The Tax Cuts and Jobs Act provides an enormous tax benefit to taxpayers investing in capital asset additions: the Act increases the bonus depreciation deduction to 100% of cost for a limited time and additionally, increases the amount eligible to expense under Internal Revenue Code Section 179.
The Act increases the Section 179 immediate expensing limit from $500,000 to $1 million effective after December 31, 2017. Similarly, the Act increases the Section 179 phase-out from $2 million to $2.5 million. Both of these amounts are indexed for inflation beginning after 2018. Further, the Act expands the definition of Section 179 qualified real property to include qualified improvement property and improvements made to nonresidential real property (including roofs, heating, ventilation, air conditioning property, fire protection and alarm systems, and security systems).
The Act modifies the amount of qualified property eligible for bonus depreciation. Specifically, the Act modifies the existing bonus depreciation rules by increasing the first-year depreciation deduction to be equal to 100% of the basis of qualified property placed in service between September 27, 2017 and December 31, 2022. Thereafter, the amount of bonus depreciation is reduced by 20% annually, and will be phased-out by 2027. For assets placed in service in 2017, taxpayers can alternatively elect to use 50% bonus depreciation (rather than 100% bonus depreciation) during the period September 28, 2017 through December 31, 2017. Additionally, both new and used property are now eligible for bonus depreciation (as long as it is the first-time use of the taxpayer).
Since the 100% expensing rules are available for a limited time, taxpayers should carefully plan the timing of capital asset purchases in order to maximize the deduction allowed.