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Tax Tip of the Week | New Expensing and Bonus Depreciation Rules for Small Businesses December 19, 2018

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , trackback

New Expensing and Bonus Depreciation Rules for Small Businesses

As we approach the end of 2018, many businesses are reviewing their capital asset needs for this year and next and considering the tax benefits of buying these assets this year or next.

Some of the new rules are shown below as a refresher.

Remember Section 179 may be elected for part or all of the qualifying asset cost. However, use of Section 179 may not be fully deducted if it creates a loss and can not exceed certain thresholds as described below.

Section 168 is now available for new or used qualifying assets. It may create a loss but it must be taken on all purchased assets in a particular “asset class.”

-Mark Bradstreet, CPA

Isaac M. O’Bannon, Managing Editor on Nov 15, 2018 (CPA Practice Advisor)

“Some of the changes in the tax reform law mean small businesses can immediately expense more of the cost of certain business property. Many are now able to write off most depreciable assets in the year they are placed into service.

The Tax Cuts and Jobs Act (TCJA), passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. Among those for business owners are tax rate changes for pass-through entities, changes to the cash accounting method for some, limits on certain deductions and more.

Section 179 expensing changes

A taxpayer may elect to expense all or part of the cost of any Section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. These changes apply to property placed in service in taxable years beginning after Dec. 31, 2017. For most businesses, this means the 2018 return they file next year.

Section 179 property includes business equipment and machinery, office equipment, livestock and, if elected, qualified real property. The TCJA also modifies the definition of qualified real property to allow the taxpayer to elect to include certain improvements made to nonresidential real property. See New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act for more information.

New 100 percent, first-year ‘bonus’ depreciation

The 100 percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify. The law also allows expensing for certain film, television, and live theatrical productions, and used qualified property with certain restrictions.

The deduction applies to business property acquired after Sept. 27, 2017, and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.  In general, the bonus depreciation percentage is reduced for property placed in service after 2022. See the proposed regulations for more details.

Taxpayers may elect out of the additional first-year depreciation for the taxable year the property is placed in service. If the election is made, it applies to all qualified property that is in the same class of property and placed in service by the taxpayer in the same taxable year. The instructions for Form 4562, Depreciation and Amortization, provide details.”

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author – Mark C. Bradstreet, CPA

–until next week

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