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Do you know the tax rules for business depreciation deduction?

Posted on June 11, 2019

The recently passed Tax Cuts and Jobs Act made some fairly substantial changes to the rules around business depreciation deductions that will affect many businesses.

If you manage or own a business, you should absolutely know the updated tax rules for deducting depreciation on your business-related property. Understanding these rules can benefit – or hurt — eligible business taxpayers and effect your bottom line at tax time.

Here’s what you should know about property placed in service in taxable years beginning after December 31, 2017:

  • In general, businesses can depreciate most tangible property, except land. Tangible property includes:
  • Buildings
  • Machinery
  • Vehicles
  • Furniture
  • Equipment

The Tax Cuts and Jobs Act made some changes to business depreciation under tax reform, much of it favorable to your business. As of January 1, 2018, new regulations now allow that:

  • Taxpayers can expense more. Businesses may choose to expense the cost of a property and deduct it in the year it is placed in service.
  • The maximum deduction allowable has increased from $500,000 to $1 million.
  • The phase-out limit increased from $2 million to $2.5 million.

Also under The Tax Cuts and Jobs Act, taxpayers may depreciate improvements made to nonresidential property. These improvements must have been made after the date the property was first placed in service, and include:

  • Changes to a building’s interior
  • Roofs
  • Heating and air conditioning systems
  • Fire protection systems
, and
  • Alarm and security systems.

Improvements that do not qualify as deductible include any enlargement of the building, service to elevators or escalators, or internal framework of the building.

As with all new tax rules and regulations, there are exceptions and fine print. For more complete information, go to IRS.gov Tax Reform Provisions that Affect BusinessesNational Small Business Week, or contact your CPA at Teipen Selanders Poynter & Ayres.

We can help you gain clarity on how best to use these new regulations for your business.