By: Corry Hunter, CPA
This is my favorite time of the year. Not only because of the holidays, but right now, at the very end of the year, I can actually get my clients to do some tax planning with me.
One of the most highly used tax strategies is purchasing new assets and depreciating them at an accelerated rate to reduce your current year tax bill. In recent years we have been lucky enough to have Section 179 deduction and Section 168 Bonus depreciation.
Section 179 has been around for a long time, though the amount allowed has been mostly temporary. Now we know that Section 179 has been set to a permanent amount of $500,000.
Section 168 Bonus deprecation or “Bonus” has been around a few years too, also on a temporary basis. Bonus however is set to go away… But it is going out with a bang!
Bonus depreciation is an election where a taxpayer can elect to deduct 50% of newly acquired equipment the first year the asset is placed into service. Thanks to the Protecting Americans from Tax Hikes (PATH) of 2015 Bonus remains in place through 2017 and is set to phase out in increments by 2020.
Bonus is allowed for MACRS property with a recovery period of 20 years or less and now includes Qualified Improvement Property. Qualified Improvement Property is defined by a recent IRS announcement as improvements made to real property by the owner. This is huge for owners of buildings that want to do nonstructural improvements on a building. (Think new a/c or remodel)
My favorite new rule of bonus deprecation is that it is available to farmers the year they plant long lived crops such as vines, fruit and nut trees. Internal Revenue Code states these assets are not to be depreciated the date they are placed in service. Instead they are not depreciated until they reach the end of their “pre productive period” (not until they are fruiting). For a date rancher planting offshoots this can be up to 7 years.
What this new rule means is that the cost of the offshoots and planting them is capitalized as an asset, same as before, but now half is deducted via bonus depreciation.
Several years from now we can then use Section 179 (the day it is eligible for depreciation) to write off the rest.
Thank you congress for giving taxpayers an extra reason to do some holiday shopping and stimulate the economy! For more information call Osborne Rincon CPAs at 760-777-9805.