Plain and Simple: Bright Business Insights Spring 2018 | Page 2

BONUS DEPRECIATION YIELDS BIG SAVINGS Discover The Best Tool In Your Tax Planning Arsenal With the passage of the Tax Cuts and Jobs Act, there has never been For a first taxable year ending after Sept. 27, 2017, a taxpayer may elect a better time to take advantage of bonus depreciation – especially to apply a 50 percent allowance instead of 100 percent. Additionally, for companies that are unable to write off machinery and equipment you can choose not to claim bonus depreciation for any class of property purchases by other means, such as Section 179 and the de minimis placed in service during the tax year. The election is done annually. safe harbor. Introduced in 2002, bonus depreciation is an opportunity to accelerate the write-off of recently purchased qualifying assets and new equipment. And, over the years, the parameters have been changed or extended. Thanks to the recent tax reform package, the bonus depreciation for the first year of an asset has been increased from 50 to 100 percent, and it applies to new and used assets purchased and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. Qualified property is now defined as tangible personal property with a recovery period of up to 20 years. Both computers and used assets are now allowed, which means new purchases must be “first use” by the business that buys it. There are certain exceptions. As far as bonus depreciation rules for qualified improvement property (QIP) go, things are still unclear. Though the intent was to simplify matters, due to a drafting error, the final statutory language awaits a The depreciation limits on new or used passenger vehicles have also increased. The first-year $8,000 bonus depreciation is still available and is in addition to the amount for Year 1. The new depreciation limits are: technical corrections bill to pass in Congress. The idea is to make QIP bonus-eligible by virtue of a 15-year recovery period. We will keep you updated on this. There are several ins and outs of the new rules and provisions related • • • • to qualified leasehold improvements, retail improvement property, Year 1: $10,000 restaurant property and the new qualified improvement property. The Year 2: $16,000 best way to take advantage of bonus depreciation though is through Year 3: $9,600 proper tax planning. Year 4 and following: $5,760 It’s also important to note that property acquired prior to Sept. 28, Oftentimes, a typical strategy involves first taking Section 179, then 2017, but placed in service after Sept. 27, 2017, would remain eligible bonus depreciation and finally regular depreciation, in that order. for bonus depreciation under pre-Act law (i.e., 50 percent bonus). However, in certain situations and with proper planning, it may However, full bonus depreciation is reduced by 20 percent each year make more sense to forgo the Section 179 and preserve depreciation for property placed in service after Dec. 31, 2022, and before Jan. 1, deductions for future years, particularly if you find yourself in a higher 2027. The new bonus depreciation rates are as follows: tax bracket. As always, talk with your tax advisor to learn more and come up with a strategy that works best for you. Bonus Depreciation Percentage Qualified property in general/specified plants Longer production period property and certain aircraft Sept 28, 2017 through Dec 31, 2022 100 percent 100 percent 2023 80 percent 100 percent 2024 60 percent 80 percent 2025 40 percent 60 percent 2026 20 percent 40 percent 2027 None 20 percent 2028 and thereafter None None by: Ben Froese, CPA Senior Manager 545 N. Market St. Wooster, OH 44691 [phone] [email protected]