2018 Depreciation Update: Section 179 and Bonus Depreciation

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law, and it expanded the Section 179 deduction and bonus depreciation for business property, as follows:

Overview of Section 179 Deduction & Bonus Depreciation

Section 179 deduction – refers to the Internal Revenue Code (IRC) allowing businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the year.  This means that you can deduct the FULL PURCHASE PRICE of qualifying business property from gross income.  It is a government incentive used to spur economic growth by encouraging businesses to invest in themselves by purchasing equipment.

An explanation of the 2018 Section 179 increases (reflected in the table above) are provided below.

  • Deduction limit:  The maximum Section 179 deduction is $1,000,000 and it is available on new and used equipment, as well as, off-the-shelf software.
  • Purchase limit:  The maximum amount of business equipment/software that can be purchased is $2,500,000.  Purchases in excess of this limit reduce the section 179 deduction available to your company on a dollar-for-dollar basis.
Bonus depreciation – a tax incentive that allows a business to immediately deduct 100% of the purchase price of qualifying property.

A description of the expanded bonus depreciation available beginning in 2018 (reflected in the table above) is as follows:

  • Deduction Available:  bonus depreciation has been increased to 100% of the cost of qualifying property (50% in 2017) and made retroactive to September 27, 2017 (good through 2022).
  • Qualifying Property:  Until the TCJA became law, bonus depreciation has only covered new equipment.  Beginning in 2018, however, bonus depreciation now applies to new and used equipment.

Bonus depreciation is useful to large businesses spending more than the Section 179 spending cap (currently $2,500,000) on capital equipment.  Moreover, businesses with a net loss can still qualify to deduct some of the cost of equipment purchases and carry-forward the loss.

 

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