new or used assets 09/28/2017 – 12/31/2017)
2. 100% Bonus Depreciation (new or used assets 09/28/2017 – 12/31/2017)
3. 0% Elect Out of Bonus (new assets 01/01/2017 – 09/27/2017; new or used assets 09/28/2017 – 12/31/2017)
For tax years 2018-2022, the choice for bonus depreciation is 100% or 0% bonus depreciation.
1. 100% Bonus Depreciation (new or used assets 01/01/2018 – 12/31/2022)
2. 0% Elect Out of Bonus Depreciation (new or used assets 01/01/2018 – 12/31/2022)
After 2022, bonus depreciation is scheduled to decrease 20% and remain on this track each year thereafter. By 2027, bonus depreciation is eliminated.
Tax Year 2023 – 80%
Tax Year 2024 – 60%
Tax Year 2025 – 40%
Tax Year 2026 – 20%
Tax Year 2027 and future years – 0%
The options available with bonus deprecation allow your CPA the flexibility to balance the tax benefits of using bonus depreciation in 2017 while planning for future taxable income under the reduced 2018 income tax rates. Implementing tax-smart strategies maximizes your tax benefits and helps you reach the ultimate goal of an overall reduced tax liability.
In upcoming posts, I will discuss additional changes to depreciation including the enhanced Section 179 depreciation, increased luxury auto depreciation limits, and shorter recovery periods for Farm/Ranch equipment.
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