In 2017, the Tax Cuts and Jobs Act (TCJA) brought significant changes to corporate and individual tax laws, including an Internal Revenue Code Section 168(k) amendment that allowed for a 100% deduction of qualified property placed in service after September 27, 2017. This change was extremely favorable to small businesses because fixed assets qualified for immediate deduction. This has been referred to mainly as Bonus Depreciation. 

However, it’s now 2023, and the TCJA added amendments to IRC Section 168(k), phasing out the 100% deduction of qualified property, which had remained in effect for qualified assets placed in service through December 31, 2022. 

In 2023, first-year bonus depreciation deduction percentages will start to decrease

This depreciation will happen over the next few years. Here’s what the annual changes will look like:  

• 80% deduction for property placed in service after December 31, 2022 and before January 1, 2024; 
• 60% deduction for property placed in service after December 31, 2023 and before January 1, 2025; 
• 40% deduction for property placed in service after December 31, 2024 and before January 1, 2026; 
• 20% deduction for property placed in service after December 31, 2025 and before January 1, 2027
• 0% deduction for property placed in service after January 1, 2027. 

If your business is planning on making a large fixed-asset purchase soon, it may be beneficial to accelerate your purchasing schedule in order to take advantage of the bonus depreciation deduction while it lasts. 

Use Section 179 deduction to fully expense property placed in service during the tax year

Alternatively, you may still use the Section 179 deduction to fully expense property placed in service throughout the tax year. However, this deduction has limitations, including threshold amounts that can be met quickly depending on the size of your business. As always, it is best to run these types of questions by your accounting firm before making a final decision. Purchasing a large piece of equipment, software, or real estate are all good examples of purchases to contact your accountant before making. This is simply because there may be some advice you’re unaware of that could help you save money on the back end, and/or make sure you are getting the benefit you thought you would. 

While there has been no sign of the 100% bonus depreciation deduction being extended in the five years since the original passage of the TCJA, who really knows what Congress and the rest of people up in Washington plan to do? They may attempt to pass “extenders” and modifications to expiring/changing tax provisions, such as the bonus depreciation phase-out. Nonetheless, until such legislation is passed, these new depreciation changes are important to stay up to date on to ensure you are maximizing your tax benefits while also complying with the latest regulations.   

Need help?

If you have further questions on these changes or need assistance with planning and analyzing your options when it comes to depreciation, reach out to our Patrick Accounting team today. We are here to make sure you are making awesome decisions for your business!