Many states do not conform to federal bonus depreciation rules, which can lead tax pros to overlook this option. However, a thorough understanding of the requirements and distinctions between bonus depreciation and Section 179 can help you determine the most advantageous strategy for your clients.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.
Q: Section 179 cannot create a loss, but bonus depreciation can create a loss. Is this correct?
A: Yes, bonus depreciation can create a loss as there is not a dollar cap, income limitation, or investment limit like there is for the Section 179 deduction.
Q: Does bonus depreciation need to be recaptured later?
A: Yes, when the property for which bonus depreciation was claimed is sold, that depreciation is recaptured and taxed as regular income. Additional first-year bonus depreciation is not treated as a straight-line method [Reg. §1.168(k)-1(f)(3)].
Q: Does qualified improvement property qualify for Section 179?
A: Yes, if the qualified improvement property is as described in §168(e)(6). See IRS Publication 946.
Q: Can a disallowed Section 179 deduction be carried forward?
A: Any Section 179 deduction disallowed due to income limitation can be carried forward for an indefinite number of years.
To learn more about evaluating bonus depreciation vs. Section 179 deductions, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.