Bonus depreciation has been a great tax benefit since 2002. The Job Creation and Worker Assistance Act of 2002 allowed businesses to deduct 30% of the cost of eligible assets before the applicable depreciation methods were applied. The idea was to encourage investment by small businesses and to stimulate the economy. The bonus depreciation rate was increased to 50% in 2003 and ultimately raised to 100% in 2017.
The Tax Cuts and Jobs Act (TCJA) extended the deduction to 100% in the year qualified property is placed in service until 2022. The bonus depreciation deduction will decrease by 20% each year until it sunsets in 2027 as follows:
80% for property placed in service in calendar-year 2023
60% for property placed in service in calendar-year 2024
40% for property placed in service in calendar-year 2025
20% for property placed in service in calendar-year 2026
Remember that unless a taxpayer elects to opt out, bonus depreciation is automatically applied by the IRS. All qualifying property in the same class placed in service during the year is subject to the opt out election.
Some examples of qualifying property would include commercial vehicles, computers, hardware, machinery and equipment, office furniture and renovations of commercial office space. Although buildings are not eligible for bonus depreciation, qualified improvement property such as interior improvements to nonresidential property (excluding elevators, escalators and interior structural framework and building expansion) also qualify for bonus depreciation.
If you have any questions about bonus depreciation or any other deductions for your business, please do not hesitate to contact our office.