Ep. 102 | Bonus Depreciation Explained

Teaching Tax Flow: The Podcast

In this episode appropriately titled, "Bonus Depreciation Explained," we aim to demystify one of the most queried topics in the tax community. Chris explains the fundamental principles of bonus depreciation, underlining its relevance and the strategic advantage it offers to businesses, particularly small entities and real estate investors. Listeners are treated to practical examples that illustrate how bonus depreciation can be maximized and the potential pitfalls to be wary of.

During this episode, Chris clarifies the specific IRS codes and tax laws governing bonus depreciation and elaborates on the implications of the Tax Cuts and Jobs Act. The episode also covers scenarios such as business asset purchases, the sale of depreciated property, and recapture rules. By simplifying these complex tax concepts, Chris ensures that both novice and experienced taxpayers understand how to leverage bonus depreciation for significant tax savings and compliance. The hosts use real-world examples, like the purchase of industrial equipment and vehicles, to bring clarity to these tax strategies.

Key Takeaways:

• Definition and Importance: Bonus depreciation is a tax incentive allowing businesses to deduct a significant portion of the cost of qualified property in the year it is placed in service.
• Qualifying Assets: It can be applied to both new and used assets, provided they are new to the purchasing business.
• Recapture Rules: Depreciation recapture applies if business use of an asset declines below 50% or if the asset is sold.
• Planning and Strategy: Strategic planning is essential to decide whether to use bonus depreciation, particularly when considering future asset use and potential tax rate changes.
• Tax Cuts and Jobs Act Impact: The Act significantly expanded bonus depreciation, including used assets, and set a phase-down schedule starting from 2023.

Notable Quotes:

1. "Tax laws are written to encourage or discourage certain behavior... this tax law is written to encourage businesses to invest in fixed assets." - Chris Picciurro
2. "Bonus depreciation allows you to front-load a percentage of the asset purchase into the first year and spread the remaining amount over the life of the asset." - Chris Picciurro
3. "The depreciation schedule is vital in keeping track of how much of the asset has been depreciated and what remains." - Chris Picciurro
4. "Placed into service is the most important date for bonus depreciation eligibility." - Chris Picciurro
5. "You don't have to use bonus depreciation; you can elect out if it makes better tax sense." - Chris Picciurro

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• (00:05) - Excitement Over Bonus Depreciation and Detroit Tigers' Playoff Hunt
• (03:16) - Understanding Bonus Depreciation and Its Economic Implications
• (05:37) - Understanding Bonus Depreciation for Small Business Investments
• (10:37) - Understanding Depreciation Recapture and Bonus Depreciation Strategies
• (18:35) - Understanding Depreciation Schedules and Bonus Depreciation Changes
• (27:29) - Teaching Tax Flow Podcast: Winter Prep and Listener Engagement