The Tax Cuts and Jobs Act was signed on December 22, 2017 but the impacts are just now being seen and felt by business owners, especially in the construction industry. Below we have highlighted some of the tax law changes that will be of great interest to contractors and other construction professionals.
The bonus deprecation rule accelerates the deduction for capital improvements and business expansion. A company owner can immediately deduct short-lived capital investments, but only for the year it is placed in service.
Section 179 deductions
Section 179 deductions also allow business owner to deduct total costs of capital improvements and business investments immediately rather than over a period of years. Again, it must be only for the year placed into service. This incents business owners to invest in their companies, buying new equipment, upgrading software and get the maximum tax deduction as quickly as possible.
This rule is more restrictive than the bonus depreciation. There is limit based on the taxpayer’s income and it has a maximum deduction. However, the maximum deduction is increased from $500,000 to $1,000,000 under the new rule.
Qualified Improvement Property
This tax rule is specifically for the construction industry. It is a narrow rule that allows for accelerated depreciation for improvement to a non-residential building, under certain circumstances. Excluded are changes to “internal structural framework”, building expansion, elevators and escalators. Other than these restrictions there is great flexibility when defining qualified improvements.
For a more in-depth look at these new tax benefits, we invite you to click on the link below.
Note: This blog is informational only and should not be construed as tax advice.