The Tax Cuts and Jobs Act of 2017 has improved tax benefits for purchasers of equipment by updating the previous 50% Bonus Depreciation rules in two key ways:
- Bonus Depreciation can still only be used on purchases of “new” equipment, but the definition of new has been changed. The benefit can now be applied to any purchase of equipment that is new to the purchaser, including equipment purchased used. Bonus Depreciation is no longer limited exclusively to purchases of newly manufactured equipment.
- For equipment placed in service after September 27, 2017 and before January 1, 2023, the 50% Bonus Depreciation deduction has been increased to 100% of the purchase price. This means the full cost of equipment purchases are tax deductible in the year placed in service. In 2023 this is reduced to 80%, and in each subsequent year the benefit is reduced by another 20%. There is no cap on the amount that can be depreciated under this provision.
Leasing equipment and software while leveraging Bonus Depreciation can help increase your cash flow as well as your after-tax profits. One big advantage is that you can write-off 100% of equipment purchased without actually spending that much during the year if you use a non-tax capital lease. You take full advantage of immediate tax write-offs and make smaller payments, leaving more cash in the business.
This is not legal, tax or financial advice. You should consult with your tax advisor for the specific impact to your business.