January 10 2023

IRS Raises Maximum Immediate Expense Deduction for 2022

Source: IBFD Tax Research Platform News

For tax years beginning in 2022, the maximum expense deduction allowed under section 179 of the US Internal Revenue Code (IRC) has increased to USD 1.08 million, according to Instructions for reporting depreciation and amortization on Form 4562 issued by the US Internal Revenue Service (IRS). The IRS published the 2022 Instructions on 6 January 2023.

IRC section 179 allows taxpayers to deduct the entire cost of certain property as an expense on their federal tax return in the year of purchase, rather than capitalizing the costs and deducting depreciation over multiple years.

Taxpayers use Form 4562 to:

  • claim deductions for depreciation and amortization;
  • make the election under section 179 of the Internal Revenue Code to expense certain property; and
  • provide information on the business/investment use of automobiles and other listed property.

According to the updated instructions, for tax years beginning in 2022, the USD 1.08 million limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds USD 2.7 million (previously USD 2.62 million). In addition, the maximum section 179 expense deduction for sport utility vehicles (SUVs) placed in service in tax years beginning in 2022 has increased to USD 27,000 from USD 26,200.

The instructions also state that specified research and experimental costs paid or incurred in tax years beginning in 2022 must be capitalized and amortized over a 5-year period (a 15-year period for any expenditures related to foreign research).

Moreover, the instructions provide that certain qualified property (other than property with a long production period and certain aircraft) placed in service between 31 December 2022 and 1 January 2024, is limited to a special allowance of 80% of the depreciable basis of the property.