How Do I Calculate Bonus Depreciation Under the New Tax Law?

*Updated October 10/8/2019

The Tax Cuts and Jobs Act, enacted at the end of 2018, increases first-year bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. After that, the first-year bonus depreciation reduces. Taxpayers may elect out of the additional first-year depreciation.

Qualifications and Restrictions

Property qualifies for bonus depreciation if it has a useful life of 20 years or less and it was purchased from an unrelated party, not inherited or given as a gift. According to the IRS, “this law change: 

  • Generally, it applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances, and furniture generally qualify. 
  • Adds film, television, live theatrical productions, and some used property as types of property that may be eligible.”

Certain types of property are not eligible for bonus depreciation in any taxable year after December 31, 2017. Property used by rate-regulated utilities, and property of certain motor vehicle, boat, and farm machinery retail and lease businesses that use floor financing indebtedness, are excluded from bonus depreciation. 

Timing Details

The 50-percent bonus depreciation rate applicable before the new law took effect has been increased to 100 percent for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. The 100-percent allowance continues for five years, after which it is then phased down by 20 percent per calendar year for property placed in service after 2022. In general, the bonus depreciation percentage rates are as follows:

  • 100 percent for property placed in service after September 27, 2017, and before January 1, 2023;
  • 80 percent for property placed in service after December 31, 2022, and before January 1, 2024;
  • 60 percent for property placed in service after December 31, 2023, and before January 1, 2025;
  • 40 percent for property placed in service after December 31, 2024, and before January 1, 2026;
  • 20 percent for property placed in service after December 31, 2025, and before January 1, 2027;
  • 0 percent (bonus expires) for property placed in service after December 31, 2026.

Bonus Depreciation for Property Acquired Before September 28, 2017 

If you acquired property before September 28, 2017, it is subject to the 50-percent rate if placed in service in 2017, a 40-percent rate if placed in service in 2018, and a 30-percent rate if placed in service in 2019. Property acquired before September 28, 2017, and placed in service after 2019 is not eligible for bonus depreciation. 

However, in the case of longer production property (LPP) and noncommercial aircraft (NCA), each of these placed-in-service dates is extended one year. Thus, a 50 percent rate applies to LPP and NCA acquired before September 28, 2017, and placed in service in 2017 or 2018, a 40 percent rate applies if such property is placed in service in 2019, and a 30 percent rate applies if such property is placed in service in 2020. They continue to apply to property acquired before the September 28, 2017 cut-off date set by Congress.

Recording Bonus Depreciation

Businesses should use IRS Form 4562 (https://www.irs.gov/forms-pubs/about-form-4562) to record bonus depreciation and other types of depreciation and amortization. Depreciation can be a very complicated process, with rules and regulations that often change. Before making a decision to buy a new or used property for your business and/or claim a bonus depreciation expense, consult with an experienced CPA

One Response

  • It’s good to know more about tax depreciation. I didn’t realize that the bonus depreciation went up to 100% for property recently bought! It sounds like buying property right now is a smart thing to do.

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