Maximizing Depreciation

Summer is finally upon us, and my family and I are gearing up for camping season. As I am packing for our weekend retreat, I look back on our journey to where we are today. Two summers ago, I told my husband I wanted to take our son camping so we could begin making memories as a family, like the ones I had growing up. That first summer we went camping, we borrowed my dad’s tent and set up camp for a weekend. We were lucky that the weather was nice, and we made some great memories that weekend. My son could not wait to go camping again. We made reservations again for the following summer but stayed in a cabin that year because I was not ready to sleep in a tent while seven months pregnant. Once again, we were blessed with nice weather, and a new set of memories were made. As we rolled out of the campground last year, I knew this was something I wanted to do more often, and because our family was about to grow by one, we were going to need new accommodations. That is when my husband and I made the decision to upgrade and purchase a camper.

Your financial institution may also be thinking about making a new purchase. You probably won’t be buying a camper, but you may be looking to upgrade computers, software or office furniture or put a new addition on your building. Are you up-to-date on the current depreciation and expensing rules to help you maximize your tax deduction on these purchases? Below is a summary of the depreciation rules under the Tax Cuts and Jobs Act (TCJA). 

Bonus Depreciation

• Bonus depreciation increased to 100% through 2020 and will begin to phase down in 2023-2026.
• Bonus depreciation can be taken on both new and used property.

Section 179 Expensing

• The limit on additions increased to $1,000,000 and is indexed annually for inflation.
• Section 179 expensing for SUVs increased to $25,000.
• The definition of qualified property was expanded to include improvements to nonresidential real property placed in service after the date the property was first placed in service (roofs, HVAC units, fire protection, alarm systems and security systems).

With the updated depreciation guidelines, financial institutions should revisit their capitalization policies to make sure they are maximizing book earnings while still obtaining maximum tax deductions through bonus and Section 179 expensing. Capitalization thresholds can be lowered, thus allowing an asset to be capitalized on the books while being eligible for bonus and Section 179 expensing on the tax returns. When adjusting your capitalization policy, remember that the same dollar threshold must be followed for both book and tax purposes. If you have any questions, please contact your Wipfli relationship executive.