There are a couple of changes for depreciation for small business owners under the new tax plan. As of November 23, 2017, the tax plan has been passed by the House, but not the Senate. So, we’re not certain whether these changes will occur or not. If they do, it will happen January 1, 2018, so there isn’t a lot of time to plan.
There are two main changes for business owner depreciation: bonus depreciation and Section 179 deductions. Please note that these are available ONLY for business owners. You can’t use the tax breaks listed below for rental properties you own.
Currently, you can take a 50% deduction immediately for property that meets the qualifications for your business. There are two tests, other than it must be used in your business:
- The property must be new, and
- The normal depreciable life is 20 years or less.
The change, good for 5 years starting 1/1/18, is that you can take a deduction for 100% of the value.
Remember that this doesn’t mean you get more depreciation. You are simply front-end loading the depreciation so that you get to take it all in the first year, instead of spread out over many years.
This is even more powerful than depreciation that is front-end loaded for real estate because it’s a whole lot easier to take advantage of all real estate losses compared to real estate losses created by depreciation
And, as with all purchases and expenses incurred, make sure your business needs and can really use the things you’re buying. Don’t make a purchase just for the tax write-off.
The House tax plan increases the Section 179, immediate deducting. Starting in 2023, the Section 179 amount jumps from $500,000 to $5,000,000.
The Section 179 allows you to immediately expense items you purchased. You can’t double dip by taking both bonus depreciation and Section 179 for the same purchase. But you can allocate before the two.
If you’re planning to make purchases anyway, now is a good time to look at timing. If this tax plan becomes law, you get more of a deduction in 2018 if you buy in 2018 than if you buy in 2017.
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