By Eric Street, CPA | Senior Associate – Tax Eric Street head shot

Great news for business owners; a concrete plan regarding accelerated depreciation was finally signed into legislation at the end of 2015.

In previous years, taxpayers were left guessing as to whether or not the additional deductions would be available to them in the future, as the legislation was continuously extended and kicked down the road. As you may know first-hand, this had somewhat of a crippling effect on business planning, as well as tax planning throughout the year, since decisions surrounding large asset purchases often hinged on these additional tax benefits. Without the promise of a lesser tax bill, many business owners held off on purchasing new assets until there was more of a necessity.

Now, business owners’ can once again take advantage of their accountants’ expertise when it comes to the benefits of accelerated depreciation.

Opportunities of the New Accelerated Depreciation Legislation

Section 179 depreciation allows taxpayers to accelerate depreciation for qualified purchases, limited to $500,000 of depreciation on $2,000,000 of asset purchases. Above that purchase limit, a dollar for dollar phase-out sets in until the benefit is completely eliminated at the $2,500,000 level.

Going forward, there are plans for these amounts to be adjusted based on inflation. The deduction amount allowed is then further limited to taxable income. To qualify to take 179 depreciation, property must be tangible or real, and purchased for business use. If qualified, Section 179 depreciation permits full expensing of a purchase where normal capitalization rules would generally apply.

What About Bonus Depreciation?

Bonus depreciation has a similar upside in that it allows the taxpayer to deduct additional depreciation in the first year that the asset is placed into service. Through the 2017 tax year, 50% of purchased asset’s cost available for accelerated depreciation. For 2018, that number declines to 40%. 2019 stands as the final year for bonus depreciation, and will be capped at a 30% deduction. There are no further limitations surrounding the additional benefit as there were for Section 179 depreciation, however, the caveat here is that the asset purchased must be brand new. And no, new to the taxpayer does not count.

If you have questions about accelerated depreciation for your business, contact me at mailto:estreet@applegrowth.comor 330.867.7350.