The Internal Revenue Service continues to provide additional guidance on the provisions included in the Tax Cuts and Jobs Act (TCJA), which was enacted in December 2017. The Service recently released Fact Sheet 2018-9, which highlights the new depreciation and expensing rules. These rules generally favor capital investment and taxpayers and could play an important role in minimizing 2018 and future tax liabilities. For the most part, the Fact Sheet simply reiterates the statutory elements of these rules.
Among other things, the maximum Section 179 deduction (that amount of qualifying capital asset additions that can be expensed in the year of acquisition) is increased from $500,000 to $1 million, and the phase-out threshold is increased from $2 million to $2.5 million for property placed in service in tax years beginning after December 31, 2017. The definition of property that will qualify under Section 179 is also expanded. Note that the changes to Section 179 are permanent.
The TCJA also increases the bonus depreciation percentage from 50% to 100% for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023. Property acquired before September 28 2017 and placed in service before January 1, 2018 remains at 50%.
The definition of property eligible for bonus depreciation was expanded (notably to include most used property), but certain property is no longer eligible, including property used in providing certain electric, water and gas utilities, or floor-plan financed motor vehicle sales or leasing.
Planning for capital expenditures is an important consideration in forecasting 2018 income tax liabilities. Should you have questions or comments, please contact Bob Grossman or Don Johnston.
