Section 179 allows taxpayers to recognize depreciation expense on qualifying property when its used more than 50% of the time for business. It allows business owners to deduct a set dollar amount of new business assets that have been put in place during the current tax year. Unfortunately, the new regulations do nothing to fix the 39-year write-off period for qualified improvement property–improvements to an interior portion of a non-residential building made after the building is first placed in service. Congress intended that this property have a 15-year recovery period, which would make it eligible for bonus depreciation but an error in drafting left it out of the TCJA.
In 2013, Bob’s Carts, Inc., a company that manufactures electric golf carts, purchases a machine to be used in its business. Bob’s Carts can expense the entire cost of the machine, unless the investment limitation or the taxable income limitation applies. Used property (newly purchased by you) can qualify for the expensing election.
Bonus depreciation boosts first-year deduction
§ 1.168(k)-2(e) and the About Form 4562 webpage for more information on electing out of the additional first year depreciation. The end of bonus depreciation could be a significant change for businesses that have been relying on it for business and tax planning. Modeling of how Bonus Depreciation Regs Are Favorable For Taxpayers the future state will affect taxable income on an annual basis is imperative. While tax incentives, such as bonus deprecation and Section 179, can be a beneficial tool while tax planning, these provisions should be used only when it makes financial sense for your business.
Taxpayers should assess how they have treated past assets to determine if any asset would be eligible under the final regulations for 100% bonus depreciation rather than the reduced bonus depreciation rate. To qualify for the one-year delay of the phasedown as Transportation Property or Certain Aircraft, the aircraft must be acquired by the taxpayer (or acquired pursuant to a written binding contract entered into) before Jan. 1, 2027. This requirement will ordinarily be met for aircraft acquisitions prior to 2027. The absence of a requirement to have a binding written contract prior to Dec. 31, 2022, to be eligible to use the 100 percent bonus depreciation percentage in 2023 may not have been intended by Congress. However, the statute undoubtedly controls as written, so the IRS would have no basis on which to assert that a binding written contract must be in place by Dec. 31, 2022, for a taxpayer to be eligible to use the 100 percent bonus depreciation rate in 2023. The guidance provides a wonderful opportunity for taxpayers to reassess their depreciation circumstances in response to changes made under the Final Regulations.
Choosing between bonus depreciation and expensing
Like bonus depreciation, the QBI deduction is scheduled to expire in 2026, so you might want to maximize it before then. Even if a taxpayer chooses to apply the 2019 proposed regulations for a tax year beginning before Jan. 1, 2021, it should not apply the partnership lookthrough rule for such tax year because the rule has been withdrawn from the 2019 proposed regulations in its entirety. https://kelleysbookkeeping.com/capital-stock-and-surplus-definition/ The withdrawal of the partnership lookthrough rule removes a significant obstacle to current or former partners’ claiming bonus depreciation for property acquired in a variety of partnership transactions. This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person.
Who benefits from bonus depreciation?
Bonus depreciation is an important tax savings tools for businesses as it allows them to take an immediate deduction in the first year on the cost of eligible business property. This lowers a company's tax liability because it reduces their taxable income.
If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel. Finally, for an aircraft that is Certain Aircraft to qualify for the one-year delay, it must have a cost in excess of $200,000. In addition, you may need to allocate the amount between other taxpayers under certain circumstances.