WASHINGTON — Changes to the tax law mean farmers and other small business owners can immediately expense more of the cost of certain business property.
Many are now able to write off most depreciable assets in the year they are placed into service.
The Tax Cuts and Jobs Act (TCJA), passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. Among those for business owners are tax rate changes for pass-through entities, changes to the cash accounting method for some, limits on certain deductions and more.
A taxpayer may elect to expense all or part of 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.
These changes apply to property placed in service in taxable years beginning after Dec. 31, 2017. For most businesses, this means the 2018 return they file next year.
Section 179 property includes business equipment and machinery, office equipment, livestock and, if elected, qualified real property.
The new law also modifies the definition of qualified real property to allow the taxpayer to elect to include certain improvements made to nonresidential real property.
The new law includes a new 100 percent, first-year ‘bonus’ depreciation.
The 100 percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.
The deduction applies to business property acquired after Sept. 27, 2017, and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.
Taxpayers may elect out of the additional first-year depreciation for the taxable year the property is placed in service.
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