What Gym Owners Need to Know About Bonus Depreciation , Recovery Periods for Real Property and Section 179 Expensing
What Gym Owners Need to Know About Bonus Depreciation , Recovery Periods for Real Property and Section 179 Expensing
The Tax Cuts and Jobs Act ( TCJA , or the Act ) made changes to the depreciation and expensing rules for business assets . There are three major provisions of the final legislation that gym owners need to be aware of :
• Sunsetting bonus depreciation
• Applicable recovery periods for real property
• Expansion of section 179 expensing
Bonus Depreciation
Businesses may take 100 % bonus depreciation on qualified property both acquired and placed in service after Sept . 27 , 2017 , and before Jan . 1 , 2023 . The acquisition date for property acquired pursuant to a written binding contract is the date of such contract and may have extended bonus periods . Full bonus depreciation is phased down by 20 % each year for property placed in service after Dec . 31 , 2022 , and before Jan . 1 , 2027 .
Under the new law , the bonus depreciation rates are as follows :
Due to the repeal of the corporate alternative minimum tax , the legislation also repealed the election to claim minimum tax credits in lieu of bonus depreciation for tax years beginning after 2017 .
Qualified Property
Under the law , qualified property is defined as tangible property with a recovery period of 20 years or less . The law eliminated the requirement that the original use of the qualified property begin with the taxpayer , as long as the taxpayer had not previously used the acquired property and the property was not acquired from a related party . The inclusion of used property has been a significant and favorable change from previous bonus depreciation rules .
Subsequent modifications to the original law clarified bonus depreciation rules for qualified improvement property ( QIP ). The CARES Act permanently codified that QIP has a 15-year recovery period as well as the 20-year alternative depreciation system ( ADS ) recovery period . As a 15-year asset , QIP is eligible for 100 % bonus depreciation through 2022 and the sunsetting bonus depreciation percentages through 2026 .
2023 Issue 3 | GearedUp
64
A transition rule provides that for a taxpayer ’ s first taxable year ending after Sept . 27 , 2017 , the taxpayer may elect to apply a 50 % allowance instead of the 100 % allowance . Taxpayers can still elect not to claim bonus depreciation for any class of property placed in service during any tax year . The election out of bonus depreciation is an annual election .
Lastly , qualified property does not include : 1 ) property used in providing certain utility services if the rates for furnishing those services are subject to ratemaking by a governmental entity or instrumentality , or by a public utility commission ; 2 ) any property used in a trade or