Bonus Depreciation Rates Decrease after 2022

​Rödl & Partner Tax Matters Volume 2021-7, published November 5, 2021 

Taxpayers should consider the effects of the decreasing bonus depreciation rates when finalizing their internal budgets and projections for tax year 2022.

 
Internal Revenue Code ("IRC") Section 168(k) provides for a special accelerated rate of tax depreciation known as "bonus depreciation" for certain qualified property. Bonus depreciation rates have historically varied anywhere from 30% to 100% since the provision was first enacted in 2001. Taxpayers may also elect not to apply the bonus depreciation rules. Qualified property generally includes property to which IRC Section 168 MACRS depreciation applies and which has a recovery period of 20 years or less, computer software for which a deduction is allowed under IRC Sec. 167, water utility property, qualified film or television productions and qualified live theatrical productions.

The 2017 Tax Cuts and Jobs Act ("TCJA") increased the bonus depreciation rate from 50% to 100% for qualified property placed in service after September 27, 2017 and before January 1, 2023 (excluding certain long-production-period property which is subject to special rules). After this date, the bonus depreciation rate continues to decrease each year until it is fully phased out for qualified property placed in service after December 31, 2026. The TCJA also removed the requirement that qualified property be new.

The chart below summarizes applicable bonus depreciation percentages based on the date the asset is placed in service.

Taxpayers should consider the effects of the decreasing bonus depreciation rates when finalizing their internal budgets and projections for tax year 2022.

 
Please contact your Rödl & Partner representative with any questions.

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