Big Depreciation Changes under the New Tax Law
Under the new Tax Cuts and Jobs Act of 2017 there were significant changes to the depreciation rules. Bonus depreciation, Section 179, and auto depreciation all were significantly changed.
Most of the changes were for 2018 going forward, but increased bonus depreciation was made retroactive for assets placed in service by September 27, 2017, that you can take advantage of on your 2017 tax return (see below).
Highlights of changes to depreciation in the new tax law:
- Retroactive to September 27, 2017, assets placed in service are eligible for 100% bonus depreciation. This increase in bonus depreciation extends through December 31, 2022, and then phases out to zero over the five years after 2022.
- Another new provision related to bonus depreciation is that it applies to used property while it was restricted to new property under the old law.
- The 2018 tax year limit for property eligible for 179 expensing has been raised to $1,000,000 for 2018 going forward.
- The new law also added categories of assets that are now eligible for 179 that have not been eligible under the old law because they were structural components of a building and not eligible for the immediate deduction:
- Heating, ventilation, and air conditioning property
- Fire protection and alarm systems
- Security systems
- Like the previous version of the tax law, the new law for the depreciation of business use automobiles is limited to specified annuals amounts.
- Under the new law, the annual deductions have basically been tripled. For example, under the old law the first year deduction for a passenger vehicle used in business was $3,160, while under the new law the deduction is $10,000.
- These assets are also eligible for bonus depreciation up to $8,000 in the first year, so the total first year depreciation expense is up to $18,000.
The Tax Cuts and Jobs Act of 2017 has seriously changed the rules for depreciating assets. There are many opportunities to deduct significant costs related to assets placed in service under these new rules.
However, the rules related to deductions for depreciation can be complicated. Please consult with your professional tax advisor if you have questions on the applicability of these depreciation rules.