The Tax Cuts and Jobs Act passed in 2017 increased first-year bonus depreciation to 100%, which has remained through the end of 2022. Bonus depreciation provides a significant tax benefit to businesses by accelerating the depreciation expense on eligible property which encourages businesses to make capital expenditures. It has been part of tax law since 2002, but if no legislative changes are made it is set to expire in 2027.
For assets placed in service after 2022, bonus depreciation will decrease from 80% to 0% in 2027 as shown below.
January 1st, 2023 – December 31st, 2023: Bonus rate is 80%
January 1st, 2024 – December 31st, 2024: Bonus rate is 60%
January 1st, 2025 – December 31st, 2025: Bonus rate is 40%
January 1st, 2026 – December 31st, 2026: Bonus rate is 20%
January 1st, 2027 & Later: Bonus rate is 0%
Bonus depreciation is for Federal and although some states conform, many do not.
Businesses should be aware of the changes and look for opportunities to maximize the tax benefits of accelerated depreciation while it is still around.