The Tax Cuts and Jobs Act (TCJA) adds some tax breaks for businesses while reducing or getting rid of others. One break it increases — temporarily — is bonus depreciation. While most TCJA provisions go into effect for the 2018 tax year, you might be able to benefit from the bonus depreciation enhancements when you file your 2017 tax return. 2017 and earler bonus depreciation Under pre-TCJA law, for qualified new assets that your business placed in service in 2017, you can claim a 50% first-year bonus depreciation. The asset has to be new as used assets don’t get this depreciation.
This tax break is available for the cost of many different assets including: computer systems, purchased software, vehicles, machinery, equipment, office furniture, etc. In addition, 50% bonus depreciation can be claimed for some improvement property, which means any qualified improvement to the interior portion of a commercial building if the improvement is placed in service after the date the building is placed in service. But qualified improvement costs don’t include some expenditures such as enlarging of a building, adding an elevator or escalator, or the internal structural framework of a building.
TCJA expansion The TCJA significantly expands bonus depreciation: For qualified property placed in service between September 28, 2017, and December 31, 2022 (or by December 31, 2023, for certain property with longer production periods), the first-year bonus depreciation percentage increases to 100%. In addition, the 100% deduction is allowed for not just new but also used qualifying property. The new law also allows 100% bonus depreciation for qualified film, television and live theatrical productions placed in service on or after September 28, 2017. Productions are considered placed in service at the time of the initial release, broadcast or live commercial performance.
Beginning in 2023, this special depreciation is scheduled to be reduced 20 percentage points each year. So, for example, it would be 80% for property placed in service in 2023, 60% in 2024, so on and so forth, until it would be fully eliminated in 2027. For certain property with longer production periods, the reductions are delayed by one year. For example, 80% bonus depreciation would apply to long-production-period property placed in service in 2024. These complicated rules require specialized knowledge as to how to implement these changes over the course of the life of your business.
Bonus depreciation is only one of the business tax breaks that have changed under the TCJA. Contact us for more information on this and other changes that will impact your business.