Tax reform Q&A Thread 2 - Depreciation and Section 179

[Michael Plaks]

Colleagues and friends,

The original GOP reform thread started by @Brandon Hall is well over 200 posts by now. This is one of the follow-up threads specifically for discussion of depreciation and Section 179 changes in the tax reform. PLEASE POST OTHER QUESTIONS IN THE OTHER TAX REFORM THREADS.

Here is a start.

1. Fundamental depreciation rules have not changed. Still 27.5-yr (residential) and 39-yr (commercial) depreciation for buildings.

2. Section 179 is expanded from $500k to $1mil and now includes certain improvements to non-residential properties: roofs, HVAC, alarms and security systems. 

Note: Single-family homes and apartments are residential property and cannot use the expanded deduction.

3. There is a 100% "bonus depreciation" allowing immediate deduction for new and used (!) property that is below 20-yr depreciation. Buildings do not qualify, but 15-yr land improvements and 5- 7- 10-yr personal property does. Cost segregation gets a huge boost.

The rule is retroactive to 9/28/2017 - making this available for some investors on their 2017 tax returns.

4. Depreciation limits for personal automobiles used in business are dramatically improved. Also retroactive to 9/28/2017.

5. There is a new 15-yr category "Qualified improvements" that replaces the existing Retail improvements, Leasehold improvements, and Restaurant improvements.

There're lots of questions left, and nobody has all the answers. We all expect more rules from the IRS that will change the game. Meanwhile - let's debate it here. As long as it's on topic, please. There are other threads for other tax reform topics.

[Yonah Weiss]

@Chase Gochnauer I definitely agree with your calculations. However, on a SFH unless there is extensive land improvements, and fixtures, appliances, and the like (found more in luxury rentals), usually around 10-20% of the depreciable basis (purchase price minus land allocation) can be 'segregated' to 5 or 15-year property.