Bonus depreciation in 2016: Better than before?

February 6, 2016

The tax extenders law passed in mid-December changed some of the rules for claiming bonus depreciation in 2016. While the amount you can deduct for 2016 is still 50% of the cost of qualified assets you buy, certain restrictions have been lifted.

Bonus depreciation overview. Bonus depreciation is an additional deduction of 50% of the cost of certain property you place in service during the year. Bonus depreciation is available only for new equipment purchases and applies for the first year you place the property in service. You claim bonus depreciation after any Section 179 deduction and before you figure regular depreciation.

* Change #1. Under the new rules, bonus depreciation will be available through 2019. You can claim bonus depreciation at the 50% rate through 2017. The rate declines to 40% in 2018 and 30% in 2019. The additional amount you can deduct for certain cars will also be reduced in 2018.

* Change #2. Starting this year, two of the restrictions limiting the amount of bonus depreciation you can claim on qualified leasehold improvements have been lifted. First, you can claim bonus depreciation for qualified improvement property even if the improvements are not made under a lease. Second, the improvement you make no longer has to be placed in service more than three years after the building was first placed in service.

* Change #3. Certain trees, vines, and plants bearing fruit and nuts are considered placed in service and eligible for 50% bonus depreciation when planted or grafted. This allows depreciation to be taken sooner than under the old rule. Prior to 2016, these plants were considered placed in service when they reached an income-producing stage.

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