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By Kyle Lusczakoski, CPA, MST – Manager, Doeren Mayhew

With the increased Section 179 limits and the broadening of what qualifies for the deduction, taxpayers should see a favorable change in their tax liabilities as a result of the Tax Cuts and Jobs Act.

Intended to provide additional benefits to small business taxpayers, Section 179 allows a taxpayer to immediately expense the cost of qualifying property—rather than recovering such costs through depreciation deductions. Like the new bonus deprecation provision, this expense allowance applies to both new and used property.

Here’s a glimpse into the limitation changes as a result of the Tax Cuts and Jobs Act in a side-by-side comparison:

Section-179-Expensing-Limitation-Increases-with-Tax-Reform-1

Furthermore,  Section 179 now applies to more than qualified leasehold improvements, restaurant properties and retail improvement properties, it applies to improvement properties such as roofs, heating, ventilation, air conditioning, alarms and security systems. Read more on qualified improvement properties in our recent article, Understanding Changes to Property Depreciation Under New Tax Laws.

Tax Planning Considerations

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

  • Flow-through entities with trusts and estates as owners are unable to claim the deduction. Therefore, it would be more advantageous to claim Section 168 bonus depreciation in these instances.
  • Given that Section 179 can be phased-out as a result of other asset additions for which bonus depreciation can be taken, taxpayers should plan the timing of asset additions that include the outlined assets.
  • State and local conformity rules should be considered when making decisions between choosing Section 179 versus bonus depreciation.

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 Kyle Lusczakoski or contact him at 248.244.3048.