Bonus depreciation is a tax benefit that allows businesses to immediately write off a larger portion of the cost of certain capital assets, such as machinery and equipment, in the year they are placed in service. This can be a valuable tool for businesses looking to invest in new assets and improve their operations, as it allows them to reduce their taxable income and potentially pay less in taxes.
In the past, bonus depreciation has undergone several changes, with the most recent change occurring in 2017 under the Tax Cuts and Jobs Act (TCJA). Under this legislation, bonus depreciation was increased from 50% to 100% for certain qualifying assets, and it was also made available to used assets for the first time.
However, this generous treatment of bonus depreciation is set to change in 2023. Under the provisions of the TCJA, the bonus depreciation rate will gradually decrease each year starting in 2023, eventually returning to its pre-TCJA level of 50% in 2027. This means that businesses will no longer be able to take advantage of the full 100% bonus depreciation rate in 2023 and beyond.
It's important to note that this change will only affect new qualifying assets placed in service after December 31, 2022. Assets placed in service before this date will still be eligible for the 100% bonus depreciation rate.
So, what does this change mean for businesses? Essentially, it means that the tax benefits of bonus depreciation will be less generous going forward. Businesses that are considering making significant capital investments in the near future may want to consider accelerating their purchases in order to take advantage of the higher bonus depreciation rate while it is still available.
It's also worth noting that there are certain exceptions to the 2023 change in bonus depreciation. For example, certain assets, such as qualified film, television, and live theatrical productions, and certain qualified improvement property, will still be eligible for the 100% bonus depreciation rate even after 2022.
In summary, bonus depreciation is set to change in 2023, with the rate decreasing from 100% to a yet-to-be-determined amount. Businesses that are considering making significant capital investments in the near future may want to consider accelerating their purchases in order to take advantage of the higher bonus depreciation rate while it is still available. It's always a good idea to consult with a tax professional to determine the best course of action for your specific business.
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