Questions and Answers About the New 100% Bonus Depreciation Rule

In my recent webinars “What the New Tax Law Means for Family Child Care” I discussed significant tax changes. I answered many questions from providers listening to my webinars. I will post their questions and my answers in this article and several upcoming articles so that everyone can learn from them.

100% Bonus Depreciation Rule This rule allows providers to deduct in one year, rather than depreciating, most every item you buy that is used in your business. It includes everything except purchasing a home, adding an addition to their home, or making a major home improvement to your home. The rule also applies to items you purchased that are used, as well as new. This means you can deduct your Time-Space Percentage of a fence, new driveway or patio, flooring, roof, etc. This is a big deal! So, if you redid your driveway and spent $10,000 and your Time-Space Percentage was 35%, your business deduction is $3,500 that you can deduct in one year. In previous years, you would have had to depreciation the $3,500 over 39 years. Here were the questions related to this rule:

Q: When does this rule go into effect?

A: It starts for items purchased after September 27, 2017. It is set to expire after 2022.

Q: If I retire is there any negative consequences for using the 100% bonus rule?

A: There is no recapture of the depreciation claimed using the 100% Bonus Depreciation rule. So, you won’t have to pay back any taxes if you go out of business shortly after using this rule.

Q: Is a shed or deck considered an addition to a home and thus not eligible for the 100% depreciation rule?

A: A deck would clearly not qualify for this rule because it would be considered an addition to your home. It’s not clear if a shed would qualify as an addition. If the shed is permanently attached to the land, I would probably count this as an addition. If not, I wouldn’t, and thus it would be eligible for this rule. A garage would be considered an addition, as would a barn.

Q: I had a new driveway poured. Is that a land improvement and can I use the 100% rule?

A: Any item that is permanently attached to your land would be considered a land improvement. This would include a fence, patio and driveway. Land improvements are eligible for the 100% rule. The same answer would be if you widened your driveway.

Q: Does a vehicle qualify for the 100% depreciation rule?

A: Yes, but vehicles are subject to a limit on how much depreciation you can claim each year. Providers who use the standard mileage rate to claim vehicle expenses cannot depreciate their car. If you use the actual expenses method to claim vehicle expenses you can deduct the business portion of your actual expenses including gas, oil, repairs, car insurance, and vehicle depreciation. The vehicle depreciation deduct is limited based on whether you use it more than 50% for your business or it weighs more than 6,000 pounds.

Q: If I use the bonus rule on my vehicle that I can no longer claim mileage, true?

A: That’s true.

Q: Does the 100% rule apply to replacing an enclosed porch with a solarium?

A: It sounds like you are remodeling the porch. If so, the 100% rule applies. If you are tearing down the old porch and building a new solarium, this would be a home addition which would not qualify for this rule.

Q: Can you claim all the remaining depreciation on items you were depreciating in earlier years?

A: No. Once you start depreciating an item under a particular depreciation rule, you must continue to depreciate it under that rule, even if rules change in later years. So, if you were depreciating a driveway from 2010 over 39 years, you must continue to depreciate it under the 39 year rule.

Q: How do I deduct an addition to my home?

A: Since an addition is not eligible for the 100% Bonus Depreciation rule, you must depreciate it over 39 years.

Q: How long is the 100% bonus rule going to last?

A: For five years through 2022. After than the percentage declines. But who knows what Congress will do by then!

Tom Copeland - www.tomcopelandblog.comImage credit: https://www.schaumburg-home-improvement.com/kitchen-remodel/