Bonus depreciation creates a significant incentive for investors purchasing real assets. But as you may have heard, the current iteration of bonus depreciation has started to phase out.
In this article, we’ll provide you with a breakdown of what bonus depreciation is, how it’s expected to change in the next four years, and how you can still take advantage of its benefits.
A Powerful Advantage for Real Asset Investors
Bonus depreciation allows investors to claim full deductions on certain assets in their first year of service, rather than claiming depreciation across a longer timespan.
Investments eligible for bonus depreciation include certain types of office equipment and computer software, some commercial real estate investments, and certain real assets with a “useful life” of 20 years or less, such as vehicles and machinery.
Why is Bonus Depreciation Phasing Out?
The goal of bonus depreciation is to encourage investors to purchase eligible assets in a period when the economy needs stimulation. There was a period of bonus depreciation from 2008-2013, and it began again in September 2017.
As of Jan. 1, 2023, bonus depreciation has started to gradually phase out. Where in the past you could deduct 100% in the first year, you can now claim an 80% deduction for assets acquired and placed in service in 2023:
- Jan. 1 to Dec. 31, 2023 - 80% deduction
- Jan. 1 to Dec. 31, 2024 - 60% deduction
- Jan. 1 to Dec. 31, 2025 - 40% deduction
- Jan. 1 to Dec. 31, 2026 - 20% deduction
- Assets placed in service after Dec 31, 2026: 0% deduction
Just as bonus depreciation expired in 2013 and was restarted in 2017, it’s entirely possible that we could see another period of bonus depreciation in the future. But, since there’s no way to know for sure when that might be, it’s important to take advantage now, while you still can.
How to Make the Most of Bonus Depreciation in 2023
Bonus depreciation is a valuable incentive on its own, but it takes on additional power when it’s applied to carbon capture technology.
Because the government wants to incentivize oil and gas production, investments in carbon capture technology are deductible against your earned, W-2 income. So, if you invest in carbon capture in 2023, you can deduct at least 80% of your investment for the first year against your earned income.
This is different from most real estate and other real asset investments, where the deduction only applies to your passive income. And since earned income is taxed at the highest rate — as much as 37% for many Accredited Investors — this can make a significant difference in keeping more of your earned income when tax season rolls around.
To learn more about investing in carbon capture technology and see specific examples of just how much you can save through this investment vehicle — while also generating consistent passive income — check out this free guide.
Invest with a Partner Who Understands Your Goals
At FGCPTM, we’ve seen firsthand how claiming bonus depreciation while investing in carbon capture technology can unlock new levels of financial freedom for Accredited Investors. We’re experienced in this space and work with a trusted partner who has a proven track record of success with carbon capture equipment and technology.
If you’re interested in learning more about how this investment opportunity can help you build wealth in 2023, we’d love to connect with you. Simply fill out this short form to get in touch.