SEVERAL PROVISIONS OF THE 2017 FEDERAL TAX LAW REGARD DEPRECIATION EXPENSES, AND OFFER NEW OPPORTUNITIES FOR TAXPAYERS
BY WALTER DASZKOWSKI
There were three different options for writing o investments in depreciable assets prior to the 2017 tax reform:
Regular Depreciation: Claim an expense based on the class life of the asset.
Section 179 Expense Election: Claim in the year of purchase an expense of some or all of the cost of qualifying property, subject to limits. The maximum write off is $500,000 as long as less than $2 million of property was purchased during the year. This applies to “new” or “used” property.
Bonus Depreciation: Claim in the year of purchase an expense of 50% of the cost of qualifying “new” property. Depreciate the balance using method #1 or #2. There is no limit on the amount of write off.
Moving forward, the three alternatives have all been enhanced, with more properties eligible for quicker depreciation and more flexibility in deciding what options to use. Changes are:
Regular Depreciation: Still claim an expense on the class life of the asset.
Section 179 Expense Election: Similar rules apply for determining eligible property. Limits are expanded to a maximum write off of $1 million, as long as less than $2.5 million of property was purchased during the year. Also, certain improvements to business real estate are eligible for this immediate write off .The rule still applies to “new” or “used” property. The increased limits apply to years beginning after December 31, 2017.
Bonus Depreciation: Bonus depreciation percentage has been increased from 50% to 100% for qualified property. Qualified property has been expanded to include “new to the taxpayer,” meaning “used property” now qualifies. This applies to assets placed in service after September 27, 2017. For a taxpayer’s first tax year ending after that date, an election can be made to use 50% bonus depreciation. The 100% bonus applies through the year 2022, with a 20% per year phase down reduction through 2026.
Trade Ins and Like Kind Exchanges
The new law changes the tax treatment of like kind exchanges of personal property (not real estate). Like kind exchange treatment is no longer allowed, except for exchanges of real estate. Now, a trade of equipment must be accounted for as a sale of the disposed equipment for the amount of the trade in allowance and a purchase of the newly acquired equipment at its full purchase price.
As always, I advise taking time with a CPA to best respond to these changes.
Walter Daszkowski, CPA, PFS
Daszkowski, Tompkins, Weg & Carbonella CPA, P.C.
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