As part of the Tax Cut and Jobs Act of 2017 (TCJA), taxpayers have until December 31, 2022, to claim a 100% depreciation deduction on certain business investments and improvements to investment property. Here are two ways you may be able to benefit from the 100% bonus depreciation deduction before it expires later this year:
1. Investment Property Improvements with a Recovery Period of 20 Years or Less.
You can generally take the 100% special depreciation deduction on investment property improvements made after September 27, 2017, and placed in service before January 1, 2023, if the upgrades have a recovery period of 20 years or less. This would include improvements such as:
- Any improvement to a building’s interior
- Heating and air conditioning systems
- Fire protection systems
- Alarm and security systems
2. Cost Segregation on Investment Property Purchases.
One little-known aspect of the bonus depreciation rules is that you may be able to deduct a large portion of the purchase price of an investment property if you hire a professional CPA firm to do a “cost segregation” study on the property. This is where you identify specific parts of the property that would qualify for the bonus depreciation deduction as separate tangible personal properties. This could include things like the roof, windows, or HVAC units. If you go this route, your tax savings may be significant because you may be able to take a large deduction this year instead of depreciating those assets over the traditional 27.5-year period for residential properties or 39 years for commercial properties.
As always, we’re happy to refer you to a CPA who can help you evaluate either of these options!
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