Tax Reform: Changes to Depreciation Affect Businesses Now

IRS Tax Reform Tax Tip 2018-68, May 3, 2018

As employers across the country celebrate National Small Business Week, the IRS reminds businesses that the passage of the Tax Cuts and Jobs Act may affect their depreciation deductions and taxes. 

Business taxpayers can generally depreciate tangible property except land, including buildings, machinery, vehicles, furniture and equipment.

Changes to depreciation and how they will affect businesses may include:

  • Businesses can immediately expense more under the new law; taxpayers may elect to expense the cost of any property and deduct it in the year the property is placed in service. 
  • Maximum deduction increased from $500,000 to $1 million. 
  • The phase-out threshold increased from $2 million to $2.5 million. 
  • The new law allows taxpayers to elect to include improvements made to nonresidential property. The improvements must have been made after the date the property was first placed in service. 

    These improvements include:
    • Any improvement to a building’s interior 
    • Roofs
    • Heating and air conditioning systems 
    • Fire protection systems
    • Alarm and security systems

    Improvements that do not qualify:
    • Enlargement of the building 
    • Service to elevators or escalators 
    • Internal structural framework of the building

These changes apply to property placed in service in taxable years beginning after December 31, 2017.

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