New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act

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A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. For taxable years beginning after 2018, these amounts of $1 million and $2.5 million will be adjusted for inflation.

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The new law increases the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. 

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Depreciation Limitations on Luxury, Passenger Automobiles, and Heavy Vehicles. 

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Tax reform changed depreciation limits for luxury passenger vehicles placed in service after December 31, 2017. If the taxpayer doesn't claim bonus depreciation, the maximum allowable depreciation deduction for 2022 is $11,200 for the first year. If additional bonus depreciation Combined with the additional bonus depreciation allowance of $8,000, the depreciation deduction is  $19,200 in 2022.

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Heavy vehicles with gross vehicle weight rating (GVWR) of more than 6,000 pounds placed into service after September 27, 2017, and before January 1, 2023, qualify for a 100 percent first-year bonus depreciation deduction.

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Section 199A Deduction

Section 199A deduction also known as the Qualified Business Income deduction (QBID) arises from the Tax Cuts & Jobs Act of 2017. Many individuals, including owners of businesses operated through sole proprietorships, partnerships, S corporations, trusts and estates may be eligible for a qualified business income deduction, also called the section 199A deduction.

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The deduction allows them to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. Income earned by a C corporation or by providing services as an employee isn't eligible for the deduction. The income threshold for the Qualified Business Income Deduction has increased for tax year 2022. The new thresholds are: Married Filing Joint -$340,100

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Revenue Procedure 2022-17 (irs.gov)

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