Office Equipment Buyer’s Guide For Bonus Depreciation Tax Savings In 2023

Bonus depreciation is a nice tax perk that allows business to accelerate tax savings when buying new and used machinery.

Uncle Sam Wants To Help Buyers Of New & Used Machinery

Buyers and sellers of machines and equipment play pivotal roles in our economy. Machinery serves as the backbone for constructing infrastructure,  homes, offices, and facilitating efficient material movement. Investments in equipment are a fundamental factor contributing to our productivity.

Congress recognizes that capital goods investments, equipment such as Canon and Epson office plotters, and research and development, are essential drivers of sustained economic growth. As a result, both categories receive preferential tax treatment.

Bonus depreciation is a way to encourage buyers to continue investing in fresh and productive fleet and equipment.

What Types of Purchases Qualify For Bonus Depreciation?

Under the current IRS guidelines for bonus depreciation, qualified property is defined as tangible personal property with a recovery period of 20 years or less. Most equipment purchases are covered by the current tax law – this includes office plotters, scanners, printers, etc.

Used machinery purchases qualify as well, so long as the used machinery purchases was not previously owned by the buyer. The treatment of used equipment purchases changed when the tax law was updated in 2017 – used equipment purchases prior, did not qualify.

Bonus depreciation cannot be applied to real estate improvements or land purchases. Also, there are specific limitations for purchases of automobiles.

In 2017, Congress made revisions to the tax law, which included amendments to the way farm equipment is treated. Under the new legislation, the recovery period for machinery and equipment utilized in farming operations was reduced from 7 to 5 years when it comes to normal tax depreciation (not bonus depreciation). It’s important to note that this shorter recovery period does not extend to grain bins, cotton ginning assets, fences, or other land improvements.

How Is Bonus Depreciation Calculated?

Depreciation spreads out the cost of long-term assets over the asset’s useful life. Depreciation typically is based on a “depreciation schedule” that determines the amount that is attributable to each time period (for example: 20% in Year 1, 15% in Year 2, etc).

See below for a 2023 calculation example:

The taxpayer may elect out of the additional first-year depreciation for the taxable year the property is placed in service. If the election is made, it applies to all qualified property that is in the same class of property and placed in service by the taxpayer in the same taxable year.

What Is Bonus Depreciation In 2023 & What’s The Difference Between Section 179 and Bonus Depreciation?

Bonus depreciation is taken after the Section 179 deduction is taken, which is helpful for very large businesses spending more than their Section 179 spending limit. Also, businesses with a net loss in a given tax year qualify to carry forward the Bonus Depreciation to a future year.

When applying for these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business has no taxable profit in the given tax year. For 2023, the Bonus Depreciation is 80% for both new and used equipment. **As always, ask your accountant or tax professional for the final word on your Section 179 purchases.

Currently, the bonus depreciation amount is 80% of the asset’s value. The percentage changes over time as tax laws evolve. The current rate is scheduled to phase down in the future, however, new laws could likely be passed which maintain the high bonus depreciation rate. Typically, Congress reviews tax laws each year and modifies them.

The current tax law schedule for bonus depreciation is as follows:

2023 – 80%

2024 – 60%

2025  – 40%

2026 – 20%

Without any new legislation, bonus depreciation will be completely phase out starting on January 1, 2027.

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