Per Diem Rates from the U.S. General Services Administration

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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").

Per Diem Rates

What is Depreciation?

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Depreciation represents the decline in value of property used in a trade or business due to ware and tear, decay, or obsolescence. Tax law allows business owners to recover the cost of depreciable property via depreciation deductions.

Depreciation Rules

There are a variety of rules that deal with the amount of depreciation that may be deducted in any given year.

First-year Expensing (also referred to as the Section 179 deduction):

First-year expensing allows you to deduct the cost of depreciable property up to a specified limit in the first year the property is placed in service. This limit changes frequently. For 2021 the maximum first-year expensing deduction $1,050,000.

First-year Expensing Phaseout rule:

The purchase limit for qualifying section 179 property placed in service in 2021 is $2,620,000. If the the purchase limit is exceeded, the first-year expensing deduction is reduced dollar-for-dollar by the amount that exceeds the limit.

For example, if in 2021 you purchased and placed in service qualifying property costing $2,700,000, you would have exceeded the $2,620,000 purchase limit by $80,000 ($2,700,000 - $2,620,000). You would reduce the $1,050,000 first-year expensing limit by the $80,000 excess purchase limit, leaving you with a $970,000 first-year expensing deduction.

Bonus Depreciation:

In addition to first-year expensing, bonus depreciation lets you deduct even more depreciation in the first year qualified property is placed in service. The new tax law (TCJA) increased the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017 and before Jan. 1, 2023. Note that you don't have to claim the first-year expensing deduction. You can claim bonus depreciation instead, if determine that it produces a larger deduction.

Keep in mind, the bonus depreciation percentage for qualified property that a taxpayer acquired before Sept. 28, 2017 and placed in service before Jan. 1, 2018, remains at 50 percent. Special rules apply for longer production period property and certain aircraft.

Used Qualified Property:

Under the new law (TCJA), the definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after Sept. 27, 2017, if all the following factors apply:

• The taxpayer or its predecessor didn't use the property at any time before acquiring it.
• The taxpayer didn't acquire the property from a related party.
• The taxpayer didn't acquire the property from a component member of a controlled group of corporations.
• The taxpayer's basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.
• The taxpayer's basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent. In addition, the cost of the used property eligible for bonus depreciation doesn't include the basis of property determined by reference to the basis of other property held at any time by the taxpayer (for example, in a like-kind exchange or involuntary conversion).

The new law added qualified film, television and live theatrical productions as types of qualified property that may be eligible for 100 percent bonus depreciation. This provision applies to property acquired and placed in service after Sept. 27, 2017.

Under the new law, certain types of property are not eligible for bonus depreciation in any taxable year beginning after December 31, 2017. One such exclusion from qualified property is for property primarily used in the trade or business of the furnishing or sale of:

• Electrical energy, water or sewage disposal services,
• Gas or steam through a local distribution system or
• Transportation of gas or steam by pipeline.

This exclusion applies if the rates for the furnishing or sale have to be approved by a federal, state or local government agency, a public service or public utility commission, or an electric cooperative.

The new law also adds an exclusion for any property used in a trade or business that has floor-plan financing indebtedness if the floor-plan financing interest was taken into account under section 163(j)(1)(C). Floor-plan financing indebtedness is secured by motor vehicle inventory that's in a business that sells or leases motor vehicles to retail customers.

The new law eliminated qualified improvement property acquired and placed in service after December 31, 2017 as a specific category of qualified property.

When to Start and Stop Depreciation

Start depreciation in the year the property is placed in service. Property is placed in service only if it is both available and ready for use. If property is only available for use but not ready for use, you cannot begin depreciation.

Example:

Property was delivered to your place of business December 20, 2021 but not installed until January 5, 2022. You must start depreciation in 2022, when the property was both available and ready for use. If property is both ready and available for use, but is not actually being used, it is still considered placed in service and you may deduct depreciation.

Example:

A machine was placed in service November 1, 2021. It was both available and ready for use. However, business was slow during November and December of 2021. You started using the machine in January 2022. You may start depreciation in 2021.

Stop depreciation when property is fully depreciated or when you retire it or dispose of it, whichever comes first.

Depreciable Basis of Property

The depreciable basis for business property is:

• Original cost (the unadjusted basis)
  • This includes:
    • Money paid.
    • The value of property given up.
    • Debt you incurred, such as a loan for a car.
    • Sales taxes and any other costs related to the purchase.
  • Plus
    • Any capital (major) improvements to the property, such as a new roof on your office building, a new engine for your truck or a new walk-in freezer for your restaurant.
      • Repairs and maintenance to keep equipment in good operating condition are not capital improvements. They are deducted as ordinary and necessary expenses.
  • Minus
    • Depreciation and casualty losses deducted.
  • Equals
    • Adjusted basis.