The IRS and the Treasury Department have finalized new business depreciation deduction regulations that allow companies to write off most of their depreciable assets in the year that they were used.
New Deduction Rule Increases Write-Off Potential
This new tax regulation, which was issued in September, could become a big money-saver for companies in industries from real estate to manufacturing. Now, businesses can deduct the full cost of some purchases, potentially earning a larger tax refund check.
Business Depreciation Deduction Doubles
The new 100 percent business depreciation deduction implements provisions of the Tax Cuts and Jobs Act that were first proposed in August 2018. Previously, the IRS only permitted companies to take a first-year 50 percent business depreciation deduction for qualified property placed into service in that year.
Many Types of Property Qualify
The new business depreciation deduction generally applies to assets that tend to lose value over time, such as:
- Office equipment
Items like these may qualify whether they are bought new or used.
Deduction Allowed on Amended Returns
Many companies who have already filed last year’s tax return can still file paperwork with an accounting professional to receive this new business deduction. IRS rules state that companies have six months from the original tax deadline to file an amended return to qualify for the new 100 percent first-year business depreciation deduction.
The Fine Print
The deduction applies to qualifying property that was acquired and placed into service after September 27, 2017. It may then be applied to qualifying new purchases going forward.
According to the new IRS regulation, the depreciable assets must be used in the company’s trade and must have a recovery period of 20 years or less to qualify.
Companies can elect to opt out of this new business depreciation provision but they must do so on their tax returns.
This new IRS provision is just one part of the Tax Cuts and Jobs Act, which made major changes to the Federal tax code. If you have any questions about how new tax regulations could impact your company, contact your local accountant.