Tax Cuts and Jobs Act Summary of Changes that May Affect Your Business
Bonus Depreciation Increased – The 50-percent “bonus depreciation” allowance was increased to 100 percent for property placed in service after September 27, 2017 and before January 1, 2023. Bonus depreciation will now also be allowed on the purchase of used property.
Luxury Auto Depreciation limits increased – For passenger automobiles placed in service after 2017 and for which bonus depreciation is not claimed, the maximum amount of allowable depreciation is $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years.
Code Section 179 deduction increased– For property placed in service beginning after Dec. 31, 2017, the maximum amount a taxpayer may expense under Code section 179 is increased to $1 million, and the phase-out threshold amount is increased to $2.5 million.
Domestic Production Activities Deduction has been repealed for tax years beginning after December 31, 2017.
Like-Kind Exchange treatment limited – Effective for transfers after December 31, 2017 the rule allowing the deferral of gain on like-kind exchanges is modified to allow for like-kind exchanges only for real property that is not held primarily for sale.
Employer credit for paid family or medical leave – Effective for 2018 and 2019 only, eligible employers can claim a credit equal to 12.5% of the amount of wages paid to a qualifying employee in which the employee is on family and medical leave (for up to a maximum of 12 weeks per tax year) if the rate of payment under the program is at least 50% of the wages normally paid to the employee.
Changes to Meals and Entertainment deductions – Under the Act entertainment expenses incurred or paid after December 31, 2017 are nondeductible unless they fall under the specific exceptions. One of those exceptions is for “expenses for recreation, social, or similar activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees”. (i.e. office holiday parties are still deductible). Business meals provided for the convenience of the employer are now only 50% deductible whereas before the Act they were fully deductible.
See the chart comparing the rules before and after the Act.