Understanding Depreciation for Business Assets
How to Write Off Assets and Lower Your Taxable Income
Welcome back, Strategic Entrepreneurs!
Today, we’re diving into the often-underestimated power of depreciation—an essential strategy for reclaiming thousands (or even hundreds of thousands) of dollars in your business. Whether you’re scaling up a real estate portfolio or looking for intelligent ways to write off vehicles and equipment, this newsletter will break down the advanced tactics you need to preserve your profits and reinvest in future growth. Grab a notepad and let’s get straight into how you can leverage these 2024 tax strategies to strategically reduce your liabilities.
Depreciation remains one of the most impactful tax strategies for legally reducing taxable income. By applying the right tactics—such as bonus depreciation, Section 179, and cost segregation—you can significantly reduce your current-year tax bill while complying with IRS guidelines. Below, we’ll walk through advanced techniques and calculations.
1. Straight-Line vs. Accelerated Depreciation
Straight-Line Depreciation (SLD)
Straight-line depreciation spreads your deduction evenly across the asset’s useful life. The standard period for residential real estate is 27.5 years; for commercial real estate, it is 39 years.
Residential Example (No Formulas)
Purchase basis (excluding land): $550,000
Depreciation over 27.5 years
Approximate annual depreciation: $20,000
You’d continue deducting around $20,000 each year until the building is fully depreciated, or until you sell.
Accelerated Methods
Accelerated methods like double declining balances apply a larger percentage in the early years. For an asset with a five-year class life, you might deduct a sizable portion in Year 1, then a smaller portion in Year 2, and so forth. This can be beneficial if you anticipate higher taxable income now rather than later.
2. Bonus Depreciation in 2024
For tax year 2024, bonus depreciation generally allows you to write off 60% of an eligible asset’s cost in the first year if the asset has a recovery period of 20 years or less.
Illustrative Scenario
You identify $300,000 of short-life property (e.g., appliances, equipment, or certain building components).
Since bonus depreciation in 2024 is 60%, you may deduct $180,000 right away.
The remaining $120,000 would be depreciated over its remaining class life (5, 7, 15 years, etc.).
Bonus depreciation has been phasing down from the 100% levels in earlier years. After 2024, it will drop further. However, 60% is still a considerable immediate write-off that can reduce your tax liability substantially in Year 1.
3. Section 179 Expensing
Section 179 lets you expense the cost of certain assets in Year 1, rather than depreciating them over multiple years. For 2024, the annual limit is over $1 million (inflation-adjusted), and you generally can’t exceed your total taxable business income (though unused Section 179 amounts may carry forward).