History of the Bonus Depreciation Law
Under the previous law regarding bonus depreciation, a specified percentage of the cost related to acquiring a qualifying asset used to be deducted. However, to qualify for such a deduction, the asset must have a depreciation life of twenty years or less than that, must be computer software, must be water utility property or could be under the category of qualified improvement property.
Moreover, it was also a condition that the property must not be used and the deduction of bonus depreciation would not apply to any asset that would have to be depreciated according to the ADS terminology. This law, however, would have ended by the year 2020 and it is, for this reason, it has been expanded, and a new law has been formulated.
The New Bonus Depreciation Law
The Tax Cuts and Jobs Act (TCJA) has introduced many tax breaks to businesses about certain conditions and rules. The New Bonus Depreciation Law can be regarded as one of these breaks applicable to certain types of assets held by the businesses. While a majority of these tax rules are expected to be pertinent for the year 2018, the bonus depreciation law might be relevant for those filing for the 2017 tax return as well.
Under this law, the qualified assets that were taken up for service in the year 2017 by businesses but were purchased prior to September 27, 2017, can be seen as having a 50% bonus depreciation deduction. This deduction can be claimed however the assets that have been in use do not fall under this category. Any new technology related equipment that you have bought, or any software that you have purchased or other machinery or office equipment all of these are considered to be a part of this category of tax-break qualifying assets.
Moreover, any costs that you have incurred during this time frame in the process of taking up improvement projects related to qualified property can also be subjected to a 50% bonus depreciation deduction. Under such category, projects such as, improvement in the interior of a building that is non-residential are included. However, is worth mentioning that any changes that have taken place in order to expand the building area or to make changes to the internal structure of the building are not considered to be subjected to the same deduction.
So, what about the qualified property that has been put in service after September 27, 2017? For such qualified assets, if the service period is sooner than 2023, the bonus depreciation percentage will become 100% which means that a hundred percent deduction will be applicable. This rule is not only subjected to property that is new but also for used property. The same rule also extends to qualified television, film, and live theatrical productions. Moving forward, the deduction percentage keeps on changing over the life of the service period of more than 2023 as follows:
In case the service period extends the above mentioned time line, the deductions will have to be delayed by one year. One similarity to the previous law is the fact that the expensing cannot be attributed to assets that need to use the ADS depreciation mechanism. This is important for all the businesses related to real estate since this means they will not be able to make use of the hundred percent deduction.
Bottom Line
The tax reforms taking place under the new administration have been designed to give tax breaks to some of the businesses existing within the United States. However, with so many changes taking place, it is extremely difficult for businesses to understand the complex conditions that pertain to these laws. It is for this reason that hiring a professional tax preparer can help you figure out the tax implications applicable to you and the best way in which you can make use of these tax breaks. So, call a professional tax preparer today and schedule a consultation session with them.
Foudy CPA Group,PC