Bonus Depreciation: Tax Cuts and Jobs Act (TCJA)

The Tax Cuts and Jobs Act (TCJA), signed into law on December 22, 2017, is the largest overhaul of the tax code since the Tax Reform Act of 1986.  The changes related to the tax treatment of building construction, building improvements, and building acquisition costs provide taxpayers with new opportunities to maximize tax benefits through a cost segregation study.

Bonus Depreciation — TCJA allows qualifying assets with a tax recovery period of 20 years or less, new and used, to now qualify for the 100% bonus depreciation provision in the assets’ first year of service.  While the term “bonus” is often misunderstood as an added benefit beyond the asset’s depreciable tax base, it is a boost to accelerate the tax depreciation in the first year the asset is placed in service.  In prior years, bonus depreciation existed but only for new construction and some acquired assets (at 50% in 2017).  Therefore, tangible personal property, either newly acquired or constructed, will qualify for bonus depreciation. 

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How it benefits you? 

The shorter depreciation lives accelerate depreciation on the property, which reduces the tax burden in the early years of an investment, thus accelerating the cash flows associated with higher tax deductions and boosting ROI.

Cost segregation does not eliminate taxes owed but can defer them until later years, resulting in significant savings today. The after-tax savings are commonly as much as 20 to 50 times the price of the cost segregation study. The steps required to accomplish this include a detailed identification of a facility's components, appropriate classification of each component or property unit for tax purposes, and determination of the cost of each unit.

The MRV Consulting Methodology

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Our team of designated cost segregation consultants, appraisers, and engineers analyze the assets, identify the portions that can be treated as personal property,  and properly allocate actual capital expenditures, including new and renovation costs, into their appropriate cost recovery periods.

A cost segregation analysis performed by MRV Consulting identifies and segregates assets that qualify as tangible personal property, other tangible property, land improvements, and real property.