Under the Tax Cuts and Jobs Act (TCJA), two popular depreciation-related tax breaks have been enhanced. Now is the time to look at these breaks because to use them qualifying assets must be purchased and in use by the end of the tax year.
Section 179 expensing
Sec. 179 expensing allows businesses to deduct up to 100% of the cost of qualifying assets in Year 1 rather than depreciating the cost over several years. Qualifying assets can include equipment, furniture, and software. The TCJA expanded the list to include qualified improvement property, certain property used primarily for the purpose of lodging, and several improvements to nonresidential property including: HVAC equipment, roofs, fire protection and alarm systems, and security systems. Sec. 179 can also be used for business vehicles, so it may be advantageous to purchase vehicles before year end. However, certain types of vehicles do have additional tax benefit limitations.
The maximum deductible amount under Sec. 179 in 2018 is $1 million. An increase from the 2017 limit of $510,000. The deduction fades out dollar-for-dollar in 2018 once asset acquisitions exceed $2.5 million, an increase from the 2017 limit of $2.3 million.
100% bonus depreciation
Assets placed in service in 2018 including computer systems, software, machinery, equipment, and office furniture; can be deducted up to 100% on first-year bonus depreciation, opposed to the 50% break in 2017. The TCJA has also expanded these eligibility to include both new and used assets, previously only new assets qualified.
A drafting error in the TCJA has caused qualified improvement property to be eligible only if a technical correction is issued. Under TCJA bonus depreciation for certain businesses is not available in 2018. Ineligible businesses include real estate businesses that elect to deduct up to 100% of their business interest, and auto dealerships with floor plan financing (if the dealership has average annual gross receipts over $25 million for the past three tax years).
Maximize your deductions
Investing in business assets is a common, and useful, year-end tax strategy. This year the advantages could be even greater because of TCJA enhancements to Sec. 179 expensing and bonus depreciation. We can help determine ways to maximize your breaks and answer any questions you have about TCJA updates. Contact us at 818-334-8623 or click here, and we will contact you.