Maximize Your Tax Benefits with Section 168(k) Bonus Depreciation

Learn how investing in NestVest's BoxHouse units allows you to leverage Section 168(k) for substantial first-year tax deductions.

Understanding Section 168(k) Bonus Depreciation

Section 168(k) of the Internal Revenue Code, commonly known as bonus depreciation, permits businesses to immediately deduct a significant percentage of the purchase price of eligible assets in the year they are placed in service. This provision was designed to stimulate business investment by accelerating depreciation deductions.

How Section 168(k) Applies to BoxHouse Investments

BoxHouse units are designed as movable structures delivered on wheels, classifying them as personal property rather than real estate. This classification makes them eligible for bonus depreciation under Section 168(k).

Key Points:

Eligibility: Movable structures like BoxHouse units qualify as personal property, making them eligible for Section 168(k) bonus depreciation.
Depreciation Schedule: As of 2024, the bonus depreciation rate is 60%, allowing investors to deduct 60% of the property’s cost in the first year.
Phase-Out Schedule: The bonus depreciation percentage is scheduled to decrease in subsequent years:
- 2024: 60%
- 2025: 40%
- 2026: 20%

2027 and beyond: 0%

Financial Impact of Section 168(k) on Your Investment

Investing in a BoxHouse unit with the advantage of Section 168(k) can lead to significant tax savings and improved cash flow.

Example Scenario:

Purchase Price: $375,000
First-Year Bonus Depreciation (60%): $225,000
Remaining Depreciable Basis: $150,000 (to be depreciated over the asset’s remaining useful life)

By deducting $225,000 in the first year, you substantially reduce your taxable income, leading to immediate tax savings.

Combining Section 168(k) with Section 179 for Enhanced Benefits

While Section 168(k) offers substantial first-year deductions, combining it with Section 179 expensing can further enhance your tax benefits. Section 179 allows for the immediate expensing of the full purchase price of qualifying assets, subject to certain limitations.

Considerations:

Section 179 Limitations: There are caps on the total amount that can be expensed under Section 179, and it is limited to the taxpayer’s taxable income.
Bonus Depreciation Flexibility: Section 168(k) allows for deductions even if they create a net operating loss, providing greater flexibility in tax planning.

Consulting with a tax professional can help determine the optimal strategy for your specific situation.

Important Considerations and Disclosures

Consult a Tax Professional

Tax laws are complex and subject to change. It's essential to consult with a qualified tax advisor to understand how Section 168(k) applies to your individual circumstances.

Passive Activity Loss Rules

Tax benefits may be limited by passive activity loss (PAL) and at-risk rules (IRS §§ 469 & 465).

Depreciation Recapture

If the BoxHouse unit is sold or transferred, depreciation recapture may apply, leading to taxable income

State Tax Implications

Not all states conform to federal bonus depreciation rules. Review your state's tax regulations to understand any differences.

Disclaimer: NestVest and its affiliates do not provide tax, legal, or accounting advice. This material is for informational purposes only and should not be relied upon for tax, legal, or accounting advice. Consult your own tax, legal, and accounting advisors before engaging in any transaction.

Take the Next Step with NestVest

Leverage the benefits of Section 168(k) by investing in NestVest’s BoxHouse units. Our team is here to guide you through the process and help maximize your tax advantages.