Now that H.R.1, aka, The Tax Cuts and Jobs Act, has been passed and signed into law the deduction limit for Section 179 increases from $500,000 to $1,000,000 for 2018 and beyond. The limit on equipment purchases has also increased, from $2 million to $2.5 million. In addition the have expanded what qualifies as a deduction which now includes the following improvements to existing nonresidential property (i.e., the improvement must be placed in service after the date the property itself was first placed in service): roofs; heating, air-conditioning, and ventilation systems; fire protection, alarm, and security systems.
Further, the bonus depreciation increases from 50% to 100%. This part is retroactive to 9/27/2017, and is good through 2022. The bonus depreciation also now includes used equipment.
Nolo.com states: Bonus depreciation allows a business owner to deduct a substantial amount of a new long-term asset’s cost in the first year, instead of depreciating the cost over many years. The bonus depreciation amount was set at 50% for 2015 through 2017 under the PATH Act. With 50% bonus depreciation, you could deduct 50% of the cost of an asset in the first year and the remainder over later years using regular depreciation. Bonus depreciation was scheduled to expire in 2020 after being phased down to 40% in 2018 and 30% in 2019.
The Tax Cuts and Jobs Act has increased first-year bonus depreciation to 100%. This goes into effect for long-term assets placed in service after September 27, 2017. In another significant change under the new tax law, you can use bonus depreciation for purchases of new or used property. Under prior law, you could only use bonus depreciation for new property.
The 100% bonus depreciation amount remains in effect until January 1, 2023. In later years, the first-year bonus depreciation deduction amount goes down, as follows:
80% for property placed in service after December 31, 2022 and before January 1, 2024. 60% for property placed in service after December 31, 2023 and before January 1, 2025. 40% for property placed in service after December 31, 2024 and before January1, 2026. 20% for property placed in service after December 31, 2025 and before January 1, 2027.
To qualify for bonus depreciation, property classified as “listed property” under the tax code must be used over 50% of the time for business. Under the Tax Cuts and Jobs Acts, computers will no longer be classified as listed property. Thus, bonus depreciation may be used to deduct computers used less than 50% of the time for business starting in 2018.