cost

TECHNICAL
UPDATE


TAX CUTS AND JOBS ACT AND SECTION 179

January 26, 2018

On December 22nd, 2017, the President signed Public Law Number 115-97, known as the Tax Cuts and Jobs Act. This wide-ranging act has changed many familiar provisions of the Internal Revenue Code and added new ones. Some of the more notable changes involve changes to depreciation, such as the re-introduction
and expansion of 100% bonus depreciation and the increase in the section 179 expensing limit. This post will look at the changes to the Section 179 Election to expense certain depreciable business assets.

Section 13101 of the Tax Cuts and Jobs Act amended section 179 for assets placed in service in taxable years beginning after December 31, 2017. For calendar-year taxpayers, this means that the new rules apply in 2018. For fiscal year taxpayers, the rules will apply in their first fiscal year-beginning in 2018. The major changes for 2018 include:

  • The dollar limit is increased to $ 1 million and the reduction in limitation starts at $2.5 million.
  • These limits will be indexed for inflation starting in 2019.1
  • Starting with property placed in service in taxable years beginning after December 31, 2017, the exclusion for property used for lodging no longer applies. Qualifying section 1245 property and offthe shelf computer software used at apartments and similar lodging establishments will qualify for section 179.3
  • The definition of Qualified Real Property eligible for the section 179(f) election has been substantially
    modified to now includes improvements (to existing buildings, not new assets) such as roofs, HVAC, fire and alarm systems, and security systems4.

In light of the re-introduction and expansion of 100% bonus depreciation, there have been some questions as to whether the section 179 expensing election remains important. Since 100% bonus depreciation does not apply to Qualified Improvement Property for assets placed in service after December 31, 2017, section 179 expensing remains the only option to expense fully the cost of QIP in 2018. Starting in 2018, section 179 carryforwards are superior to Net Operating Loss carryforwards, the latter of which are generally limited to 80% of taxable income. For electing real property trades or businesses under section 163(j)(7)(B) or dealerships with floorplan interest expense, section 179 provides an expensing alternative since bonus depreciation is unavailable to those taxpayers.


  1. I.R.C. § 179(b)(6) as amended by section 13101 of the Tax Cuts and Jobs Act, Pub. Law. No. 115-97
  2. In this case, QRP stands for qualified Real Property and is not to be confused with Qualified Restaurant Property which is also referred to as QRP.
  3. I.R.C. § 179(d)(1) as amended by section 13101 of the Tax Cuts and Jobs Act, Pub. Law. No. 115-97.
  4. I.R.C. § 179(f) as amended by section 13101(f) of the Tax Cuts and Jobs Act, Pub. Law. No. 115-97
  5. See I.R.C. § 168(e)(6) prior to amendment by section 13204 of the Tax Cuts and Jobs Act, Pub. Law. No. 115-97
  6. See I.R.C. § 168(e)(7) prior to amendment by section 13204 of the Tax Cuts and Jobs Act, Pub. Law. No. 115-97.
  7. See I.R.C. § 168(e)(8) prior to amendment by section 13204 of the Tax Cuts and Jobs Act, Pub. Law. No. 115-97
  8. See I.R.C. § 168(e)(6) after amendment by section 13204 of the Tax Cuts and Jobs Act, Pub. Law. No. 115-97.