Depreciation is a critical aspect of tax planning for businesses, and changes to depreciation rules can have a significant impact on a company’s bottom line. In 2023, there are several changes to the rules of depreciation that finance executives need to be aware of.
Phase Out of Bonus Depreciation
One of the most significant changes to depreciation rules in 2023 is the phase out of bonus depreciation. The 100% bonus depreciation will phase out after 2022, with qualifying property getting only an 80% bonus deduction in 2023 and less in later years. Unless the law changes, the bonus percentage will decrease by 20 points each year over the next few years until it eventually phases out completely.
Changes to Section 179 Deduction
Another change to depreciation rules in 2023 is the expansion of the Section 179 deduction. This change increases the amount a business can write off under Section 179 to $1 million, up from $500,000 in previous years. The threshold at which the deduction begins to phase out has also been increased to $2.5 million, up from $2 million in previous years. This change provides significant tax savings to small and medium-sized businesses, allowing them to write off a substantial portion of their capital investments in the year of purchase.
Increase in the Depreciation Deduction for Passenger Automobiles
In 2023, there is an increase in the depreciation deduction for passenger automobiles. The new law increases the amount a business can write off for passenger automobiles from $10,100 to $10,700 for the first year, $16,100 to $16,800 for the second year, and $9,700 to $10,100 for each subsequent year. This change will provide additional tax savings for businesses that use vehicles for business purposes.
Changes to MACRS Depreciation Method
In 2023, there are also changes to the Modified Accelerated Cost Recovery System (MACRS) depreciation method. The changes include an increase in the recovery periods for qualified improvement property from 39 years to 40 years, and a change in the recovery period for qualified film, television, and live theatrical productions from 15 years to 20 years. These changes will impact the depreciation deduction businesses can claim for these types of assets.
Stay Informed of the Latest Tax Laws and Regulations
In conclusion, the changes to depreciation rules in 2023 provide significant tax savings to businesses. From the expansion of bonus depreciation to the increase in the depreciation deduction for passenger automobiles, finance executives must be aware of these changes and work closely with their tax advisors to ensure they are taking advantage of all available tax benefits. Staying informed and staying compliant with the latest tax laws and regulations is critical to maximizing the bottom line and ensuring long-term financial success.
Learn more about other 2023 tax changes.
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FAQs
The rules allow Bonus Depreciation to 100% for all qualified purchases made between September 27, 2017 and January 1, 2023. Bonus Depreciation now ramps down to 80%, starting in 2023. Bonus depreciation will continue to ramp down for ensuing years: 60% for 2024, 40% for 2025, 20% for 2026, and 0% beginning in 2027.
What are the bonus depreciation rules for vehicles in 2023? ›
For 2023, the limits for passenger automobiles are $20,200 for the first year (with bonus depreciation) and $12,200 for the first year (without bonus depreciation).
What are the changes to Section 179 in 2023? ›
The Section 179 deduction limit for 2023 was raised to $1,160,000 and the total equipment purchase limit was raised to $2,890,000. This is an increase from the 2022 Section 179 tax deduction which was set at a $1,080,000 limit with a threshold of $2,700,000 in total purchases.
What is modified first year depreciation for 2023? ›
Beginning January 1, 2023, bonus depreciation allowed in the first year the eligible property has been placed into service will drop to 80%, with the remaining 20% to be spread over the useful life of the asset.
What are the depreciation rules for small business in 2023? ›
From 1 July 2023, the instant asset write-off threshold for small business (turnover < A$10 million) applying the simplified depreciation rules will be A$20,000 (excluding GST). The May 2023 Federal Budget return the instant asset write-off rules largely to a pre-2020 environment.
What are the big changes for taxes in 2023? ›
Standard deduction increase: The standard deduction for 2023 (which'll be useful when you file in 2024) increases to $13,850 for single filers and $27,700 for married couples filing jointly. Tax brackets increase: The income tax brackets will also increase in 2023.
What is an example of bonus depreciation for 2023? ›
Bonus depreciation is then reported to the IRS. For example, if a business purchased new computer software in December 2022, but didn't put that software into service until January 2023, the business would then be required to wait until it filed its 2023 tax return to claim bonus depreciation on the software.
What is the bonus depreciation on SUVs in 2023? ›
SUV, Truck, and Van Depreciation Caps
$20,200 for the first year with bonus depreciation. $19,500 for the second year. $11,700 for the third year. $6,960 for the fourth through sixth year.
What is the bonus depreciation for luxury autos in 2023? ›
The luxury car depreciation caps for a passenger car placed in service in 2023 limit annual depreciation deductions to: $12,200 for the first year without bonus depreciation. $20,200 for the first year with bonus depreciation. $19,500 for the second year.
What is the difference between Section 179 and bonus depreciation 2023? ›
Section 179 lets business owners deduct a set dollar amount of new business assets, and bonus depreciation lets them deduct a percentage of the cost.
So part of the gain beyond the original cost basis would be taxed as a capital gain but the part that relates to depreciation is taxed at the 1250 rule rate. The unrecaptured section 1250 rate is capped at 25% for 2023.
Has the IRS made inflation adjustments for 2023? ›
Inflation last year reached its highest level in the United States since 1981. As a result, the IRS announced the largest inflation adjustment for individual taxes in decades: 7.1 percent for tax year 2023.
What vehicles are not subject to depreciation limits? ›
Cars, SUVs, trucks, and vans with a gross vehicle weight rating (GVWR) of more than 6,000 lbs are exempt from these depreciation limits and lease inclusion amounts. However, they may be eligible for other forms of depreciation. Depreciation allows taxpayers to deduct the cost of their vehicle over time.
What vehicles qualify for bonus depreciation? ›
Heavy SUVs, pickups, and vans with more than 50% business use and over 6000 lbs. Gross vehicle weight qualifies for a partial Section 179 deduction plus bonus depreciation. Vehicles clearly designated as “work” and have no potential for personal use are typically considered work vehicles.
Can you take Section 179 and bonus depreciation on the same asset? ›
A company can take both Section 179 and Bonus Depreciation allowances, but Section 179 must be applied first, and any amount over the $1,160,000 limit to Section 179 may then be taken in bonus depreciation. Effective 1/1/23, any property placed into service is no longer eligible for 100% bonus depreciation.
What is the roof depreciation for 2023? ›
On this basis, the depreciation expense amount will be the same throughout the roof's useful life. It is calculated by dividing the cost of the new roof by 27.5 years. For example, if the new-roof cost on a residential rental property is $20,000, your depreciation amount will be $727 ($20,000 / 27.5).
What is the bonus depreciation for SUV 2023? ›
For 2023, bonus depreciation is available at 80%, but is being phased down to zero over the next few years. Are you considering electing Section 179 expensing for all or part of the cost of an SUV? If so, you need to know that an inflation-adjusted limit, separate from the general caps described above applies.
