On December 22, 2017, the President signed the Tax Reform legislation. The bill largely took effect in 2018 and made significant changes that impact most — if not all — taxpayers. Increased deductions for bonus depreciation and Section 179 expense are just two of these changes impacting business taxpayers, and these largely positive changes are two potential tax savings presents for businesses.
Under the previous tax rules, the bonus depreciation deduction was limited to 50% of eligible new property. The Reform extends and modifies bonus depreciation to allow businesses to immediately deduct 100% of eligible property placed in-service after September 27, 2017, and before January 1, 2023. And, for certain property with longer production periods, the 100% bonus depreciation is extended through December 31, 2023.
Bonus depreciation continues to be available for qualifying property, which is generally property with a depreciable recovery period of 20 years or less. Plus, eligible property is expanded to include used property.
Bonus Depreciation Tax Reform Changes
|Date Eligible Property is Placed In-Service*||2017 Law
|2018 Tax Reform Law
|January 1, 2017 – September 27, 2017||50%||N/A|
|September 28, 2017 – December 31, 2017||50%||100%|
|January 1, 2018 – December 31, 2018||50%||100%|
|January 1, 2019 – December 31, 2019||40%||100%|
|January 1, 2020 – December 31, 2020||30%||100%|
|January 1, 2021 – December 31, 2022||0%||100%|
|January 1, 2023 – December 31, 2023||0%||80%|
|January 1, 2024 – December 31, 2024||0%||60%|
|January 1, 2024 – December 31, 2025||0%||40%|
|January 1, 2026 – December 31, 2026||0%||20%|
|January 1, 2027 – December 31, 2027||0%||0%|
* = Property with a longer production period have different dates
Section 179 allows a taxpayer to immediately expense the cost of qualifying property—rather than recovering such costs through depreciation deductions. However, the Tax Reform increased the maximum amount a taxpayer could deduct under Section 179 for property placed in-service after December 31, 2017, from $520,000 to $1,000,000. The phase-out threshold is also increased from $2,070,000 to $2,500,000 for property placed in-service after 2017. The phase-out occurs when total Section 179 property placed in-service during a tax year exceeds the threshold amount. At this point, the deduction is reduced dollar-for-dollar by the excess amount. Both the deduction and phase-out limit will be increased for inflation beginning in 2019.
Qualifying property for Section 179 expensing has been expanded under the Tax Reform to include:
- Certain depreciable tangible property used in connection with lodging.
- Improvements to non-residential real property such as roofs, heating, ventilation, air conditioning, and fire and alarm protection systems.
CRInsight: The increase in the Section 179 expense deduction may be of lesser significance as the bonus depreciation deduction has been increased to 100% through December 31, 2022 — and now also includes used property.
Tie Your Bonus Depreciation and Section 179 Expense Gift Up with a Bow
Most of us enjoy receiving presents, so be sure your business takes advantage of the potential tax gifts provided by the changes to bonus depreciation and Section 179 expensing. If you have questions regarding how to take advantage of these provisions or others within the Tax Reform that may impact your business, then please contact us. We’re here to help you unwrap your business’ benefits.