Anthony McVeigh, MSA, CPA •
Bonus Depreciation
The 2017 Tax Cuts and Jobs Act (TCJA) created a temporary 100 percent bonus depreciation provision, with a gradual phase out over time. Starting in 2023, the bonus depreciation started to phase out, with a business only being allowed to deduct 80 percent in 2023, then dropping 20 percent each year. This was to continue until 2027, when it was scheduled to be eliminated entirely. Bonus depreciation primarily covered machinery, equipment, and qualified improvement property such as interior improvements to nonresidential buildings.
Bonus Depreciation
The 2017 Tax Cuts and Jobs Act (TCJA) created a temporary 100 percent bonus depreciation provision, with a gradual phase out over time. Starting in 2023, the bonus depreciation started to phase out, with a business only being allowed to deduct 80 percent in 2023, then dropping 20 percent each year. This was to continue until 2027, when it was scheduled to be eliminated entirely. Bonus depreciation primarily covered machinery, equipment, and qualified improvement property such as interior improvements to nonresidential buildings.
The One Big Beautiful Bill Act (OBBBA) has permanently set bonus depreciation at 100 percent with no phase out. This provision will be taking effect for property placed in service after January 19, 2025. For assets acquired before, the phase-out schedule will still apply.
The OBBBA will also create a new, temporary 100 percent allowance for certain newly constructed qualified production property (QPP), such as manufacturing and production facilities. This applies to eligible real property, with construction beginning after January 19, 2025 and placed in service before January 1, 2031.
Section 179
When the TCJA was introduced in 2017, it expanded Section 179 expensing by increasing the deduction limits and broadening the definition of eligible property. This bill increased the deduction cap to $1,000,000 and raised the phase-out threshold to $2,500,000. This allowed businesses to take more deductions immediately, instead of over multiple years.
Before the TCJA, the definition of real property was limited, which made taking Section 179 on real property difficult. However, after the TCJA was introduced, it expanded the definition to include qualified real property, which consists of certain improvements to nonresidential real property. Qualified real property includes roofs, heating, ventilation, HVAC, fire protection/alarms, and security systems.
The OBBBA did not modify or change any definition, but instead increased the deduction to $2,500,000 allowing businesses to write off a larger portion of their assets upfront. The phase-out threshold has also increased to $4,000,000. This means the deduction limit begins to phase out when qualified purchases exceed $4,000,000. This new provision is effective for property placed in service in tax years beginning after December 31, 2024.
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The OBBBA will also create a new, temporary 100 percent allowance for certain newly constructed qualified production property (QPP), such as manufacturing and production facilities. This applies to eligible real property, with construction beginning after January 19, 2025 and placed in service before January 1, 2031.
Section 179
When the TCJA was introduced in 2017, it expanded Section 179 expensing by increasing the deduction limits and broadening the definition of eligible property. This bill increased the deduction cap to $1,000,000 and raised the phase-out threshold to $2,500,000. This allowed businesses to take more deductions immediately, instead of over multiple years.
Before the TCJA, the definition of real property was limited, which made taking Section 179 on real property difficult. However, after the TCJA was introduced, it expanded the definition to include qualified real property, which consists of certain improvements to nonresidential real property. Qualified real property includes roofs, heating, ventilation, HVAC, fire protection/alarms, and security systems.
The OBBBA did not modify or change any definition, but instead increased the deduction to $2,500,000 allowing businesses to write off a larger portion of their assets upfront. The phase-out threshold has also increased to $4,000,000. This means the deduction limit begins to phase out when qualified purchases exceed $4,000,000. This new provision is effective for property placed in service in tax years beginning after December 31, 2024.
For more information, follow us on LinkedIn to stay up-to-date on all of our content or give us a call at 603-224-2000.
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