{"id":3770,"date":"2024-03-26T15:11:31","date_gmt":"2024-03-26T15:11:31","guid":{"rendered":"https:\/\/www.bmmcpas.com\/?p=3770"},"modified":"2024-03-26T15:13:21","modified_gmt":"2024-03-26T15:13:21","slug":"coordinating-sec-179-tax-deductions-with-bonus-depreciation","status":"publish","type":"post","link":"https:\/\/www.bmmcpas.com\/coordinating-sec-179-tax-deductions-with-bonus-depreciation\/","title":{"rendered":"Coordinating Sec. 179 Tax Deductions With Bonus Depreciation"},"content":{"rendered":"

Your business should generally maximize current year depreciation write-offs for newly acquired assets. Two federal tax breaks can be a big help in achieving this goal: first-year Section\u00a0179 depreciation deductions and first-year bonus depreciation deductions. These two deductions can potentially allow businesses to write off some or all of their qualifying asset expenses in Year\u00a01. However, they\u2019re moving targets due to annual inflation adjustments and tax law changes that phase out bonus depreciation. With that in mind, here\u2019s how to coordinate these write-offs for optimal tax-saving results.<\/p>\n

Sec. 179 Deduction Basics<\/strong><\/h2>\n

Most tangible depreciable business assets \u2014 including equipment, computer hardware, vehicles (subject to limits), furniture, most software and fixtures \u2014 qualify for the first-year Sec.\u00a0179 deduction.<\/p>\n

Depreciable real property generally doesn\u2019t qualify unless it\u2019s qualified improvement property (QIP). QIP means any improvement to an interior portion of a\u00a0nonresidential building<\/em>\u00a0that\u2019s placed in service after the date the building is placed in service \u2014 except for any expenditures attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework. Sec.\u00a0179 deductions are also allowed for nonresidential building roofs, HVAC equipment, fire protection systems and security systems.<\/p>\n

The inflation-adjusted maximum Sec. 179 deduction for tax years beginning in 2024 is $1.22\u00a0million. It begins to be phased out if 2024 qualified asset additions exceed $3.05\u00a0million. (These are up from $1.16\u00a0million and $2.89\u00a0million, respectively, in 2023.)<\/p>\n

Bonus Depreciation Basics<\/strong><\/h2>\n

Most tangible depreciable business assets also qualify for first-year bonus depreciation. In addition, software and QIP generally qualify. To be eligible, a used asset must be new to the taxpayer.<\/p>\n

For qualifying assets placed in service in 2024, the first-year bonus depreciation percentage is 60%. This is down from 80% in 2023.<\/p>\n

Sec. 179 vs. Bonus Depreciation<\/strong><\/h2>\n

The current Sec. 179 deduction rules are generous, but there are several limitations:<\/p>\n

    \n
  • The phase-out rule mentioned above,<\/li>\n
  • A business taxable income limitation that disallows deductions that would result in an overall business taxable loss,<\/li>\n
  • A limited deduction for SUVs with a gross vehicle weight rating of more than 6,000 pounds, and<\/li>\n
  • Tricky limitation rules when assets are owned by pass-through entities such as LLCs, partnerships, and S corporations.<\/li>\n<\/ul>\n

    First-year bonus depreciation deductions aren\u2019t subject to any complicated limitations. But, as mentioned earlier, the bonus depreciation percentages for 2024 and 2023 are only 60% and 80%, respectively.<\/p>\n

    So, the current tax-saving strategy is to write off as much of the cost of qualifying asset additions as you can with Sec.\u00a0179 deductions. Then claim as much first-year bonus depreciation as you can.<\/p>\n

    Example:<\/strong>\u00a0In 2024, your calendar-tax-year C corporation places in service $500,000 of assets that qualify for both a Sec.\u00a0179 deduction and first-year bonus depreciation. However, due to the taxable income limitation, the company\u2019s Sec.\u00a0179 deduction is limited to only $300,000. You can deduct the $300,000 on your corporation\u2019s 2024 federal income tax return. You can then deduct 60% of the remaining $200,000 ($500,000 \u2212 $300,000), thanks to first-year bonus depreciation. So, your corporation can write off $420,000 in 2024 [$300,000 + (60% x $200,000) = $420,000]. That\u2019s 84% of the cost! Note that the $200,000 bonus depreciation deduction will contribute to a corporate net operating loss that\u2019s carried forward to your 2025 tax year.<\/p>\n

    Manage Tax Breaks<\/strong><\/h2>\n

    As you can see, coordinating Sec.\u00a0179 deductions with bonus depreciation deductions is a tax-wise idea. We can provide details on how the rules work or answer any questions you have.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Your business should generally maximize current year depreciation write-offs for newly acquired assets. Two federal tax breaks can be a big help in achieving this goal: first-year Section\u00a0179 depreciation deductions and first-year bonus depreciation deductions. These two deductions can potentially allow businesses to write off some or all of their qualifying asset expenses in Year\u00a01. […]<\/p>\n","protected":false},"author":1,"featured_media":3771,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[],"yoast_head":"\nCoordinating Sec. 179 Tax Deductions With Bonus Depreciation - BMM CPAs and Advisors<\/title>\n<meta name=\"description\" content=\"Your business should generally maximize current year depreciation write-offs for newly acquired assets. Two federal tax breaks...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.bmmcpas.com\/coordinating-sec-179-tax-deductions-with-bonus-depreciation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Coordinating Sec. 179 Tax Deductions With Bonus Depreciation - BMM CPAs and Advisors\" \/>\n<meta property=\"og:description\" content=\"Your business should generally maximize current year depreciation write-offs for newly acquired assets. 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