Let’s talk bonus depreciation.
It’s time for year-end tax planning, and under the Tax Cuts and Jobs Act, qualified new and used property that is acquired and placed in service in your business in 2019 is eligible for 100 percent first-year bonus depreciation.
In other words, if you have been thinking about purchasing some equipment for your restaurant or making some other improvements to your business, you may want to consider making that acquisition before the end of the year.
The 100 percent first-year bonus depreciation is a valuable tax saving tool that places control of when you take depreciation on major purchases in your hands.
Before the 2017 Tax Cuts and Jobs Act, depreciation on major purchases and leasehold improvements would be spread out over five to 39 years. Now, certain purchases of equipment – such as fry machines or coolers – can be eligible for the 100 percent bonus depreciation. The depreciation can be taken the year it is placed into service or it can be spread throughout the depreciable life of the equipment.
The 100 percent bonus depreciation deduction is also available for land improvements, such as the installation of a sprinkler system or landscaping.
Leasehold improvements that are part of a rebuild, relo, and new store do not qualify for bonus depreciation. However, non-structural leasehold improvement property may qualify for Section 179 accelerated depreciation subject to income and acquisition limitations. We often recommend that McDonald’s owner/operators have a cost-segregation study completed for larger scale projects to determine which whether the components can be depreciated over five-, 15-, or 39-years.
Keep in mind that HVACs are not eligible for 100 percent bonus depreciation.
The 100 percent bonus depreciation and Section 179 can also be taken on vehicles used more than 50 percent for business purposes, subject to limitations based on the weight and other specifications of the vehicle.
Keep in mind that auto trade-ins are no longer tax-deferred as like-kind exchanges after the 2017 enactment of the Tax Cut and Jobs Act. If you trade in a vehicle, it is now treated as a sale so you will recognize a taxable gain or loss.
Please call us today if we can help with your year-end planning.
Tammy C. Howell is a Tax Senior with Antares Group, Inc. She can be reached at firstname.lastname@example.org.