In an effort to offer more corporate tax incentives, the Tax Cuts and Jobs Act expanded the bonus depreciation deduction to allow full expensing (100 percent bonus) for “qualified property” placed in service after Sept. 27, 2017, and before Jan. 1, 2023.

Beginning Jan. 1, 2018, the bonus depreciation deduction for qualified property placed in service is then phased out over four years:

  • 2023 – 80 percent deduction
  • 2024 – 60 percent deduction
  • 2025 – 40 percent deduction
  • 2026 – 20 percent deduction

Taxpayers may elect 50-percent expensing in lieu of 100 percent for qualified property placed in service during the first tax year ending after Sept. 27, 2017. The amendments apply to property that is both acquired and placed into service after Sept. 27, 2017.

In addition, under prior law, businesses could only use bonus depreciation for new property. The Act removes the requirement that the original use of the qualified property must commence with the taxpayer, thus allowing bonus depreciation on the purchase of used property.

Tax Planning Considerations

Doeren Mayhew’s tax advisors encourage businesses to consider the following when applying this deduction:

  • With the limitation on business interest expense deduction under the Act, certain corporations may not want to maximize depreciation deductions in order to deduct all of their interest.
  • It remains to be seen if states will decouple from the new federal depreciation rules, as they have in the past for bonus and enhanced Section 179 depreciation.
  • The application of the bonus depreciation provisions will not require an accounting method change request, however, it should be noted these rules apply by default and an election to omit the benefit from a tax return must be made. A taxpayer omitting bonus depreciation without an election risks losing the tax deduction.

To find out how this tax incentive can be applied appropriately for your business, please contact Doeren Mayhew’s tax advisors today.

Want to reach the author? Email Michael Weller or contact him at 248.244.3039.  Michael Weller, JD is a Senior Tax Manager with Doeren Mayhew.