Tax Reform’s Impact on Bonus Depreciation and Section 179

On December 22, 2017, the President signed the Tax Reform legislation. The bill largely takes effect in 2018 and makes significant changes that impact most — if not all — taxpayers. Increased deductions for bonus depreciation and Section 179 expense are just two of these changes impacting business taxpayers, and these largely positive changes are two potential tax savings presents for businesses.

Bonus Depreciation

Under the previous tax rules, the bonus depreciation deduction was limited to 50% of eligible new property. The Reform extends and modifies bonus depreciation to allow businesses to immediately deduct 100% of eligible property placed in-service after September 27, 2017, and before January 1, 2023. And, for certain property with longer production periods, the 100% bonus depreciation is extended through December 31, 2023. Bonus depreciation continues to be available for qualifying property, which is generally property with a depreciable recovery period of 20 years or less. Plus, eligible property is expanded to include used property.

Date Eligible Property Placed
in Service*
2017 Law
Deduction Limitation
2018 Tax Reform Law
Deduction Limitation
January 1, 2017 – September 27, 201750%N/A
September 28, 2017 – December 31, 201750%100%
January 1, 2018 – December 31, 201840%100%
January 1, 2019 – December 31, 201930%100%
January 1, 2020 – December 31, 20200%100%
January 1, 2021 – December 31, 20210%100%
January 1, 2022 – December 31, 20220%100%
January 1, 2023 – December 31, 20230%80%
January 1, 2024 – December 31, 20240%60%
January 1, 2025 – December 31, 20250%40%
January 1, 2026 – December 31, 20260%20%

*= Properties with longer production periods have different dates.

Section 179

Section 179 allows a taxpayer to immediately expense the cost of qualifying property — rather than recovering such costs through depreciation deductions. However, the Tax Reform increased the maximum amount a taxpayer could deduct under Section 179 for property placed in-service after December 31, 2017, from $500,000 to $1,000,000. The phase-out threshold is also increased from $2,000,000 to $2,500,000 for property placed in-service after 2017. The phase-out occurs when total Section 179 property placed in-service during a tax year exceeds the threshold amount. At this point, the deduction is reduced dollar-for-dollar by the excess amount. Both the deduction and phase-out limit will be increased for inflation beginning in 2019.

Qualifying property for Section 179 expensing has been expanded under the Tax Reform to include certain depreciable tangible property related to lodging and improvements to non-residential real property such as roofs, heating, ventilation, air conditioning, fire and alarm protection systems, and security systems.
If you have questions about these tax changes, please contact your CSH advisor.

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