This is the final year to take advantage of 100% bonus depreciation. Here is what you need to know about how to use this generous tax break for your business.
Bonus depreciation allows you to immediately deduct business expenses that would typically be deducted, or depreciated, over a number of years.
In 2022, you can deduct the entire cost of a qualifying asset. Starting in 2023, the percentage is scheduled to decrease by 20 percentage points each year until reaching zero at the end of 2026.
Here are several considerations:
Assets must be placed in service, or completely up and running by December 31, 2022.
Assets must have a useful life of 20 years or less, be identified as qualified improvement property and not be land or buildings. For listed property (typically cars and trucks), the asset must be used for business at least 50% of the time.
If you purchase a piece of equipment for $500,000 but only have $250,000 in taxable income, for example, you may be better off using either Section 179 or the IRS’s regular depreciation formula.
This only impacts the timing of the deduction, not the total amount. So if you take $100,000 in bonus depreciation on a five-year asset, you’ll have a much lower taxable income in Year 1, but higher taxable income in years 2 through 5.
If you are planning any major capital purchases this year and have questions, we are here to help.
This article is from Alloy Silverstein’s Summer 2022 Client Alert newsletter. Download the full issue or subscriber to future enewsletters at our Publications page.
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