As construction company owners assess labor, material and equipment needs, it’s important to keep in mind that most equipment purchased for a jobsite will qualify for “bonus” depreciation. Increased by the 2017 Tax Cuts and Jobs Act (TCJA) and further clarified by IRS final regulations (T.D. 9874), a 100% first-year depreciation deduction is available for qualified property that’s placed into service by a trade or business after September 27, 2017 and before January 1, 2023. After 2022, the bonus depreciation deduction decreases in 20% increments until it’s fully phased out on December 31, 2026.
When contractors are deciding which equipment to buy, they need to remember that both new and used equipment qualifies for bonus depreciation, as defined by regulations released last September. Since the TCJA allows for bonus depreciation when the property is considered “original use” to the taxpayer, contractors can now generally utilize bonus depreciation for used equipment, something not available under prior tax law.
Bonus depreciation also applies to certain vehicles as well. Trucks, large SUVs and vans with gross vehicle weight ratings greater than 6,000 pounds are not subject to the annual depreciation limitations applicable to passenger automobiles. Therefore, heavy vehicles used either on the jobsite or on the road can also qualify for bonus depreciation.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.