by Finally, Sec. 179 write-offs can be claimed for depreciable personal property used predominantly in connection with furnishing lodging. Taxpayers should begin evaluating their capital expenditure plans for 2025 and beyond to identify property eligible for immediate expensing. For production facilities, careful cost segregation of building use and documentation will be essential to substantiate eligibility for the increased deduction. Modeling the impact of accelerated deductions on taxable income, interest limitations and state conformity will be critical to optimizing the benefits of these provisions.
Tax Reform: Understanding the Federal Education Tax Credit Program
These updates simplify tax accounting for real estate professionals and may allow for deferral of income recognition, improving cash flow and easing administrative burdens. Businesses can also start planning with the enhanced Section 1202/QSBS benefits and be prepared for the changes to international taxes. Cherry Bekaert is uniquely positioned to help technology companies navigate this exciting time, from optimizing their tax strategies to setting up tax structures for the future. A new name, “Net CFC Tested Income” (NCTI), reflects the change from the current taxation of overseas intangible income to creating a global minimum tax. The reduction in the deduction from 50% to 40%, coupled with the elimination of the qualified business asset investment (QBAI) reduction, is predicted to increase technology companies’ offshore income subject to U.S. tax.
If the investor holds the investment in depreciation strategies under the new tax law the QOF for at least ten years, the investor may be eligible for a permanent exclusion of any capital gain realized by the sale or exchange of the QOF investment. Cost segregation continues to be one of the best ways to unlock early tax savings from real estate. But as always, those savings come with long-term considerations—especially now that 100% bonus depreciation is back under the Big Beautiful Bill. Aside from these considerations, eligibility for bonus depreciation doesn’t depend on the entity type – it depends on the property. So any pass-through buying qualifying equipment, computers, furniture, etc. can claim the bonus deduction. Small and mid-sized businesses may consider modernizing their equipment and software in the near future using Section 179 expensing to reap the benefits of immediate tax savings up to $2.5 million.
- The law expands the number of small business taxpayers eligible to use the cash method of accounting and exempts these small businesses from certain accounting rules for inventories, cost capitalization and long-term contracts.
- The right fact pattern may allow for significant capital expenditures at a lower after-tax cost than what would have been possible before the tax law’s passage.
- These changes support expanded tax benefits for manufacturers investing in U.S.-based production and integrated component assembly.
- The types of property eligible for this accelerated depreciation generally remain the same as under prior law.
In some cases, electing out of bonus depreciation to preserve the deduction for future years may result in a better answer than creating a NOL, the use of which is limited. The 2025 reconciliation bill provides significant opportunities for technology companies to take advantage of new and revised tax benefits. Companies should act quickly to maximize the 100% bonus depreciation and R&E expenditure deductions. Even at reduced federal bonus depreciation rates, cost segregation remains a valuable tool in the real estate tax planning arsenal. The TCJA allows small business taxpayers with average annual gross receipts of $25 million or less in the prior three-year period to use the cash method of accounting.
- Publication 535, Business Expenses, and Publication 946, How to Depreciate Property, explain many of these topics in detail.
- The 2025 tax reform delivers a powerful one-two punch for community development by making the Opportunity Zone (OZ) program permanent and significantly expanding the Low-Income Housing Tax Credit (LIHTC).
- This change increases the amount of deductible interest for most taxpayers, which is especially beneficial for real estate ventures that rely heavily on debt financing.
- Generally, qualified assets consist of machinery, equipment, off-the-shelf computer software and certain improvements to nonresidential real property.
- If you actively participate in a rental property, you may be able to count the net rental income.
OBBBA offers new, expanded ways to accelerate depreciation
Bonus depreciation is an extra first-year depreciation allowance that lets businesses write off a large percentage of an asset’s cost immediately, rather than spreading it over years. A 100% bonus depreciation means full expensing – you deduct 100% of the asset’s cost in the year purchased. In contrast, an 80% bonus depreciation (the phased-down rate that applied in 2023) means you deduct 80% of the cost in Year 1, then depreciate the remaining 20% over the asset’s normal life.
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The bill raises the Section 179 expensing cap to $2.5 million, with the phaseout threshold increased to $4 million, both indexed for inflation starting in 2026. This is a return to the generous family benefits seen under the TCJA — with slight enhancements.
Deductions, depreciation and expensing
The magnitude of immediate cash flow benefits—often representing 15-25% of total investment costs—fundamentally alters capital allocation economics. Combined with enhanced Section 179 limits, these provisions enable more aggressive growth strategies, improved financial flexibility, and accelerated modernization initiatives. The 2025 tax reform reshapes the financial and strategic landscape for the real estate industry. From permanent bonus depreciation and expanded Section 179 expensing to enhanced incentives for affordable housing and community investment, the opportunities are substantial but so are the complexities.
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This side-by-side comparison can help businesses understand the changes and plan accordingly. Section permanently restores the provision computing adjusted taxable income (ATI) without having to reduce the ATI amount for depreciation or amortization. In the absence of additional guidance, performing a cost segregation study to properly determine the basis amount that qualifies would create documentation and substantiation of costs that are eligible for 100% bonus. This new section will allow a depreciation deduction of 100% on nonresidential real property that otherwise would have been depreciated over 39 years.
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The information contained herein has been obtained from sources deemed reliable but is not guaranteed. By understanding how recapture works, and how new legislation affects your depreciation timeline, you can optimize both your current returns and your exit strategy. Miller Grossbard Advisors, LLP is an independent member firm of PrimeGlobal, an association of independent accounting firms. PrimeGlobal is one of the five largest associations of independent accounting firms in the world, providing a wide range of tools and resources to help member firms furnish superior accounting, auditing, and management services to clients around the globe. Have questions about the provisions outlined above or other parts of the bill that could impact your specific situation?
The deduction is up to $12,500 ($25,000 for joint filers) and phases out for incomes over $150,000 ($300,000 for joint filers). Starting in 2025 through 2028, individuals in occupations that customarily receive tips can claim a new deduction for qualified tips, even if they don’t itemize their deductions. This long-desired fix to Section 174 of the Internal Revenue Code will significantly benefit innovative U.S. businesses by enabling immediate expensing of domestic R&E expenditures. If you own an interest in a partnership, an LLC that’s treated as a partnership for tax purposes or an S corporation, things can become complicated, because the Sec. 179 deduction limitations apply at both the entity level and your personal level.
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