How Changes to Depreciation Under the Tax Cuts and Jobs Act Affect Businesses

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The Tax Cuts and Jobs Act (TCJA), designed to boost the economy and create jobs, took effect January 2018. As one of the largest overhauls to the tax system since the Reagan years, many business owners are still learning how it affects them. For example, many wonder how it impacts their depreciation deductions and taxes.  

According to the Internal Revenue Service (IRS), business taxpayers can generally depreciate tangible property including buildings, machinery, vehicles, furniture and equipment, excluding land. 

How Changes to Depreciation Affect Businesses Under the New Law

  • Businesses can immediately expense more; taxpayers may elect to expense the cost of any property and deduct it in the year placed in service.
  • The maximum deduction increased from $500,000 to $1 million.
  • The phase-out threshold increased from $2 million to $2.5 million.
  • Taxpayers can elect to include nonresidential property improvements made after the date the property was first placed in service. 

Qualifying Nonresidential Improvements

  • Any improvement to a building’s interior
  • Roofs
  • Heating and air conditioning systems
  • Fire protection systems
  • Alarm and security systems

Excluded Improvements

  • Enlargement of the building
  • Service to elevators or escalators
  • Internal structural framework of the building

These changes apply to property placed in service in taxable years beginning after December 31, 2017. Visit http://bit.ly/2IrGk6y for more information provided by the IRS. 

Small businesses oftentimes fall victim to tax errors because they don't have enough human resources or internal expertise when handling tax filings. Axcet HR Solutions’ payroll administration team are experts in tax administration. Find out the top five tax mistakes small businesses make and how a professional employer organization (PEO) can help in our FREE report.

Top 5 Tax Mistakes

For more information check out How the Tax Cuts and Jobs Act Affects Businesses. 

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Jo McClure

Written by Jo McClure