Accounting
Steps to take as bonus depreciation phases down
As we enter the beginning of 2025, bonus depreciation continues to leverage down as more portions of the Tax Cuts and Jobs Act expire. Bonus depreciation was one of the significant provisions in the TCJA, with 100% bonus depreciation by the end of 2022. Unfortunately, this was a temporary provision, and the amount of bonus depreciation started leveraging down by 20% per year in 2023; going into 2025, the bonus depreciation rate will be 40%.
To understand how to make decisions, it is essential to understand how bonus depreciation works. Bonus depreciation is an acceleration of depreciation adjustments into the first year. Eligible property includes assets with a life of 20 years or less. This can include personal property, land improvements and qualified improvement property. Critical to the availability of bonus depreciation for many taxpayers is that the TCJA extended bonus depreciation to used and new property. This means a taxpayer purchasing an existing warehouse can use bonus depreciation to accelerate the land improvements, such as the parking lot and any personal property acquired along with the property.
Unfortunately, with bonus leveraging down, the value of this accelerated depreciation deduction is lessened. Going into 2025, the bonus depreciation rate is only 40%; this means that a taxpayer who purchases a parking lot for $100,000 would get a $40,000 bonus depreciation expense, and the remaining $60,000 would be depreciated over 15 years at a 150% declining balance method.
One of the main goals of the incoming administration is to bring back the TCJA policies; this will likely include reinstatement of 100% bonus depreciation moving forward. It is important to note that this will likely only impact assets acquired after the law is enacted. If we look at past extensions of bonus depreciation, they have been prospective only. For example, when the TCJA came out in 2017, property acquired after Sept. 27, 2017 was eligible for 100% bonus depreciation. However, assets acquired before that date were subject to the old rules. What does this mean for businesses in 2025?
Unfortunately, businesses acquiring assets before the anticipated announcement of the new regulations will most likely be subject to the current bonus depreciation amounts. Even if a taxpayer delays placing an asset in service, they will most likely be subject to the current rules, as the new law will look at when the taxpayer was under contract or started construction.
For taxpayers completing projects in early 2025 or even 2024, what are some options to expand the value of expensing? One option for many taxpayers is to look closely at 179 expensing. Section 179 allows taxpayers to deduct the cost of qualifying improvements immediately, including personal property and some real property, including qualified improvement property, roof replacements and HVAC replacements, when installed on nonresidential real property. However, like all good things, 179 has restrictions. Section 179 is limited to $1,000,000 indexed for inflation; for 2024, this inflation increase means up to $1,220,000 in eligible assets qualify.
One of the biggest issues is that not all investments are eligible for 179; first, Section 179 of the code limits the use if a business acquires more than $2,500,000, indexed for inflation, of eligible assets. The bigger restriction for many investors is that 179 is limited to assets used to create income “from a trade or business.” This traditionally means that assets held simply for an investment will not qualify for this deduction. Under
So, what are taxpayers to do in 2025? The first thing is that taxpayers who qualify for 179 must consider 179 when completing their taxes. Making sure to maximize 179 over bonus depreciation can make a massive difference in the tax liability for individuals. The other thing taxpayers should do is look to maximize their eligible property through cost segregation or other depreciation analyses to make sure they are getting every dollar of deduction to come their way.
What should taxpayers not do in 2025? Right now, the biggest mistake taxpayers can make is to wait for Congress to act on a new tax bill before moving forward. As mentioned above, the likelihood is that any tax bill will change these items only in a prospective manner. Waiting for a tax law change for most taxpayers will have little effect on assets they are already under contract to acquire. While a tax bill could affect future investments, it will most likely not affect 2024 tax planning or investments in early 2025.
While tax policy could change dramatically in 2025 under the new administration, understanding the interaction of 179 and bonus depreciation can drastically affect outcomes in 2024 and 2025 tax returns. While planning for changes in the Tax Code can be beneficial, taxpayers must also look at how to maximize savings based on the current law.
