In a promising turn for businesses, a bipartisan deal currently under discussion in Congress could see the return of bonus depreciation to 100%. The proposed plan outlines that bonus depreciation would be reinstated at the full 100% rate for qualified property placed into service after December 31, 2022, effectively making it retroactive to the beginning of 2023. This potential shift in tax policy aims to provide a significant incentive for businesses, fostering investment and economic growth.
Key Points of the Proposed Bonus Depreciation Plan:
- Retroactive Application: One of the notable features of the proposed plan is its retroactive application. If enacted, businesses would benefit from the reinstated 100% bonus depreciation for qualified property placed into service at the start of 2023. This retroactivity could offer a much-needed boost to businesses that have made investments in assets during the early part of the year.
- Extension to 2026: The proposal goes beyond a short-term fix, as it suggests extending the 100% bonus depreciation for a substantial period. The plan aims to maintain this favorable depreciation rate for property put into service before January 1, 2026. This extended timeline provides businesses with a more predictable and stable environment for planning their capital expenditures.
- Current Bonus Depreciation Rates: Currently, bonus depreciation for the 2023 tax year is set at 80%, marking a reduction from previous levels. Looking ahead, without congressional action, it is slated to further decrease to 60% for the 2024 tax year. The proposed bipartisan deal seeks to address this decline by reinstating the 100% bonus depreciation, offering a potential lifeline to businesses facing the prospect of reduced deductions.
Challenges and Congressional Action:
Congressional Approval: While the prospect of reinstating 100% bonus depreciation is appealing to businesses, the proposal must undergo the legislative process and secure approval from both chambers of Congress. The bipartisan nature of the deal suggests a level of consensus, but the ultimate passage remains contingent on navigating the complexities of legislative procedures.
What does this mean for Dentists, Vets, Medical Practice owners and small business owners if proposal is passed into law?
- We expect clients that made significant investments in their practice and businesses during 2023 in expanding operatories to purchasing equipment will see higher benefit and tax savings.
- We expect greater investment in commercial real estate due to higher tax savings yielded by clients looking to shield their income by utilizing Cost Seg Strategies. This will keep certain classes of commercial real estate values at a premium.
- We will continue to keep clients updated as this deal tries to make it through the law making process. We will continue to keep clients updated as this deal tries to make it through the law making process. We will adjust our 2023 and 2024 tax strategy for clients in our Tax Planning program if this turns to law.
We will continue to watch this legislation and let you know when it is passed and how this may change our tax strategies for your business.
Written By
Omar Virjee, CPA, CTC
