In December 2017, the Tax Cuts and Jobs Act (TCJA) was passed. This legislation continued the evolution of the accelerated depreciation rules. Here is where the 2019 tax depreciation laws stand:
Section 179
- Section 179 expense deduction of up to $1,020,000 is allowed in 2019. (Phaseout for larger businesses with annual equipment purchases of $2,550,000 or more.)
- The deduction limit is indexed to inflation. As such, it should increase slightly each tax year.
- Purchases of new and used equipment are eligible.
- Real property generally does not apply.
Bonus Depreciation
- Bonus depreciation of 100% is available for assets placed in service during 2019, 2020, 2021 and 2022. It is reduced to 80% in 2023, 60% in 2024, 40% in 2025 and 20% in 2026. Bonus depreciation is completely phased out for 2027. (However, the law could always be extended again at that time.)
- Purchases of new and used equipment are eligible.
- Businesses that deduct interest expense related to inventory floor plan (i.e. new car dealerships) are generally not eligible for bonus depreciation and will need to utilize Section 179 accelerated deductions for equipment purchases.
Benefits for Real Estate Investments
- While Section 179 generally does not apply to investments in real estate, the bonus depreciation rules can be beneficial to investments in real estate. Buildings are generally depreciated over a 27.5 or 39 year life and bonus depreciation only applies to assets with a recovery period of 20 years or less. However, conducting a cost segregation study allows the owner of a building to identify portions of the building’s cost that can be allocated to shorter depreciable lives which then make them be eligible for an immediate bonus depreciation deduction. Typically, the largest items in this category eligible for immediate expensing are land improvements.
- During a cost segregation study, different classes of assets embedded in the construction costs (i.e. carpeting or a parking lot) are considered an asset separate from the overall building. These separated assets often have a shorter depreciable life (5, 7 or 15 years rather than the standard 27.5 or 39 years) and are generally eligible for bonus depreciation and can be deducted in full in year one.
- Cost segregation is available and should be considered when real property is acquired or placed in service.
Cars and Truck Limits
- Listed property rules apply to automobiles. The current depreciation rules greatly favor larger SUVs and trucks with gross vehicle weights in excess of 6,000 lbs. The depreciation deductions of vehicles are outlined as follows:
|
Passenger vehicles – cars
|
Passenger vehicles – trucks and vans
|
Vehicles over 6,000 lbs.
|
*Exceptioned vehicles over 6000 lbs.
|
|
|
2019 Depreciation Deduction Limit
(1st year)
|
$10,100
|
$10,100
|
Not limited
|
Not limited
|
|
Bonus Depreciation Limit
|
$8,000
|
$8,000
|
Not limited
|
Not limited
|
|
Section 179 Limit
|
Not eligible
|
Not eligible
|
$25,000
|
Not limited
|
|
Maximum 1st Year Deduction
|
$18,100
|
$18,100
|
Not limited
|
Not limited
|
*Certain specified vehicles over 6,000 lbs. have no limits. These include nine passenger vans, vehicles with a cargo area of six feet in length not readily accessible from the passenger compartment (think box truck), and vehicles without seating rear of the driver (think cargo van). Additionally, any vehicle over 14,000 lbs. has no depreciation limits.
X
If you have any questions regarding this article, please contact Jamie Downey at 800-849-6022 or at JMDowney@DowneyCoCPA.com.
