Why You Should Get a Cost Segregation Study in 2022

2022 is the Final Year to Get 100% Bonus Depreciation. On January 1, 2023, the bonus depreciation rate will be changed to 80%, after that it will be phased out by 20% each year.

The Tax Cuts & Jobs Act of 2017 (TCJA) was the most extensive tax code overhaul in three decades. Among the many changes in the code were those impacting bonus depreciation.

What is Bonus Depreciation?

Bonus depreciation, also known as the additional first-year depreciation, is a tax incentive. It allows businesses to immediately deduct a large percentage of the purchase price of eligible assets rather than write them off over the “useful life” of that asset.

Bonus depreciation is calculated by multiplying the bonus depreciation rate (currently 100%) by the cost basis of the acquired asset. For example, suppose the company’s tax rate is 21%. And it claims bonus depreciation on an item that costs $100,000. The resulting deduction would be worth $21,000.

How the Tax Cuts and Jobs Act Changed Bonus Depreciation Rules

·         Previously, bonus depreciation was only allowed for “original use” property. The new rules enable bonus depreciation for both new construction and used property acquired on/after September 28, 2017.  

·         Before September 28, 2017, the bonus depreciation deduction was 50%. That doubled to 100% for property acquired and placed in service after September 27, 2017, and before January 1, 2023.

·         This new bonus depreciation rate applies to qualified assets with a 20-Year tax life or less.

What does it mean “to place into service”?

Placed-in-service is the point-in-time when a long-term asset is first placed in use for accounting, primarily to calculate depreciation or a tax credit. The date the asset is placed in service marks the beginning of the depreciation period.

Property is placed in service when it is “first placed in a condition or state of readiness and availability for a specifically assigned function.”[1] Once these conditions are met, depreciation can commence. Buildings are typically considered placed-in-service when a certificate of occupancy is issued.

2022 is the Final Year to Get 100% Bonus Depreciation

On January 1, 2023, the bonus depreciation rate will be changed to 80%, and it will continue to drop by 20% every year after that until it is down to zero. In 2024, it will drop to 60%, and in 2025, to 40%. Finally, in 2026, it will be 20% (unless Congress changes the law).

These losses can be carried forward indefinitely and used to offset high-income years, including capital gains tax

Have You Recently Acquired Commercial or Residential Investment Property?

Don’t miss out on 100% Bonus Depreciation! The experts at M&E Cost Segregation are here to help.

Contact us today


[1] Internal Revenue Service (IRS) Reg. Sec. 1.167(a)-(11)(e)(1)

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