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Depreciation, depreciation and surprise !

The Tax Cuts and Jobs Act was signed into law on Dec. 22, 2017, and it provides many incentives for small business owners, including three depreciation benefits you should be aware of.

1. Bonus Depreciation

Congress has increased bonus depreciation from 50% to 100% for property placed in service after Sept. 27, 2017. Generally, bonus depreciation applies to personal property, such as furniture and equipment, and now, used property also qualifies for the deduction.

Your clients can only elect out of bonus depreciation on an asset class basis and must attach an election statement to do so.

  • 100 percent for property placed in service after Sept. 27, 2017, and before Jan. 1, 2023

2. Section 179

Congress has doubled the Section 179 limit from $500,000 in prior years to $1 million in 2018 and beyond for qualified property. The annual phase-down threshold based on investment has increased from $2 million to $2.5 million.

3. Luxury Auto Limits

Another big gift in the area of deprecation is the automobile depreciation limits, which have almost been tripled under the new law. As a reminder, the word “luxury” applies to almost all four-wheeled vehicles that drive on public roads and weigh less than 6,000 lbs.

Below are the auto limits beginning in 2018 under the new law. Remember to add $8,000 to the first-year amounts when bonus depreciation is taken.

Any depreciation that is not allowed because of these annual limitations is allowed once the vehicle reaches the end of the depreciation schedule but is still subject to certain limits:

  • $10,000 year one (was $3,160 under prior law)

  • $16,000 year two (was $5,100 under prior law)

  • $9,600 year three (was $3,050 under prior law)

  • $5760 years four through six (was $1,875 under prior law)

The small business owner should also consider whether to buy or lease the automobile. Leased vehicles are not depreciated, but instead they deduct the lease payment itself. When the value of the leased vehicle is above a certain amount, they need to subtract an “income inclusion” amount, which is intended to equalize the tax benefits from leasing and owning business vehicles.

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