Because of the Tax Cuts and Jobs Act (TCJA), taxpayers can now deduct 100% of the cost of most new or used tangible property, other than buildings, acquired and placed in service after Sept 27, 2017. The new law also made Section 179 expensing more favorable by allowing taxpayers to immediately deduct the entire cost of qualified property on an asset-by asset basis up to a maximum of $520,000 annually. This limit is reduced by one dollar for every dollar that the costs of all section 179 property exceeds $2,070,00 for assets placed in service beginning in 2018. The Act also consolidates various leasehold improvement categories into one category – qualified improvement property. Qualified improvement property consists of improvements made to the interior of nonresidential real property after the building was placed into service. Qualified improvement property is also eligible for Section 179 expensing.
Should you take 100% bonus depreciation or select Section 179 expensing? It depends! Here are several considerations to keep in mind when deciding between Section 179 expensing and 100% bonus depreciation:
- Neither bonus depreciation nor Section 179 expensing affect Alternative Minimum Tax (AMT).
- Bonus depreciation must be elected out of by asset class; Section 179 expensing is elected on an asset by asset basis.
- Section 179 expensing is limited to taxable income; bonus depreciation is not limited by taxable income.
- Bonus depreciation can create a Net Operating Loss (NOL), which can be carried back and possibly generate a refund from a prior tax year.
- Section 179 expensing can control taxable income to maximize the new 20% Qualified Business Income (QBI) deduction or limit the new $500,000 business loss limitation.
Selecting between 100% bonus depreciation and Section 179 expensing will not only affect your taxes in the current year but also in a future year when the asset is sold. Contact us to discuss how this can impact you!
For more information, contact your Bothell Accountant at Padgett Business Services in Bothell, Washington at (425) 408-1695. We handle your bookkeeping, accounting, personal tax preparation & business tax preparation, and payroll needs – so you can focus on what makes you money. Serving Bothell, Lynnwood, Kirkland, Kenmore, Mill Creek and surrounding areas.