The 100% write-off playbook: bonus depreciation and Section 179

0:00 Most business owners and high earners are leaving six figures on the table. The tax code lets you write off 100% of most business purchases this year, not over five or seven years. This year, I'm going to show you how to turn equipment, improvements, [music] vehicles, and even certain buildings into immediate deductions that you can use before December 31st. Plus, I'm going to give you several overlooked strategies that your CPA never mentioned to you. My team and I have helped over 5,000 business owners and high-income earners lower their taxes and grow their net worth using these strategies. First, let's talk about 100% bonus depreciation. Bonus appreciation lets you deduct 100% of qualifying property the year it's placed into service. The technical definition of place in service means that installed on and ready to use by December 31st. Ordering or paying is not enough. And qualifying property generally means 20-year recovery period or less. So the machinery, computers, off-the-shelf software, furniture, racking, and many site improvements.

0:49 Let's use an example. Let's say a cabinet shop buys two CNC machines and a dust machine for $290,000. They're running by March. deduction this year is $290,000 at a 32% rate. Tax saved is about $92,800 and payments happen over time, but the tax savings land right now. You can finance and still take the full deduction once the asset is in service. Bonus is automatic by asset class. If you bonus one 5-year asset, you bonus all 5-year assets that year. Same idea for seven and 15 year property. You want to default to bonus when you want maximum current year cash savings and you can place the asset into service before year end. In a minute, I'm going to show you when electing out a bonus is smarter and how section 179 hits items a bonus can't touch. Section 179 lets you expense specific assets up to the annual limit. It can't create a loss by itself, so it's perfect when you walk control without pushing incomes below zero. It also reaches items that bonus depreciation may not, like certain non-residential roofs and HVAC systems.

1:40 Here's an example. Let's say a dentist leases a suite. Interior non-structural buildout is $300,000 and qualifies for bonus. The rooftop HVAC and roof reinforcement are $160,000 and qualify for section 179. So the play here would to be the bonus depreciate the $300,000 interior and then 179 the HVAC and roof up to taxable income and depreciate the rest at 32% [music] that mix saves roughly $147,000 this year from work that they needed anyway. And section 179 gives asset level control. So you can 179 part of an item and depreciate the rest. [music] That's going to help you fill high brackets and then stop. Now some states reject bonus but still allow 179. So, you might run federal bonus and stay 179 on the same return. The main takeaway here is to use 179 when you need to aim and when [music] you want to reach HVAC or roof work or when state rules make it better than bonus. Next, I want to talk about the real estate moves that create large deductions with simple documentation. Plus, when short-term rentals can unlock losses against your W2 income, there's two different methods here. New [music] spend versus purchase property. New spend is simple. Many site improvements are 15-year property and often bonused eligible when placed in service like paving, fencing, pole lighting, curb, sidewalks, drainage, irrigation, retaining walls, etc. You already have invoices and completion dates and classify correctly and then bonus them. As an example, let's say a contractor upgrades an equipment yard for $62,000 with paving and lighting in October. Deductions that you have this year is $62,000. And so tax save at 32% is about $19,800. Now, let's talk about

3:00 purchase property. It needs a cost aggregation if you want acceleration. A study is going to split the building into components. Five, seven, and 15year buckets. Those buckets can be bonus eligible. A cost segregation is a study that assigns parts of the building to shorter lives so you can deduct them faster. As an example, let's use a million dollar duplex. The land is $200,000 and the building is worth $800,000. Cost segregation is going to identify 30% as a shorter life. So immediate deduction potential would be $240,000 with bonus depreciation. Now, let's do the short-term rental as an example. Let's say your average stay of 7 days or less and you materially participate. That means real logged hours. So, you hit one of the tests like the 500 hours total rule or you can even qualify with the 100 hours and more than anyone else or you did substantially all the work. If you qualify, large bonus deductions aren't trapped as passive losses and can reach other income in the household. If a property manager does most of the work, you likely won't qualify. Let's say you want to rent it out as a long-term rental. Losses are passive unless you qualify as a real estate professional and materially participate, which a lot of W2 households won't meet unless you or your spouse doesn't work and want to qualify as a real estate professional. Now, the main takeaway here is for properties you improve, bonus of land improvements with your invoices. For properties that you buy, you want to order a cost segregation if the numbers justify it and know whether losses can reach beyond the rental before you file. Now, let's talk about how to deduct vehicles.

4:11 Regular passenger vehicles under 6,000 lb have strict annual caps. Even with bonus, year 1 [music] is limited. Many owners are better off just using standard mileage reimbursements. It's simple, clean, and avoids recapture. Now, heavy vehicles over 6,000 lb can qualify for large first year deductions. Keep business use over 50% and deduct only the business percentage. Let's use an example. Let's say you buy a $90,000 truck. A 70% business use equals a $63,000 deduction if placed in service this year. Start a mileage log on day one. Track trip purpose. Recheck the percentage quarterly. If business use falls at or below 50%, the recapture can apply with tax, interest, and penalties. Make sure that you choose the method that matches real use. Mileage for mixeduse cars bonus for true workh horses with documented business use over 50%. If you're finding this helpful, you can join my free lag master class this week. You can ring your numbers, ask your questions, and leave with a yearing plan that you can execute on in a single afternoon. It's free to join. You can come hang out for a couple hours. Link is in the description. Now, I want to talk about the new 100% production building deduction. If you own or use a non-residential building as an integral part of manufacturing or production, you may elect to 100% first year deduction on the eligible production area.

