The Tax Cuts and Jobs Act changed some laws on depreciation and expensing. These changes can affect a business’s tax situation. Here are the highlights:
- Businesses can immediately expense more under the new law.
- Temporary 100 percent expensing for certain business assets (first year bonus depreciation).
- Changes to depreciation limitations on luxury automobiles and personal use property.
- The treatment of certain farm property changed.
- Applicable recovery period for real property.
- Use of alternative depreciation system for farming businesses.
Taxpayers can use a safe harbor method to figure depreciation deductions for passenger automobiles qualifying for the 100-percent additional first year depreciation deduction and subject to depreciation limitations. The safe harbor allows depreciation deductions for the excess amount during the recovery period subject to depreciation limitations applicable to passenger automobiles. To apply the safe-harbor method, the taxpayers must use the applicable depreciation table in Appendix A of Publication 946, How to Depreciate Property. The safe harbor method doesn’t apply to a passenger automobile for which the taxpayer elected out of the 100-percent additional first year depreciation deduction or elected to expense all or a portion of the cost of the passenger automobile.
Find more details in FS-2018-9, New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act, and Additional First Year Depreciation Deduction (Bonus) – FAQ.