A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. For taxable years beginning after 2018, these amounts of $1 million and $2.5 million will be adjusted for inflation.

The Tax Cuts and Jobs Act (P.L. 115-97) as signed by President Trump on December 22, 2017. Numerous provisions discussed below affect depreciation.

Code Sec. 179

Effective for tax years beginning after December 31, 2017, the 2017 Tax Cuts Act: 

• Increases dollar limit to $1 million and investment limit to $2.5 million

Allows expensing of “qualified improvement property” (i.e. internal improvements to nonresidential real property) and, also, roofs, HVACs, fire protection and alarms, and security systems for nonresidential real property

• Allows expensing for property used in connection with lodging (e.g., in connection with residential rental property)

Adjusts $25,000 expensing limit on certain heavy vehicles for inflation

Bonus Depreciation

Effective for property acquired after September 27, 2017 and placed in service after that date: 

• The bonus depreciation rate is increased to 100 percent but phases down 20 percent each year beginning in 2023

A taxpayer may elect to apply the 50 percent rate for property placed in service during the taxpayer’s first tax year ending after September 27, 2017.

• Used property qualifies for bonus depreciation

Films, television shows, and theatrical productions are eligible for bonus depreciation

• Property used by rate-regulated utilities and property is excluded from bonus depreciation

Property of certain motor vehicle, boat, and farm machinery retail and lease businesses that use floor financing indebtedness is excluded from bonus depreciation

• Corporate election to claim AMT credits in lieu of bonus depreciation is repealed

Long-term accounting method relief from impact of bonus depreciation extended