For medical practices interested in updating their equipment, office furnishings, or automobiles, 2018 may be an opportune time to make these changes as these investments can offer enhanced federal tax benefits. Provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) offer businesses a faster write-off of capital equipment costs through revised Section 179 expensing unlimited bonus depreciation deduction for qualified business property, and increased deductions for automobiles used in business.
Section 179 expensing has been revised to increase annual expensing and investment threshold limits for property placed in service after 2017. Effective for all years beginning after 2017, the Section 179 expensing limit has been increased to $1,000,000 annually, with investment threshold limitation raised to $2,500,000. Both limits are now subject to inflation indexing, which should provide even higher limits over time. TCJA has also revised and expanded the definition of property classes eligible for expensing under Section 179, now including property used in connection with furnishing lodging and improvements to nonresidential real property.
Unlimited 100% first-year bonus depreciation deduction is now allowed for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. Certain long-production-period property and aircraft may have until January 1, 2024. Provision of this deduction is temporary, with a scheduled reduction to begin after 2022. Bonus depreciation will decrease rapidly by 20% per year, over the four year period from 2023 through 2026.
Another major change from previous bonus depreciation provisions is that it has expanded the list of qualified property to include used property as well as new and certain qualified film, television, and live theatrical productions.
Luxury auto depreciation limits have been increased for passenger automobiles placed in service after 2017 by the following amounts, not considering bonus depreciation:
- $10,000 for the placed-in-service year
- $16,000 for the 2nd year
- $9,600 for the 3rd year
- $5,760 for the 4th and later years
Amounts will be indexed for inflation after 2018, including the $25,000 cap on expensing SUV’s.
TCJA also extended the $8,000 additional first-year bonus depreciation amount for qualified passenger automobiles, trucks, and vans. By combining the extended $8,000 bonus depreciation with the revised depreciation limits on luxury autos, a new automobile placed in service in 2018 can receive up to $18,000 in first-year depreciation.
The new tax law may prove to be a boon for businesses investing in additional capital assets. Federal income tax savings from first-year expensing can boost bottom-line business profits by reducing the overall cash outlay for equipment and other business property. However, claiming these deductions can prove to be tricky and should be carefully planned, as there may be pitfalls as well as benefits. Most states do not automatically allow the same accelerated expensing and depreciation methods as the federal tax system does, resulting in the potential for significantly higher taxable income at the state level.
If you have questions about deducting the cost of capital assets or your particular tax situation, please contact Susan Goncalves or one of our tax advisors at 301.231.6200.