Easing restrictions, sharpening personal attention and clarifying denials are among the aims of
The programs focus on “fast track settlement,” which allows IRS Appeals to mediate disputes between a taxpayer and the IRS while the case is still within the jurisdiction of the examination function, and post-appeals mediation, in which a mediator is introduced to help foster a settlement between Appeals and the taxpayer.
The IRS has been revitalizing existing ADR programs as part of transformation efforts of the agency’s new strategic plan, said Elizabeth Askey, chief of the IRS Independent Office of Appeals.
“By increasing awareness, changing and revitalizing existing programs and piloting new approaches, we hope to make our ADR programs, such as fast-track settlement and post-appeals mediation, more attractive and accessible for all eligible parties,” said Michael Baillif, director of Appeals’ ADR Program Management Office.
Among other improvements, the pilots:
- Align the Large Business and International, Small Business and Self-Employed and Tax Exempt and Government Entities divisions in offering FTS issue by issue. Previously, if a taxpayer had one issue ineligible for FTS, the entire case was ineligible.
- Provide that requests to participate in FTS and PAM will not be denied without the approval of a first-line executive.
- Clarify that taxpayers receive an explanation when requests for FTS or PAM are denied.
Another pilot, Last Chance FTS, is a limited scope SB/SE pilot in which Appeals will call taxpayers or their representatives after a protest is filed in response to a 30-day or equivalent letter to inform taxpayers about the potential application of FTS. This pilot will not impact eligibility for FTS but will simply test the awareness of taxpayers regarding the availability of FTS.
A final pilot removes the limitation that participation in FTS would preclude eligibility for PAM.
The traditional appeals process remains available for all taxpayers.
Inquiries can be addressed to the ADR Program Management Office at
The Internal Revenue Service has updated and added new guidance for taxpayers claiming the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit.
The updated
New sections have been added on how long a taxpayer has to claim the tax credits, guidance for condominium and co-op owners, whether taxpayers who did not previously claim the credit can file an amended return to claim it, and a series of questions on qualified manufacturers and product identification numbers. Other material has been added on how to claim the credits, what kind of records a taxpayer has to keep for claiming the credit, and for how long, and whether taxpayers can include financing costs such as interest payments in determining the amount of the credit.
The IRS states that “financing costs such as interest, as well as other miscellaneous costs such as origination fees and the cost of an extended warranty, are not eligible expenditures for purposes of the credit.”
The International Ethics Sustainability Board for Accountants said Friday its Global Ethics Sustainability Standards have been certified by the Public Interest Oversight Board, which oversees IESBA, as well as the International Organization of Securities Commissions, ahead of the official launch later this month.
Both the PIOB and IOSCO issued a statement of support calling on their members to either apply or be informed by the new framework.
The official launch of the new standards will occur on Jan. 27, 2025, in conjunction with the International Auditing and Assurance Standards Board’s
The Global Ethics Sustainability Standards include the
The new standards offer an ethical framework for reporting and assuring sustainability-related information to provide more reliable information to investors, lenders, customers, suppliers, government, regulators and other stakeholders. The new standards and revisions to the code of ethics include guidance on use of the work of outside experts. They also address risks to the integrity, quality and effectiveness of sustainability reporting and assurance such as bias, conflicts of interest, pressure to act unethically, fraud including greenwashing, noncompliance with laws and regulations, and threats to the independence of assurance practitioners.
Victor Machado/Bluepeach
“The certification of IESBA’s new ethics standards framework for sustainability and experts, along with IOSCO’s call for its members to adopt or be informed by the framework, marks a significant step to cement ethics as the foundation of trust and accountability in sustainability reporting and assurance,” said IESBA chair Gabriela Figueiredo Dias in a statement Friday. “The global sustainability standards infrastructure is now complete, with the ethics piece providing foundational instruments to underpin transparent, relevant and trustworthy sustainability information. Looking forward to the joint launch with IAASB of the new ethics and assurance standards, join us on January 27.”
The final standards can be found on
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