The Tax Cuts and Jobs Act (TCJA) enhances some tax breaks for businesses while reducing or eliminating others. One break it enhances — temporarily — is bonus depreciation. While most TCJA provisions go into effect for the 2018 tax year, you might be able to benefit from the bonus depreciation enhancements when you file your 2017 tax return. Pre-TCJA bonus depreciation Under pre-TCJA law, for qualified new assets that your business placed in service in 2017, you can claim a 50% first-year bonus depreciation deduction. Used assets don’t qualify. This tax break is available for the cost of new computer systems, purchased software, vehicles, machinery, equipment, office furniture, etc. Read more
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Bonus Depreciation Allowance Legislation And The CRS Report: Labor Resource Allocation And Tax Policy Issues
Controversies surrounding depreciation allowance legislation pending in the 113th Congress involve labor resource allocation control decentralization tax policy issues. The Obama administration’s current section 530 attacks, vindicated through state unemployment agencies, manifest its policy focus on the labor resource reallocation control centralization controversy. Those states that have entered into a “Memorandum of Understanding” involving worker misclassification with the IRS and Department of Labor have inherently sided with the Obama administration in favoring labor resource allocation control centralization. Such control centralization, which now turns its focus to depreciation allowances, coalesces important factors underpinning success of the Affordable Care Act. Read more
Bonus depreciation is just that – a bonus amount of depreciation you get to claim in the first year. Bonus depreciation allows for an extra 50% depreciation on certain assets purchased in 2013. Currently the law for bonus depreciation expires in 2014. When tax bills are brought up in Congress and tax incentives are discussed, bonus depreciation is one of the items frequently discussed so it is possible that it gets extended for 2014.
Not all business assets purchased qualify for bonus depreciation. The assets must be placed in service during the year and they must have been new. Buying a used piece of machinery would not be eligible for bonus depreciation. Also, assets must have a depreciable life of 20 years or less, so you can’t go out and buy a building then write it all off with bonus depreciation. Taking 50% depreciation in the first year can be a real tax savings Read more
One of the fifty seven federal tax provisions that expired at the end of 2013 was 50% bonus depreciation. That has been a temporary provision for several years, primarily aimed at helping economic recovery. It’s also been a generous provision (it was even 100% for a few years). With 50% bonus depreciation, a business claims depreciation on new equipment in the year it is placed in service equal to 50% of the cost plus normal depreciation on the balance. If the company was also eligible for Section 179 expensing, it would first claim $500,000 and then take 50% of the balance and then normal depreciation on the balance.
Temporary tax provisions are often renewed well after they expire. These temporary provisions all “cost” money because they result in reduced tax collections. To be extended in a revenue neutral bill, Congress has to find “offsets” – other tax increases or spending cuts. Read more
For passenger automobiles (other than trucks or vans) placed in service during calendar year 2013 to which 50% first-year bonus depreciation applies, the depreciation limit under Sec. 280F(d)(7) is $11,160 for the first tax year. Trucks and vans to which bonus depreciation applies have a slightly higher limit: $11,360 for the first tax year.
For passenger automobiles (other than trucks or vans) placed in service during calendar year 2013 to which bonus depreciation does not apply, the depreciation limit under Sec. 280F(d)(7) is $3,160 for the first tax year. For trucks and vans to which bonus depreciation does not apply, the limit is $3,360 for the first tax year.
Bonus depreciation does not affect the limits after the first year. For passenger automobiles, the limits are $5,100 for the second tax year; $3,050 for the third tax year; and $1,875 for each successive tax year. For trucks and vans the limits are $5,400 for the second tax year; $3,250 for the third tax year; and $1,975 for each successive tax year.
Sec. 280F(c) limits deductions for the cost of leasing automobiles, expressed as an income inclusion amount according to a formula and tables prescribed under Regs. Sec. 1.280F-7. The revenue procedure provides an updated table of the amounts to be included in income by lessees of passenger automobiles and another for trucks and vans, in both cases with lease terms that begin in calendar year 2013.
By Sally P. Schreiber – Journal of Accountancy Senior Editor, February 25, 2013
Edited and posted by Harold Goedde CPA, CMA, Ph.D. (taxation and accounting)
CIRCULAR 230 DISCLOSURE: Pursuant to regulations governing practice before the IRS, any tax advice contained herein is not intended or written to be used and cannot be used by the taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.