So you are excited to take advantage of bonus depreciation, but did you know that most states don’t fully conform with the federal bonus depreciation rules? Many states don’t allow any bonus depreciation to be able to be taken. Some states allow partial bonus depreciation to be taken.
Bloomberg has a comprehensive list of which states allow for bonus depreciation and which ones don’t. As always with anything with tax, please consult your own tax advisor to understand how bonus depreciation can benefit you on both a Federal and possibly state level when it comes to reducing income tax liability.
Many of us thought this was a done deal. In fact, I had thought for some time that Congress would extend 100% bonus depreciation. Part of me thinks they might eventually make it permanent as part of the tax code but there are many in Congress who like to have things like this to negotiate for other deals. If that’s the case, they probably won’t make this permanent.
The House of Representatives passed their bill about 10 weeks ago now. The Senate is still sitting on the Tax Relief for American Families and Workers Act. With all the wrangling going on over Ukraine, Israel and US border funding, things seems to be stuck in the Senate.
I’m so focused on commercial real estate that it hasn’t really dawned on me how this bill impacts other industries. Apparently this is a very big deal for American farmers and they also want this passed.
Most building owners who I know have opted, as they normally do, to extend their tax returns. This year it’s beneficial so they can see if they might end up getting a nice bump from 80% to 100% for their 2023 tax returns.
Anyone paying attention to Washington DC knows that our elected representatives have not put together a real budget. There is still lots to do when they get back to work 🙂 in early January. One of the things that has been floating around DC is the possible extension of the 100% bonus depreciation rule that was originally put into place by the Tax Cut and Jobs Act of 2017.
Many in commercial real estate and particularly the GPs who run the syndications for multi-family investments have become addicted to the 100% bonus depreciation rule. I like to call it the crack of real estate and tax. In 2023 it has moved to 80% bonus and in 2024 it’s scheduled to drop to 60% bonus depreciation.
Bonus depreciation comes in to play or all property with a class life of 20 years or less. When a cost segregation study is completed, the property that is normally all 39 year if commercial and 27.5 year if multi-family / residential investment, gets reclassified to it’s proper class lives which are 5, 7, 15, and/or 27.5 / 39 years. This allows for a much bigger deduction to be taken early in the life of the ownership of the property.
Build it in America Act is making its way through Congress. They are looking to extend 100% bonus depreciation through the end of 2025. Right now the law is that for buildings placed in service in 2023, the owner can take 80% bonus depreciation and then it’s slated to drop by 20 points each year until it’s zeroed out in 2027. This new bill allows for 100% bonus depreciation for ‘23, ‘24 and ‘25. No word what happens in 2026. I kind of figured they might extend this given the slowdown we are seeing in commercial real estate.
American Enterprise Institute has some details on what may be in the Build it in America Act which is dealing with tax reform to try to encourage more growth.
If you’d like a quote for cost segregation, I work all over the U.S. in all 50 states and represent Cost Segregation Services, Inc. We’ve successfully completed more than 40,000 engineering-based cost segregation studies over the past 20 years. We’ve studied all building types and classes in all 50 states. Give me a call at 864-276-1448
