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Tax Cuts and Jobs Act: What Are The Proposed Changes to Depreciation?

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The Tax Cuts and Jobs Act was passed by the House of Representatives on November 16, 2017. The Senate passed its own bill on Friday, December 1.

Both bills propose some significant modifications to the rules related to business fixed asset acquisitions and important depreciation-related tax breaks.

The following chart is a comparison of the House bill and the Senate bill regarding the proposed depreciation and expensing reforms.

The House Bill

The House bill proposes to extend the first-year bonus depreciation and would increase the first-year additional depreciation percentage to 100% for qualified property placed in service after September 27, 2017, and before January 1, 2023 (with an additional year for longer production period property).

The Senate Bill

The Senate bill temporarily allows the 100% first-year bonus depreciation for qualified property placed in service after September 27, 2017, and before January 1, 2023 (with an additional year for longer production period property). In the Senate version, taxpayers can elect to use 50% bonus depreciation instead of 100% bonus depreciation for assets placed in service during the first tax year ending after September 27, 2017.

The House Bill

The House bill expands the definition of qualified property to include used property acquired by the taxpayer, as long as the taxpayer did not use the property before acquisition. It also excludes property used in a real property trade or business, certain regulated utility property, and property used in a trade or business that has floor plan financing indebtedness.

The Senate Bill

The Senate bill expands the definition of qualified property to include qualified film, television, and live theatrical productions initially released, broadcast, or staged after September 27, 2017, and before January 1, 2023, and it excludes certain public utility property from the definition of qualified property.

The House Bill

The House bill would repeal the taxpayer's election to use AMT credits instead of deducting the additional depreciation, effective for tax years beginning after 2017.

The Senate Bill

The Senate bill also repeals the election of using AMT credits as part of the bill's repeal of the AMT.

The House Bill

For tax years 2018 through 2022, Section 179 business expensing limitation would be increased to $5 million and the phase-out amount would be increased to $20 million.

The Senate Bill

Section 179 business expensing limitation would be increased to $1 million and the phase-out threshold would be increased to $2.5 million.

The House Bill

Starting with November 2, 2017, the definition of qualified property for Section 179 purposes would be expanded to include energy efficient heating and air-conditioning property.

The Senate Bill

The definition of qualified property for Section 179 purposes would be expanded to include certain depreciable tangible personal property (property used to furnish lodging), as well as improvements made to nonresidential real property. The types of improvements falling under that definition include: roofs, heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.

Currently, this Act is still in the proposal stages. The House of Representatives and the Senate are working together to agree on the different sections of The Tax Cuts and Jobs Act in order to finalize it for Presidential approval.

The tax professionals at Marcum will keep you posted as the Act passes through the approval processes.

 
 
 
 
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