The Dynamics of Bonus Depreciation in 2023

While the economic landscape continually evolves, some features persist as they continue to offer vital support to businesses. One such feature is bonus depreciation – an appealing tax incentive that has played a significant role in facilitating business growth and investments in the U.S. Since its inception, bonus depreciation has undergone several modifications, and the year 2023 is no exception.

Initially, bonus depreciation was set at 50% and only applicable to new property. This has changed over the years as the Tax Cuts and Jobs Act (TCJA) of 2017 increased the bonus depreciation percentage to 100% for qualified property purchased after September 27, 2017 and before January 1, 2023. What this essentially means is that businesses could immediately deduct 100% of the cost of eligible property in the year it was placed in service, significantly decreasing the taxable income for businesses and encouraging more investments in new equipment, software, and other qualified assets.

However, in 2023, the bonus depreciation rates saw a downturn. The TCJA provisions outlined a phase-down of the bonus depreciation. Thus, for property placed in service after December 31, 2022 and before January 1, 2024, the bonus depreciation rate was reduced to 80% and could continue to be reduced by 20% each year thereafter until 2027 if the law does not change.

It is important to understand the finer details regarding the calculation of bonus depreciation and the eligibility criteria for various assets. Consulting with a tax professional is highly recommended to ensure that businesses can fully take advantage of this tax break and maintain compliance with the tax code.

In conclusion, while the bonus depreciation rate has decreased in 2023, it remains a powerful tool for businesses, facilitating the acquisition of new or used properties. Amid economic uncertainties, such incentives continue to provide a much-needed stimulus, encouraging businesses to invest, grow, and contribute to the economy’s overall health. Understanding the intricacies of bonus depreciation will enable businesses to leverage this advantage effectively, promoting both their growth and the broader economic landscape.


Submitted by: Emily White