5:13 Offices, retail, showrooms, lodging, and parking are excluded here. You can also expect a multi-year qualify use requirement. You want to separate production from non-production on drawings and in your books. If you face construction, place the production side in service first to start the deduction. As an example, let's say a food processor builds a $5 million facility. The production area is 70%, offices is 30%. The year one deduction on the production portion is $3.5 million. At common rates, the savings can exceed over a million. That obviously can fund into hiring and more equipment. The main takeaway here is to draw the line on your plans and in your cost. If you truly manufacture, this can change your first year tax completely. Now, let's talk about some of the timelines, traps, and state strategies. First, let's talk about the place and service timing. It's going to decide the year of your deduction. Make sure that it's installed on and ready to use by December 31st. And for rentals, the utilities are on and listing life. Bonus is classwide. If you want only some assets in a class to hit this year, elect out by class and use 179 on specific items. For state strategy, several states don't conform to the federal bonus. You want to make sure that you run two columns. Federal might use bonus. State might use 179 or straight line. If the state adback is painful, then consider electing out a federal bonus by class and using 179 to target specific items. The best plan is the one that maximizes after tax cash across both columns and keeps lender ratios clean. For example, let's say you place $500,000 of 5year assets into service. Federal takes bonus, the state adds it back. So you 179 $120,000 at the

6:31 state level and then straight line the rest. You still get most of the cash benefit now and your state returns stay predictable. So make sure you decide federal and stay together before you buy. Now I want to talk about a couple few quick wins that most people miss. The first is the dimminimous safe harbor. You want to write a policy to expense items under your threshold by $2,500. Book laptops, tools, fixtures as expenses when they're under the limit and using the business. It's clean and saves time and tax. The next is the accountable plan. If you pay business costs personally, submit a simple expense report with receipts for phone, internet, supplies, and local mileage. The company reimbures you taxfree and claims a deduction. Next is home office. You want to make it exclusive and regular. Measure the space and keep photos. If the rent is high, actual expenses usually wins. If it's close, the safe harbor gives you simplicity. If you own, then you want to make sure that you track depreciation because it affects bases on sale. If you stack these three with bonus on 179, these often return money to you back in weeks.

7:18 Next to the QBI check, Marge bonus or 179 can lower qualified business income. Model before and after. So sometimes trimming a 179 amount preserves part of the 20% QBI and nets more after tax cash. You can use partial 179 and elect bonus by class. Or you can let MACs carry some bases forward. Now let's talk about estimated taxes. Big deductions can still trigger penalties if quarterly were light. You can use annualized methods or safe harbor rules here. Many avoid penalties by paying 100% of last year's tax or 110% if income was higher. Make sure that you handle this before the final estimate is due. Now, let's talk about your retirement stack. If you're an owner, you want to confirm plan deadlines. [music] A solo 401k typically must be established by December 31st for employee deferrals. Employee contributions can fund by the return due date. If income supports it, a cash balance plan can stack with a 401k. You can coordinate with 179 and bonus so the combination maximizes after tax cash. Now, let's talk about a couple high-income W2 add-ons that can move the needle for you. First is the short-term rental with participation. If hours and average rule stays are met, the large bonus deductions can reach W2 income.

8:14 You want to make sure that you track the hours now and not in April. Next is the Augusta rule. If you own a business, you may be able to rent your personal residence to your business at fair market rates for up to 14 days. The income is going to be taxfree to you and it's going to be deductible for the business. Make sure that you document market rate and actual meetings. You want to make sure they keep minutes and invoices [music] and use responsibly and locally defensible rates. Next, make sure they use the HSA and health insurance optimization. For self-employed or escort owners, align health insurance payments and payroll reporting so that way the deduction is going to be captured and where eligible, pair that with an HSA for triple tax benefits. W2 households can play offense with qualifying short-term rentals and clean documentation. And they can layer in the gusta rule HSA and proper insurance treatment on top of the core plays. Now, let's see this play out in real life. As an example, let's say a manufacturing owner with steady profits in March, they buy a $400,000 in equipment and takes bonus depreciation.

9:01 In June, they purchase a $120,000 heavy truck and documents 75% use and deducts $90,000. In September, they improved parking and lighting for $80,000 and they bonus it. November, they used 179 on a new roof for $150,000. In December, they use the accountable plan and they set the solo 401k for deferrals. The total deductions will be $720,000 from purchases that they needed anyway. The estimated tax save is near $230,000 at a 32% rate. That means cash stays in the business for payroll and inventory. Lender ratios remain steady because they elected out of bonus on 15-year assets and use 179 to target only the roof. The timing plus documentation turns required spending into working capital. [music] So, here's a quick summary. You want to use bonus for broad 100% deductions when timing and state rules line up. You want to use 179 when you need asset level control or to reach HVAC and roof work, cost aggregation to unlock building components, clean vehicle methods with real logs, production building deductions when you truly manufacture, plus the dimminimus accountable plan, home office, QBI tuning, safe harbor estimates, [music] and retirement stacking. And make sure that you place assets in service by year end and keep simple proof. And if you found this helpful, you can join my free live master class this week. Bring your numbers, ask your questions, and leave with a year-end plan that you can execute in a single afternoon. You can use the link in the description to sign up for free. If you found this video helpful, make sure that you like this video, subscribe, and I'll see you next