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

Depreciation Methods

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There are rules that allow you to take either an immediate deduction of the entire cost of business property in the year such property is placed in service (the annual limits are subject to change each year), or gradually deduct the cost of property over several years using certain depreciation methods.

Claiming an Immediate Deduction

The two options available for claiming an immediate deduction of the entire cost of property, up to certain limits, are:

1. The Section 179 deduction (also called first-year expensing), and
2. Bonus depreciation (also called a special depreciation allowance and a Section 168(k) allowance).

The section 179 deduction

There are two elements involved with the section 179 deduction:

1. The annual deduction limit, and
2. The annual purchase limit

The annual Section 179 deduction limit for 2021 is $1,050,000 (there's a lower limit for vehicles weighing over 6,000 pounds and under 14,000 pounds). There is also an annual purchase limit, which for 2021 is $2,620,000. If annual qualified property purchased in 2021 exceeds the purchase limit of $2,620,000, the annual deduction limit of $1,050,000 is reduced dollar-for-dollar by the excess over the purchase limit.

For example, if the cost of qualified property purchased in 2021 is $2,680,000, the excess cost would be $60,000 ($2,680,000 - $2,620,000). The annual deduction limit would reduced by $60,000 to $990,000 ($1,050,000 - $60,000).

Bonus depreciation:

Bonus depreciation is another first-year deduction and may be claimed in addition to the Section 179 deduction. Bonus depreciation is based on a specific percentage of the cost of qualified property. For 2021 qualified property placed in service in 2021, you're allowed a deduction of 100% of the cost of the property. Bonus depreciation is fully deductible for alternative minimum tax (AMT) purposes.

Tip:

Although you may claim both the Section 179 deduction and bonus depreciation, as a practical matter, if you place qualified property in service in 2021 and use it 100% for business, you don't need to elect first-year expensing (Section 179 deduction), you can simply deduct 100% of the cost of the property using bonus depreciation.

Regular Depreciation

Most business equipment is depreciable under MACRS depreciation (Modified Accelerated Cost Recovery System - pronounced MAKERS).

MACRS includes an accelerated method, which produces higher deductions in the early years of the property's recovery period than the MACRS straight-line method. Straight-line depreciation produces equal amounts of deprecation over the property's recovery period .

MACRS is composed of two depreciation systems:

• The General Depreciation System (GDS)
• The Alternative Depreciation System (ADS)

The difference between each of these depreciation systems is in the number of years you may depreciate an asset. Generally, the GDS uses shorter recovery periods than the ADS. Although certain assets have the same recovery period under either system. For example, cars, light duty trucks, and computers have a 5-year recovery period under either system.

Form 4562, Depreciation and Amortization

You make the election to use either GDS or ADS on Form 4562. Whichever you choose, the election is irrevocable.

Use Part III, Section B for GDS and Part III, Section C for ADS. For either method, except for real estate, the election applies to all property within the same class placed in service during the taxable year.

How the General Depreciation System and Alternative Depreciation System Differ

The General Depreciation System (GDS) and the Alternative Depreciation System (ADS) differ in two ways:

• GDS uses:
  • Accelerated depreciation (200% and 150% declining balance)
  • Straight-line depreciation, and
  • Shorter recovery periods.
• ADS uses only:
  • Straight-line depreciation, and
  • Generally longer recovery periods
    • Note that the ADS and GDS recovery periods for cars, light trucks, an computers are the same, 5 years.
    • For business office furniture and fixtures, the ADS straight-line recovery period is 10 years
    • For personal property with no class life, the ADS recovery period is 12 years.
    • For nonresidential real and residential rental property, you may elect ADS straight-line recovery over 40 years.
  • See IRS Publication 946 for ADS recovery periods.