TCJA Depreciation Highlights
Depreciation is often thought of as great expense for a business because of its non-cash nature. The TCJA made several changes to depreciation rules, here are three changes that have had a significant impact on taxpayers.
- 100% Bonus Depreciation- This is a temporary change that has given taxpayers the ability to deduct 100% of the cost of business property that was purchased after September 27, 2017. This allowance will continue until January 1, 2023, after that the percentage will decrease until it expires in 2027. If you are worried you missed some of the benefits of 100% bonus depreciation, you are in luck, the IRS has issued Revenue Procedure 2019-33, which gives opportunities to taxpayers who want to reconsider their depreciation choices from prior years.
- Section 179 Depreciation- The TCJA significantly increased the maximum deductions for section 179 property. Prior to the TCJ the limit was 500k with a phaseout threshold of 2 million. The limits are now set to 1 million with a phaseout threshold of 2.5 million and will be adjusted for inflation. In addition to new limits, certain nonresidential property improvements can now qualify for section 179 expensing.
- Depreciation of Luxury Vehicles- There has always been limits on depreciation for passenger vehicles but under the TCJA the taxpayer can deduct up to 10k in the first year or 18k if 100% Bonus depreciation is elected. There are special rules for certain trucks, vans and SUV’s depending on the weight and specifics of the vehicle to check out when making depreciation decisions.
By using the rules to your advantage, business taxpayers can make key decisions that will enhance their business and reduce their tax liability at the end of the year.