Tax Deductions For Your Business
Business have long relied on Section 179 to allow them to claim tax deductions for certain assets, rather than having depreciation deductions taken over time. Beginning in the 2019 tax year, Section 179 has been expanded by the Tax Cuts and Jobs Act (TCJA).
Under the TCJA, the 100% bonus depreciation will also enable businesses to completely write-off qualified assets, such as property or equipment, that were placed in service in 2019.
Rules for Section 179
Section 179 deduction is applicable to property that is purchased for trade or business. This could include equipment or, if elected, real property. There is an annual deduction dollar limit of $1.02 million beginning in tax year 2019, and it has a phaseout rule that kicks in if more than $2.55 million of qualified property is put into service throughout the year. Heavy SUVs have different rules, so be sure to do research before placing these in service.
The amount that you can make the election is limited to your business’ taxable income if it is less than the annual dollar limit. Whatever you can’t deduct is carried forward to later tax years as allowed by the dollar limit, phaseout rule, and your business’ taxable income.
The TCJA has expanded the meaning of qualifying assets that can apply to Section 179. They now include property used in furnishing of lodgings, like appliances and furniture. The TCJA also updated the definition of real property that can qualify for Section 179. Applicable expenses can be qualified improvement property and some improvements to nonresidential real property, such as roofs; heating, ventilation and air-conditioning equipment; fire protection and alarm systems; and security systems.
Before the TCJA was put into place, the bonus depreciation only allowed businesses to deduct 50% of the expense of new property. You are now able to deduct 100% of the cost of qualifying assets in the first year without capitalizing them and gradually depreciating them. This new update applies to assets put in service from September 28, 2017 to December 31, 2022. There are a few exceptions that will allow for a December 31, 2023 deadline, such as aircraft or assets with a longer production period. After the deadlines, the bonus deduction is phased out by 20% per year and is fully phased out after 2026, or 2027 if you have the assets listed above.
Bonus depreciation can be used for new and used qualifying assets, which include most tangible depreciable assets other than real estate.
It’s important to keep in mind when the 100% first-year bonus depreciation and the Sec. 179 deduction are available for the same asset, you’ll usually get a better tax break if you claim the 100% bonus depreciation, because there are no limitations on it as long as they are within the specified time frame.
Maximizing your deductions
These favorable depreciation deductions will deliver tax-saving benefits to many businesses on their 2019 returns. You’ll need to place qualifying assets in service by December 31. Our staff is here to answer any questions you may have, or provide you with more information about how your business can get the most out of the deductions.
These deductions will give businesses tax-savings on the 2019 returns, but you will need to put your assets in service by December 31, 2019 in order to qualify. Contact us if you have questions on how to get the most from the deductions, or if you have any questions.