Accelerated Depreciation for Business Tax Savings

Woman operating an old fashioned computer, representing the concept of depreciation
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The 2017 Tax Cuts and Jobs Act (AKA the Trump Tax Cuts Act) made changes to extend and increase benefits to businesses for buying equipment, machinery, vehicles, and other business property. These benefits come from increased write-offs of expenses, beginning with the 2018 tax year. Three types of depreciation have been changed:

An increased limit to $1,000,000 on Section 179 deductions will allow businesses to plan for asset purchases and expense purchases immediately instead of depreciating over a period of time. The phase-out threshold has also been increased, from $2 million to $2.5 million. This increased limit will be effective for 2018 business purchases and future years. The amount will be adjusted for inflation.

An increase in bonus depreciation as an additional incentive for businesses to buy equipment. Bonus depreciation has been increased from 50% to 100% for equipment placed into service Sept. 27, 2017, and before Jan. 1, 2023. It has also been expanded to include some used equipment.

An increase in depreciation for autos used in businesses, if placed in service after December 31, 2017:

If bonus depreciation isn't claimed, the depreciation limits are:

  • $10,000 for the first year,
  • $16,000 for the second year,
  • $9,600 for the third year, and
  • $5,760 for each later taxable year in the recovery period.

If a taxpayer claims 100 percent bonus depreciation, the greatest allowable depreciation deduction is:

  • $18,000 for the first year,
  • $16,000 for the second year,
  • $9,600 for the third year, and
  • $5,760 for each later taxable year in the recovery period.

As noted by Tony Nitti at Forbes, the certainty of knowing the limits on these accelerated depreciation benefits in the future allows businesses to "finally act with some certainty over the coming years about the availability of a wide range of tax benefits."

How It Works

Accelerated Depreciation is an important concept for business owners to understand. While it is fairly complicated, and the details and tax implications should be left to an attorney or CPA, you (the business owner) should have an understanding of accelerated depreciation and how you can save on taxes by using it.

First, review the concept of depreciation, which spreads the expenses of an asset over its useful life. Ordinary (un-accelerated) depreciation is also called "straight-line" depreciation because the depreciation expense is the same each year. For example, if an asset is purchased for $10,000 and its useful life is 10 years, under straight-line depreciation, $1,000 would be expensed each year.

But the useful life of many business assets doesn't follow a straight line. So the IRS allows accelerated depreciation, which puts most of the expense of the asset in the first years it is used. Depreciation on autos, for example, is accelerated. Section 179 deductions are an example of accelerated depreciation provisions set up by the U.S. government to encourage expenditures on capital assets.

Section 179 Deductions and Bonus

In recent years, two types of accelerated depreciation have been allowed by U.S. law. These ways to accelerate deductions on business asset purchases are:

  • Bonus depreciation is set up to allow a 50% bonus on the amount of expense allowed in the first year a NEW (not used) business asset is put into service (used). Bonus depreciation is available for 2018 tax returns and future year returns, as noted above. 
  • Section 179 deductions are set up similarly to bonus depreciation but they can be on used equipment or vehicles. Effective with 2018 business tax returns, Section 179 deductions have been made permanent, as noted above. 

Two Ways to Accelerate Depreciation Deductions

The two most common methods of accelerating depreciation are "sum of the years' digits" and "double declining balance." Here is (briefly) how each works:

  • Under double-declining balance, the asset is depreciated twice as fast as under a straight line. Using the example above, 10% of the cost is depreciated each year using the straight-line method. Doubling the rate would mean that 20% would be depreciated each year, so the asset would be fully depreciated in five years, rather than 10.
  • Under sum-of-the-years-digits, the asset is depreciated faster than straight-line depreciation but not as fast as declining balance. As an example of how this method works, let's say an asset's useful life is five years. Adding up the digits would be 5+4+3+2+1 or a total of 15. The first year, 5/15 is expensed; the next year 4/15 is expensed, and so on. So if the asset's cost is $1000, 5/15 or $333.34 would be expensed the first year, $266.67 the second year, and so on.


The IRS currently requires businesses to use the MACRS system for accelerated depreciation, in which asset classification determines the depreciation period.

Discuss with Your Tax Professional

Depreciation calculations are complicated and there are many limitations and exclusions. Be sure to talk to your tax professional before making any decisions about purchasing equipment and completing IRS tax forms. 

The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state‚Äôs laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.