Bonus depreciation has dropped to 80%; equipment must be purchased, placed into service by midnight Dec. 31

This year, full (100%) bonus depreciation, which was passed under the Tax Cuts and Jobs Act of 2017 (TCJA), dropped to 80%. Under the law, it will continue to drop by 20% per year until it reaches 0% in 2027.

Bonus depreciation is available for both new and used equipment placed into service by the end of the year. Eligible qualified property includes depreciable assets that typically use the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years.

“The purpose of bonus depreciation is to encourage businesses to invest in new equipment and machinery,” said Sean Farrell in the article “A Guide to the Bonus Depreciation Phase-Out 2023” on SharedEconomyCPA.com. “It provides businesses a tax incentive to do so.”

With the percentage of bonus depreciation dropping, now may be a good time to consider making a purchase, according to Dan Furman, Vice President of Strategy at Crest Capital.

In the article “Goodbye, 100% Bonus Depreciation — Phase-Out Begins in 2023” published by Equipment World, Furman writes, “To qualify, the equipment must be bought and placed into service during the calendar year, so making your bonus depreciation purchase as early as possible has advantages (avoiding supply-chain issues delaying shipment/etc.). Further, if you were considering a major purchase in 2024 or beyond and planned to use bonus depreciation, perhaps bumping that purchase to 2023 makes sense (80% depreciation this year vs. 60% next, and so on). In addition, finance rates are predicted to keep rising, so if you were planning to finance your purchase, there’s another advantage to buying earlier.”