Bonus Depreciation Deduction 

What is the Bonus Depreciation Deduction?

Internal Revenue Code Section 168(k) allows an additional first-year depreciation deduction equal to the applicable percentage of the adjusted basis of qualifying property placed in service during the tax year. The Tax Cuts and Jobs Act (TCJA) made significant changes to what property qualifies for bonus depreciation, along with the applicable percentage.

shutterstock_4872084671_6.jpg

Special Considerations

  • Taxpayer may elect out of bonus depreciation with respect to any class of property for any taxable year. Election can be revoked only with IRS consent.

  • Taxpayer may elect to apply 50 percent bonus instead of 100 percent on qualifying property during first taxable year ending after September 27, 2017.

  • Certain real property or farm trades or businesses that elect out of the new interest limitation rules are required to use the alternative depreciation system to depreciate certain property, which isn’t eligible for bonus depreciation.

TCJA:

  • MACRS property with recovery period of 20 years or less, water utility property, certain computer software or qualified improvement property^, property for a qualified film or television production or qualified live theatrical production

Prior to TCJA:

  • MACRS property with recovery period of 20 years or less, water utility property, certain computer software or qualified improvement property and original use of property must commence with the taxpayer, i.e., new property

TCJA added :

  • Property for a qualified film or television production or qualified live theatrical

  • Used property (with exceptions for property purchased from related party)

TCJA removed :

  • Certain property used in regulated public utility businesses and property used in a trade or business that has floor plan financing indebtedness