Recent Tax Updates

2018 Depreciation Changes

October 18, 2018

Here is a reminder of what changes the Tax Cuts and Jobs Act has made to depreciating assets for 2018 federal returns:

100% Bonus Depreciation
100% bonus depreciation may be taken for qualifying new or used property acquired September 28, 2017 – December 31, 2022.

For more information see the following on the IRS website:

Depreciation Limits for Autos and Personal Use Property
The yearly limitations for passenger autos placed in service during 2018 are:

  • $10,000 for year placed in service
    • If bonus depreciation is claimed the first year limit is $18,000
  • $16,000 for year 2
  • $9,600 for year 3
  • $5,760 for year 4 and later

Section 179 Expense
For 2018 the maximum amount that can be taken as a Section 179 expense is $1,000,000 which begins to phase out when total asset purchases reaches $2,500,000 for the year.

The following property now is eligible for Section 179 expensing:

  • Qualified improvement property made to a building’s interior with the exception if it is for the enlargement of the building, any elevator or escalator or the internal framework of the building
  • Roofs, HVAC, fire protection systems, alarm systems and security systems

Depreciation of Improvements on business property
A new qualified improvement property category has been created which replaces the old qualified leasehold improvement, qualified restaurant and qualified retail improvement property categories.

The new qualified improvement property has a general 15 recovery period. However unless Congress makes a technical correction, qualified improvement property must be depreciated over 39 years and does not qualify for 100% bonus depreciation.

Farm Property Depreciation
Beginning in 2018 the recovery period for machinery and equipment used on a farm is 5 years (it was 7 years).  This does not apply to grain bins, cotton ginning assets, fence or other land improvements.

The Tax Cuts and Jobs Act repealed the requirement to use the 150 percent declining balance method for property used in a framing business (i.e. for 3, 5, 7 or 10 year property).

For more details on the above depreciation changes see IRS Fact Sheet FS-2018-9 - New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act on the IRS Tax Reform page of their website.