This provision allows businesses to deduct a significant portion of the cost of eligible assets in the year they are placed in service. In 2017, the Tax Cuts and Jobs Act modified the rules, increasing the percentage and expanding the types of property eligible. As of current law, the percentage is scheduled to decrease after 2022 and ultimately phase out by 2027. An example is a company purchasing new manufacturing equipment; under this rule, they can deduct a large portion of the cost in the first year, rather than depreciating it over the asset’s useful life.
The incentive is intended to spur economic growth by encouraging businesses to invest in capital assets. It reduces the immediate tax burden, freeing up capital that businesses can then reinvest in their operations, expansion, or job creation. The legislative changes enacted under the previous presidential administration significantly altered the scope and lifespan of this incentive, shaping its impact on investment decisions. These changes made it more attractive for businesses to make investments in the short term, leading to economic activity.
