Bonus depreciation

Bonus depreciation

What is Bonus Depreciation?

One of the main benefits of being a property investor is that you're eligible for business deductions. Bonus depreciation is a special case of the depreciation deduction and can allow a property investor to get a higher cash on cash return or return on investment faster.

Bonus depreciation allows property investors to fully write off the value of their assets within the first year of owning it. Eligible items include machinery, computers, appliances, furniture, vehicles weighing 6000+ pounds, and more. Items cannot have been purchased from a family member.

This tax incentive is particularly useful because investors can obtain a large amount of yield on the first year to help offset the down payment and deferred maintenance. The incentive does vary from administration to administration and may be adjusted on a yearly basis. If the investor wishes to depreciate the asset over a longer period, they can do that as well.

What is the current bonus?

In 2017, the JOBS Act temporarily doubled the bonus depreciation percentage from 50% to 100%. This percentage is valid for all assets purchased before January 1, 2023. More information can be found on the IRS website. There are limitations to the maximum amount of depreciation you can take each year.

Eligible asset purchase dateBonus depreciation
9/28/2017 - 12/31/2022100%
1/1/2023 - 12/31/202380%
1/1/2024 - 12/31/202460%
1/1/2025 - 12/31/202540%
1/1/2026 - 12/31/202620%

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