There are more ways than a cost segregation study to accelerate depreciation, such as the section 179 deduction. This applies to tangible personal property, such as machinery or equipment, purchased for use in a trade or business, and improvements to the interior portion of a nonresidential building after the building is placed in service. Additional items include roofs, HVAC, fire protection systems, and alarm or security systems for nonresidential real property. Taxpayers can deduct the full cost of these assets up to $1,050,000 for qualifying property placed in service in 2021. However, the section 179 deduction begins to phase out on a dollar-for-dollar basis after $2,620,000 of spending.
Another method to accelerate is though bonus depreciation. Currently, this allows a business to write off 100 percent of the purchase price of qualified depreciable property in the year of acquisition. Qualified depreciation property includes property with a recovery period of 20 years or less (meaning taxpayers cannot take bonus depreciation on buildings), qualified improvement property, computer software, and certain used property The bonus depreciation deduction is available for property acquired and placed in service after September 27, 2017 and before January 1, 2023.
The section 179 deduction can be used alongside bonus depreciation to maximize the effectiveness of a cost segregation study. However, there are a few things to consider when determining which strategy will be most effective.
The section 179 deduction is flexible and allows you to choose which purchases to elect it for, but there is a spending cap and the deduction cannot be larger than your annual business income. Bonus depreciation has no annual spending limit and can exceed your business income, but you must apply the same treatment to all assets of the same class.