***This blog has been updated on December 21, 2017 to reflect the tax bill passed by Congress***
In the past month, the House and Senate have both voted along party lines to approve their own versions of comprehensive tax reform legislation. In order to gather the necessary votes to pass their respective chambers, Republican leaders made some significant modifications during the process. In a series of blog posts, we will cover the major pieces of both bills and compare them to current law. You can see all tax reform 2017 related blogs here.
This blog will cover the topic of cost recovery of capital assets. The changes included in both bills will allow companies to increase expensing in the year that an asset is purchased to better match the payment and expensing of an asset.
CONFERENCE COMMITTEE APPROVED BILL
Expensing of 100% of the cost of new investments in qualified depreciable assets acquired and
placed in service after September 27, 2017 and before January 1, 2023. Used equipment would now qualify for expensing, with the language of the legislation adjusted to include the taxpayer’s first use (non-related party transaction), instead of original use.
The limitation for small business expensing of depreciable assets under Sec. 179 would be increased to $1 million and the phase-out amount would be increased to $2.5 million effective for tax years beginning after 2017.
The current depreciable life for real property (buildings, etc) is retained.
CURRENT LAW
Bonus depreciation of 50% is allowed on original use assets with lives of 15 years or less. The limitation for small business expensing of depreciable assets under Sec. 179 is $500,000.
The current depreciable life for real property is 27.5 years for residential property and 39 years for commercial business property.
HOUSE TAX REFORM BILL
Expensing of 100% of the cost of new investments in qualified depreciable assets acquired and
placed in service after September 27, 2017 and before January 1, 2023. Used equipment would now qualify for expensing, with the language of the legislation adjusted to include the taxpayer’s first use (non-related party transaction), instead of original use.
The limitation for small business expensing of depreciable assets under Sec. 179 would be increased to $5 million and the phase-out amount would be increased to $20 million effective for tax years beginning after 2017 through tax years beginning before 2023.
The current depreciable life for real property (buildings, etc) is retained.
SENATE TAX REFORM BILL
Expensing of 100% of the cost of new investments in qualified depreciable assets acquired and placed in service after September 27, 2017 and before January 1, 2023.
The limitation for small business expensing of depreciable assets under Sec. 179 would be increased to $1 million and the phase-out amount would be increased to $2.5 million effective for tax years beginning after 2017 through tax years beginning before 2023.
The depreciable life for real property (buildings, etc) is shortened to 25 years.