Take advantage of the revised and accelerated depreciation deductions

There are many significant tax planning opportunities regarding the acquisition of capital assets in the act. Specifically, it raised the limit for the Sec. 179 deduction in a given year and reinstated 100% bonus depreciation. A review of the act’s provisions reveals several planning opportunities that may help taxpayers maximize the potential tax benefits of these changes.

Sec. 179 allows taxpayers to deduct the full cost of qualifying capital acquisitions in the year of purchase, in lieu of recovering the cost over time through depreciation. The act increased the annual maximum Sec. 179 deduction amount from $1.25 million to $2.5 million. However, the amount of the deduction begins to phase out dollar for dollar when a taxpayer’s total eligible purchases exceed $4 million in a year. Thus, the deduction fully phases out once a taxpayer’s purchases reach $6.5 million. The increased thresholds and higher deduction limitation are effective for purchases made after Dec. 31, 2024.

Example: In 2025, a business purchases $4.5 million of property that qualifies for the Sec. 179 deduction. The business’s Sec. 179 deduction is $2 million: $2.5 million less $500,000.

Before the enactment of the act, the bonus depreciation rules under Sec. 168(k) allowed for an immediate deduction of 40% of the cost of eligible property placed in service in 2025. However, as a result of the act, taxpayers may now deduct the full cost of eligible property in the year of acquisition, for property acquired after Jan. 19, 2025, effectively returning the 100% bonus depreciation that had been in effect for property placed in service in 2022, before it stepped down annually by increments of 20 percentage points. It should be noted that to qualify under the new rules, there must be no written binding agreement in effect for the acquisition of the property before Jan. 20, 2025.