President Trump signed the Tax Cuts and Jobs Act (P.L. 115-97) (The Act) into law on December 22, 2017. The Act provides the most sweeping change to the U.S. tax code since 1986. This historic bill calls for lowering the individual and corporate tax rates, repealing countless tax credits and deductions, enhancing the child tax credit, boosting business expensing and more. The final law varies from the first version passed by the House, and the second version as adjusted and passed by the Senate. Congress passed the final version after a joint conference committee made numerous adjustments to the bill. The bill passed 227-203 in the House and 51-47 in the Senate; with 12 Republicans voting against it and no Democrats voting for it.
The new tax laws are incorporated into the 2018.1 release of Sage Fixed Assets─Depreciation. See our January 25, 2018 blog post for more details on this release.
This post covers the most common, but not all, provisions in the Act affecting depreciation and expense deductions for the U.S. taxation of business property (generally, fixed assets used in business).
At a Glance
Why would a taxpayer use Section 179 expensing if 100% bonus is allowed?
Bonus must be applied to all qualifying property, unless elected out. Election out can be made by classes of property (i.e. 5-year, 7-year). Section 179 can be selectively applied to individual assets. A company’s over-all tax situation will determine if one or the other, or a mix of the two, is best.
Bonus Depreciation (Section 168(k) Allowance)
In general, for qualified property acquired after 9/27/2017 and placed in service by 12/31/2022, the 50% bonus rate is increased to 100%, and then phased-out over the following years.
The applicable rates, by acquisition date of the property, are:
Section 179 Expensing
The Act expands expensing under Section 179 for business property placed in service in taxable years beginning on or after 1/1/2018 as follows:
Recovery Period for Real Property
Effective for property placed in service 1/1/2018 and later:
Depreciation caps on passenger automobiles
The annual depreciation caps, that apply to many cars, trucks and vans, are increased for vehicles placed in service after December 31, 2017.
The increased caps for vehicles placed in service in 2018 are:
Tax Year 1...............$10,000 ($18,000 if bonus depreciation claimed)
Tax Year 2...............$16,000
Tax Year 3...............$9,600
Tax Years 4 + ..........$5,760
AMT for Corporations Repealed
The Alternative Minimum Tax (AMT) is repealed for corporations for tax filing years 2018 and thereafter. This will reduce tax compliance work for accountants that handle a corporation's AMT and ACE (Adjusted Current Earnings) depreciation calculations. Previously, only "small business corporations" were exempt from the AMT rules. However, if their 3-year average gross receipts exceeded a certain level, they lost the exemption. Now all corporations are exempt under the new law. The AMT rules are still in effect for individuals.
Depreciation of Farm Property
The following applies to new farming machinery and equipment placed in service after December 31, 2017:
Like-kind Exchanges of Property
Effective for disposals/exchanges after 2017 (with some exceptions):