100% Bonus Depreciation No Longer Available After 2022
Taxpayers have grown accustomed to being able to deduct 100% of many of their asset purchases in the taxable year in which they purchase and place the asset into service. And for good reason…thanks to the Tax Cuts and Jobs Act of 2017 taxpayers have been able to take that deduction for the past 5 years. To be exact, the 100% deduction has been allowed for eligible property purchased and placed into service after September 27, 2017. But as the saying goes…all good things must come to an end.
The ability to expense 100% of eligible asset purchases is currently set to start phasing out for eligible assets purchased and place into service after December 31, 2022. The following are the allowable percentages during the phase-out period:
For Eligible Assets Purchased and Placed into Service in:
Bonus Depreciation Percentage (%)
|2027 (and thereafter)||0%|
While the percentages are set to decrease starting in 2023, all of the existing rules that have been in place under the Tax Cuts and Jobs Act of 2017, related to the ability to claim bonus depreciation for both new and used property, remain effective through-out the phase-out period. It is important to note that the phase-out period does not begin until 2024 for certain property with a long production period.
So, what does this mean for taxpayers? This means that, absent a legislative change, taxpayers will no longer be able to deduct 100% of the cost of eligible property that is purchased and placed into service after December 31, 2022, under the bonus depreciation rules. Therefore, if you are considering a significant asset acquisition in your business, that qualifies for bonus depreciation, you will want to be mindful of when that asset is placed into service. Remember, that in order to be eligible for the 100% bonus depreciation, not only does the asset have to be purchased before the December 31, 2022 deadline, it also has to be placed into service within the taxpayer’s business by that date. Therefore, we encourage taxpayers to consider any supply chain issues that may delay the receipt of such asset and make any significant purchases early enough to meet the December 31, 2022 deadline.
While it looks as though the bonus depreciation rules may be on their way out, the good news is that the election to expense assets under Internal Revenue Code Section 179 will still be available after December 31, 2022. The ability to make a Section 179 election is subject to annual maximums, phase-outs and a taxable income limitation, however; for those taxpayers that are eligible to make the election, it may still provide them with the ability to expense certain assets in the year they are purchased and placed into service.
As always, please do not hesitate to reach out to your trusted BRC tax advisor if you have any questions.