2024 Depreciation Quick Reference Guide

Depreciation is a powerful tax saving strategy. Here is what you need to know to make the most of it!

“Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisors regarding your specific situation.”

Accelerated Depreciation Strategies Depreciation is an annual income tax deduction in which the IRS allows a taxpayer to reduce their taxable income by a portion of a property’s cost each year. Utilizing depreciation can be very effective for minimizing taxes, which is why it is important to consider accelerated depreciation strategies for maximum impact.

The Section 179 Deduction applies to tangible personal property such as machinery or equipment purchased for use in a trade or business, and if elected, improvements to the interior portion of a nonresidential building after the building is placed in service. Taxpayers can deduct the full amount of these assets up to $1.22 million for qualifying property. (The limitations are adjusted for inflation each year.)

Bonus Depreciation allows a business to immediately write off 60 percent of the purchase price of qualified depreciable property, rather than taking the expense over the “useful life” of the asset.

Benefits & Limitations

The section 179 deduction allows you to be more flexible and choose which purchases to cover and which to save as future tax breaks, but it does have a spending cap and the deduction cannot be larger than your annual business income.

Bonus depreciation has no annual spending limit and can be larger than your business income, but it is less flexible and if you choose to use it for one asset you must apply the same treatment to all assets of the same class.

You can use both the section 179 deduction and bonus depreciation in the same year.

It is important to note that accelerating depreciation does mean you receive extra depreciation; it simply means that you are speeding up the benefits rather than waiting to receive them. Also, taking more depreciation now will lead to higher taxes when the property is sold due to Depreciation Recapture rules. While these considerations are important, many taxpayers prefer deferring taxes into the future when they may be in a lower tax bracket, such as in retirement, or to have cash available for their needs today.

Quick Reference Guide

The following is meant to be a reference as you spend on your capital expenditures to help you plan to maximize tax savings.

Bonus Depreciation

1. Phase-Out

   1. 60% in 2024

   2. 40% in 2025

   3. 20% in 2026

2. Eligible Property

   1. Modified Accelerated Cost Recovery System (MACRS) property with a recovery period of 20 years or less

3. 5-Year Property

   1. Furniture

   2. Appliances

   3. Window Treatments

   4. Carpet & flooring used in residential rental property (condo)

4. 7-Year Property

   1. Office Furniture

   2. Equipment and Fixtures that are NOT Structural Components (permanently attached to the building)

   3. Desks

   4. Safes

   5. Cell Phones & Communication Equipment
      

5. 15-Year Property

   1. Land Improvements such as sidewalks, driveways, curbs, roads, parking lots, nonagricultural fences, and landscaping and shrubbery (near a building)

6. Qualified Improvement Property

   1. Any improvement made to an interior portion of a building which is nonresidential real property if the improvement is placed in service after the date the building was first placed in service. (Placed in Service = Ready and available for specific use)

7. Structural Components NOT eligible for Bonus Depreciation

   1. Bathtubs, boilers, ceilings, central air conditioning and heating systems, chimneys, doors, electric wiring, fire escapes, floors, hot water heaters, HVAC units, lighting fixtures, kitchen cabinets, paneling, plumbing, roofs, sinks, sprinkler systems, stairs, tiling, walls, and windows.

De Minimis Safe Harbor Election IRC 1.263(a)-1(f)

1. Taxpayers without applicable financial statements may deduct amounts up to $2,500 per invoice or item. (These amounts are not capitalized but are instead treated as an expense item.)