Experienced Tax
Accountant – Temporary
100 Percent Expensing (Bonus Depreciation) The law increases the bonus
depreciation percentage from 50 percent to 100 percent for qualified property
acquired and placed in service after September 27, 2017, and before January 1, 2023.
The bonus depreciation percentage for qualified property that a taxpayer
acquired before September 28, 2017, and placed in service before January 1,
2018, remains at 50 percent. Special rules apply for longer production period
property and certain aircraft. The definition of property eligible for 100
percent bonus depreciation was expanded to include used
qualified property acquired and placed in service after September 27, 2017, if
all the following factors apply:
- The taxpayer or its predecessor didn’t use the property at any time before acquiring it.
- The taxpayer didn’t acquire the property from a related party.
- The taxpayer didn’t acquire the property from a component member of a controlled group of corporations.
- The taxpayer’s basis of the used property purchased is not figured in whole or in part by reference to the seller or transferor adjusted basis.
- The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.
- Also, the cost of the used property eligible for bonus depreciation doesn’t include the basis of property determined by reference to the basis of other property held at any time by the taxpayer (for example, in a like-kind exchange or involuntary conversion).
The
law added qualified film, television and live theatrical productions as types
of qualified property that may be eligible for 100 percent bonus depreciation.
This provision applies to property acquired and placed in service after Sept.
27, 2017.
Under
the TCJA, certain types of property are not eligible for bonus depreciation in
any taxable year beginning after December 31, 2017.
The
law also eliminated qualified improvement property placed in service after
December 31, 2017 as a specific category of qualified property.
Expensing Depreciable
Business Assets (Section 179)
Businesses
can immediately expense more of their business assets under TCJA. A taxpayer may
still elect to expense the cost of any section 179 property and deduct it in
the year the property is placed in service. The TCJA increased the maximum
deduction from $500,000 to $1million. It also increased the amount at which the
deduction begins to phase out from $2 million to $2.5 million. For taxable years
beginning after 2018, these amounts of $1 million and $2.5 million will be
adjusted for inflation.
TCJA
modifies the definition of section 179 property to allow taxpayers to elect to
include certain improvements made to nonresidential real property, including
most improvement to a building’s interior, plus roofs and systems for heating,
air conditioning, security and fire protection.
Depreciation Limitations on
Luxury Automobiles and Personal Use Property
The
TCJA changed depreciation limits for passenger vehicles placed in service after
December 31, 2017. If the taxpayer doesn’t claim bonus depreciation, the
greatest allowable depreciation deduction is:
- $10,000 for the first year,
- $16,000 for the second year,
- $9,600 for the third year, and
- $5,760 for each later taxable year in the recovery period.
If a
taxpayer claims 100 percent bonus depreciation, the greatest allowable
depreciation deduction is:
- $18,000 for the first year,
- $16,000 for the second year,
- $9,600 for the third year, and
- $5,760 for each later taxable year in the recovery period.
The
TCJA also removes computer or peripheral equipment from the definition of
listed property. This change applies to property placed in service after
December 31, 2017.
Applicable Recovery Period
for Real Property
The
general depreciation system recovery periods are still 39 years for
nonresidential real property and 27.5 years for residential rental property.
The alternative depreciation system recovery period for nonresidential real
property is still 40 years. However, the TCJA changes the alternative
depreciation system recovery period for residential rental property from 40
years to 30 years. Qualified leasehold improvement property, qualified
restaurant property and qualified retail improvement property are no longer
separately defined and no longer have a 15-year recovery
period under the TCJA.
These
changes affect property placed in service after December 31, 2017.
Additionally,
a real property trade or business that elects out of the business interest
deduction limit must use the alternative depreciation system to depreciate
nonresidential real property, residential rental property, and qualified
improvement property. This change applies to taxable years beginning after
December 31, 2017.
Questions?
Give us a call. We're happy to help! For consultation contact us today!
Amare Berhie, Senior Accountant
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