New Equipment Costs

Business owners can use the Section 179 expense deduction for new business equipment, furniture purchases, vehicles, and off-the-shelf computer software. Because Section 179 expensing allows you to take an upfront deduction on purchases, it can be a convenient alternative to depreciating the cost of equipment over time.

Buy business supplies at the end of a profitable year and accelerate other expenditures like repairs and maintenance.

Bonus Depreciation

Under the Tax Cuts and Jobs Act of 2017, a 100% first-year deduction is allowed for qualified property acquired and placed into service after September 27, 2017 and before 2023. The 100% allowance is phased down starting after 2023: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, with none allowed after 2026.

Mid-Quarter Convention

Maximize your depreciation deduction by planning qualifying purchases before the end of the year. However, be sure to avoid having depreciation deductions reduced as a result of the “mid-quarter convention,” which occurs when more than 40% of your total new property is placed in service during the last three months of the tax year. Purchases fully deducted as Section 179 expenses are removed from the mid-quarter convention computation.

Cost Segregation Studies

Capital cost segregation is a comprehensive study of real property to maximize allowable tax depreciation through faster cost recovery. Generally, real estate improvements must be depreciated over 27.5 or 39 years using a straight-line method.

A cost segregation analysis identifies property components and related costs that Federal tax law allows to be depreciated over five or seven years using 200% of the straight-line rate, or over fifteen years using 150% of the straight-line rate. Under these rules, it is possible to increase your allowable first-year depreciation tenfold. The Tax Cuts and Jobs Act of 2017 expanded the ability to expense qualifying property immediately. Qualifying assets placed in service between September 27, 2017 and December 31, 2022, are eligible for immediate expensing. After 2022, the deduction phases out by 20% each year. Examples of assets that may need proper classification include landscaping, site fencing, parking lots, decorative fixtures, cabinets, and security equipment.

The rules differ for certain property types, and not all states follow Federal depreciation rules. Businesses subject to the alternative minimum tax (AMT) may derive less benefit from cost segregation.