Tax Cuts and Jobs Act: Depreciation and Sec. 179 Expensing

tax-cuts-jobs-act-depreciation-sec-179-expensingwritten by Kathy Hillenburg

The Tax Cuts and Jobs Act modifies provisions related to depreciation and expensing of fixed assets. These changes extend and modify the additional first-year bonus depreciation deduction through 2026, increase the Code Sec. 179 dollar and investment limitations, and expand the definition of Code Sec. 179 property.

Bonus Depreciation
The first-year depreciation allowance is increased to 100 percent for property placed in service after September 27, 2017, and before January 1, 2023. The Tax Cuts and Jobs Act removes the requirement that the original use of qualified property commence with the taxpayer. Therefore, the additional first-year depreciation deduction is allowed for new and used property.

Real Property
The separate definitions of qualified leasehold improvement, qualified restaurant and qualified retail improvement property are eliminated. Qualified improvement property is treated as a new class effective for property placed in service after December 31, 2017. Qualified improvement property is defined as any improvement to an interior portion of a building which is nonresidential real property if the improvement is placed in service after the date the building was first placed in service by any taxpayer.

Code Sec. 179 Expensing
Section 179 of the United States Internal Revenue Code allows a taxpayer to elect to deduct the cost of certain types of property on their income taxes as an expense, rather than requiring the cost of the property to be capitalized and depreciated.

The Tax Cuts and Jobs Act increases the maximum amount a taxpayer may expense under Code Sec. 179 to $1 million, and the phase-out threshold amount to $2.5 million for tax years after 2017. These amounts are indexed for inflation for tax years beginning after 2018.

For tax years beginning after 2017, the definition of qualified real property eligible for Code Sec. 179 expensing is expanded to include:

  • Any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.

The incentives for investing in new business property are significant and must be evaluated. Planning for your capital and equipment acquisitions and retirements is essential. Please contact us if you have any questions 417-881-0145.


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