Tax Tip Podcast or Blog Post and Bonus Depreciation Rates and Election Rules

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Bonus Depreciation Rates and Election Rules


Under the Tax Cuts and Jobs Act of 2017 (TCJA), the bonus depreciation (also referred to as additional first year depreciation and special depreciation ) rules were extended and modified. Under TCJA, the bonus depreciation deduction was increased to 100 percent for property placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024, for longer production period property and certain aircraft). After that, bonus depreciation percentages are as follows:

•   80% for qualified property placed in service in 2023;
•   60% for qualified property placed in service in 2024;
•   40% for qualified property placed in service in 2025;
•   20% for qualified property placed in service in 2026.

The placed in service date is a year later for longer production period property and certain aircraft. In addition, for property acquired before September 28, 2017, and placed in service after September 27, 2017, the bonus depreciation rates are as follows: 50 percent if placed in service in 2017 (2018 for longer production period property and certain aircraft), 40 percent if placed in service in 2018 (2019 for longer production period property and certain aircraft), 30 percent if placed in service in 2019 (2020 for longer production period property and certain aircraft), and zero percent if placed in service in 2020 (2021 for longer production period property and certain aircraft).

Bonus Depreciation Election Rules:

  • No Election Required: Generally, claiming bonus depreciation does not require an affirmative election. To the contrary, a taxpayer that does not wish claim bonus depreciation must elect out.  Taxpayers claim bonus depreciation by completing Part II of Form 4562 (Depreciation and Amortization). An election is necessary, however, to apply the bonus depreciation rules to specified plants. In addition, an election is required to deduct 50 percent, instead of 100 percent, bonus depreciation for all qualified property acquired after September 27, 2017, by the taxpayer and placed in service by the taxpayer during its tax year that includes September 28, 2017.
  • Electing Out: Taxpayers can elect not to claim bonus depreciation for any class of property (Code Sec. 168(k)(7)). If made, the election applies to all additions within that same class of property placed in service during the tax year, and must be made by the due date (including extensions) of that year s tax return (Reg. Sec. 1.168(k)-1(e)(1), (3)).
  • Electing Out After Return is Filed: According to the instructions to Form 4562 (Depreciation and Amortization), if a taxpayer timely filed its return for the year without making the election, it can still make the election by filing an amended return within six months of the due date of the original return (not including extensions). In that case, the taxpayer must attach the election statement to the amended return and write on the amended return, write “Filed pursuant to section 301.9100-2.”
  • Failing to Elect Out: Taxpayers that fail to properly elect out must determine depreciation for the placed-in-service year and all subsequent tax years by assuming that bonus depreciation was claimed (i.e., by taking the deduction into account) (Reg. 1.168(k)-1(e)(5)).
Brenda Fitch Real Estate Professional
Brenda Fitch Real Estate Professional

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Bonus Depreciation Rates and Election Rules
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(Updated 04255021)

Published by Don Fitch, CPA

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