Pause and take a collective exhale with me…
The presidential election is behind us. Now that the chaos is over, we can focus on what’s ahead. I’d suggest taking a little sage advice from those t-shirts we had in 2010 – “Keep Calm, and Carry On.”
With a new president in office, there are going to be plenty of tax legislation changes in the near future – those Trump proposed in his campaign and those he didn’t. Because as we all know, campaign promises don’t always play out as we expect.
For right now, I’d be looking ahead at the possible state and local tax (SALT) limitation changes. SALT limitations are a hot topic right now because the current 10k cap creates a penalty for couples filing jointly. Many are calling either for a raise of the limit up to 20k for this tax situation—or for scrapping the limit entirely.
As with many tax things, I’ll keep you updated on which way this one ends up going.
Another big tax change possibly on the horizon is the raise of the bonus depreciation rate. Trump is talking about bringing the deduction rate back up to 100 percent – which would be great news for you as a business owner. It would mean enormous tax savings on expenses like new equipment or facility upgrades.
But that’s further down the line. Right now, focus on taking advantage of the current bonus depreciation rate (60 percent) as much as you can before the year is up. Because, unless Trump intervenes (which isn’t certain), the depreciation rate is going to drop significantly with the new year.
Please hear me when I say: Don’t procrastinate. Take action. As the trusted Southeastern FL tax pro in your corner, I want you to experience as much of this benefit as you can.
Let’s jump into just how to do that…
Bonus Property Depreciation: Big Tax Savings for Southeastern FL Business Owners
“Nothing is more expensive than a missed opportunity.” – H. Jackson Brown Jr.
As a business owner, it’s up to you to make the decisions that bring your business growth – like when to expand your services, upgrade your equipment, or even consider opening a new location. I want to submit to you that, because of tax provisions around property depreciation and a particular one right now known as bonus depreciation, the time to make those changes may be now.
Basically, bonus depreciation is a way to deduct a significant percentage of the cost of certain business expenses, like renovations or equipment upgrades.
But unfortunately, the deduction rate is phasing out, and in 2027 will rest at 0 percent (more on that later). So, you can probably guess the imperative here – take advantage of bonus depreciation for this year’s tax filing.
Every move you make to take advantage of this means… More resources available for you to invest in your business’s growth next year. So, here’s your little guide on how to take advantage of this particular property depreciation rate before the end of the year.
What’s the bonus? Just how much gets deducted? Ask the TCJA. Back in 2017, the TCJA set a 100 percent write-off limit for the cost of eligible assets for business owners (a huge jump from the former rate of 50 percent). But it was too good to last and ended in December of 2022. The rate has been dropping by 20 percent each year since then.
In 2024, the rate is 60 percent and will continue dropping by 20 percent each year until 2027 when it will phase out completely.
So, if you want to take advantage of it now (before it drops to zero percent), here’s a quick list of items to tackle before 2025 to take advantage of that 60 percent deduction rate:
- Knocking out business renovations like HVAC systems or lighting (these are considered Qualified Improvement Property [QIP] and have a 15-year recovery period requirement as long as the QIP was placed in service after Sept. 27, 2017, and does not include structural improvements).
- Getting new equipment.
- Expanding or upgrading your facility (but note that structural additions or external modifications usually don’t qualify).
- Investing in furnishings or fixtures.
- Opening a new location.
- Modernizing your business operations (like finally updating your outdated software programs).
Basically, to qualify for bonus depreciation, assets (new or used) must have a recovery period of 20 years or less. But new assets need to be placed in service during the year you want to claim the deduction.
And this isn’t an exhaustive list of what bonus depreciation covers, so be sure to read up on the details of the IRS’s guidelines before demolishing any walls or ripping up any floors (or talk to your favorite tax professional to make sure you meet those guidelines).
Do the math
Before claiming that property depreciation, there’s some calculating involved. Multiply the bonus rate (60 percent for 2024) by the asset’s cost.
So, let’s say you decide to go for that flooring upgrade and put in an elegant maple hardwood. If you purchased and installed it this year for 5k, you’d multiply that by 60 percent, which equals a 3k deduction. Then, you’d report that deduction on IRS Form 4562. (Note: Flooring upgrades that are part of structural improvements may not qualify unless they meet specific criteria (e.g., they fall under QIP for a non-residential building and are interior-only improvements)).
Your window to take advantage of the bonus depreciation deduction rate is short. So, my encouragement to my Miami Metropolitan business clients is to make the most of it before it drops. The time to act is now. Let’s talk how property depreciation and bonus depreciation can work to your advantage before 2024 is up:
calendly.com/ralfheyer/30-minute-meeting
Carpe diem,
Ralf Heyer