Federal Bonus Depreciation Starts Phaseout Next Year

Under current federal law, the 100 percent bonus depreciation, which allows firms to take an immediate tax deduction for investments in qualified short-lived assets, will begin to phase out in 2023.

As Plante Moran has explained, the bonus percentage will decline by 20 points each year over the next few years until it is gone completely. Here is the schedule:

• 2022 = 100 percent bonus depreciation
• 2023 = 80 percent bonus depreciation
• 2024 = 60 percent bonus depreciation
• 2025 = 40 percent bonus depreciation
• 2026 = 20 percent bonus depreciation
• 2027 = zero percent bonus depreciation

According to the nonpartisan, nonprofit Tax Foundation, making the 100 percent bonus depreciation a permanent feature of the U.S. tax code would increase business investment, capital formation, and economic output over the long term while creating more opportunities for workers. Specifically, the Tax Foundation estimates that making the 100 percent bonus depreciation permanent would increase long-run economic output by 0.4 percent, the capital stock by 0.7 percent, and employment by 73,000 full-time equivalent jobs. Read the organization’s full analysis here.

The Tax Foundation also noted other studies have found past instances of bonus depreciation boosted capital accumulation and employment, especially for disadvantaged workers.