Last Chance For 100% Bonus Depreciation

Date November 30, 2022
Article Authors

The Tax Cuts and Jobs Act (TCJA) provided 100 percent bonus depreciation for qualified property (generally new and most used property with a tax recovery period of 20 years or less) placed in service after September 27, 2017, and before January 1, 2023. But the window is closing. If there is no reversal, the bonus percentage depreciation will begin dropping by 20 percent per year in 2023 until it zeros out in 2027.

Given the scheduled changes, taxpayers wanting to claim 100 percent bonus depreciation will need to acquire and place in service qualified property before the end of 2022. The “placed in service” date is when the property is ready and available for use, for most acquisitions, the purchase date. But qualifying can be more complicated, specifically for newly constructed or manufactured property, and property acquired but not used during the tax year. You should consult your tax advisor if you’re uncertain whether or not your property acquisition will be eligible for the bonus in 2022.

Should you acquire property before the end of 2022?

Accelerating tax deductions and deferring income is a common yearend tax planning technique, including acquiring property and claiming bonus depreciation. With the scheduled annual decline in bonus depreciation, the decision whether or not to acquire this year versus next presents itself with some sense of urgency. Should you rush to acquire property before the end of the year?

It depends. Lowering your tax bill should not be done at the expense of higher taxes over multiple future years; the best tax plans consider projected tax bills for years to come.

IRS Section 179

You should also consider whether IRS Section 179, another accelerated depreciation provision, will allow you to take an immediate deduction. Section 179 will not expire at the end of 2022; you can continue to use its expensing option for acquired property in the future. That said, Section 179 rules can make for very different outcomes than bonus depreciation at both federal and state levels. Your tax advisor should consider, and advise you, on the availability of Section 179 before you decide whether or not to acquire property before the end of the year.

The benefits of bonus depreciation will begin shrinking with each coming New Year, but the decision to acquire property this year or next depends on many factors. Consult with your tax advisor and consider your tax multi-year tax liability as well as the opportunity to use Section 179 before buying.

We can help. For more information, please reach out to your HBK Tax Advisor.

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