Yes. Car washes can qualify for bonus depreciation as long as they meet the necessary criteria. To qualify for bonus depreciation, note that the car wash equipment will have to be new (not used) and also possess a useful life of 20 years or less.
However, it is recommended you reach out to a tax professional to ascertain if your car wash equipment is eligible for bonus depreciation. They will also have to consider any recent tax laws and regulations changes. Aside from that, they will also make sure you have the most accurate and up-to-date details regarding your unique situation.
Bonus depreciation, also referred to as special depreciation, the additional depreciation allowance, or IRC §168(k) depreciation, is more or less a depreciation deduction.
Same as with other depreciation deductions, this accumulated depreciation works in the best interest of businesses and will aid in determining gain or loss especially when an asset is sold. Eligible properties will include MACRS property that has a recovery period of 20 years or less, some computer software, some plants, water utility property, films, television shows, and theatrical productions.
The Tax Cuts and Jobs Act (TCJA) of 2017 made certain valid modifications in this area and presently allows businesses to write off 80% of the expenses of eligible property in the year it’s placed in service. Note that this is very vital to businesses as it can lead to hefty tax write-offs for car wash operators.
Nonetheless, it’s important to reiterate that bonus depreciation won’t last forever. According to the current tax code, the bonus depreciation will decrease by 20% every year until it’s entirely erased by 2026.
Even though this phase-out will not really impact properties placed in service prior to the phase-out, note that it will have implications for future property acquisitions and improvements. Owing to that, have it in mind that Car Wash equipment placed in service after September 28, 2017, to December 31 2023 is still eligible for 80% Bonus Depreciation.
This will become 60% , 40% in 2025, 20% in 2025, and so on. Also, know that a car wash operator can decide not to claim bonus depreciation for any class of property; however, they will have to do this annually on a statement filed with Form 4562, Depreciation and Amortization.
Bonus Depreciation Rules and Limitations for Car Wash Businesses
Just as was noted above, car washes can qualify for bonus depreciation as long as they meet the necessary criteria. Also, note that their qualifications are subject to certain criteria and regulations. These criteria and regulations include;
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Qualified Property
One thing every car wash will have to pay attention to is what classifies as eligible property. Note that to qualify for bonus depreciation, the car wash equipment will be expected to satisfy the definition of qualified property.
Most often, eligible properties will have to be new (not used) tangible personal property that has a recovery period of 20 years or less. Although a good number of equipment used in a car wash fall within this category, note that they must be new and not fairly used.
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Placed in Service Date
This is indeed another important factor to take into consideration. Have it in mind that the eligible property will need to be placed in service after September 27, 2017, and prior to January 1, 2023, to be eligible for 100% bonus depreciation.
However, if the eligible equipment was purchased or placed in service prior to September 28, 2017, it might still qualify for a different percentage bonus depreciation. Car Wash equipment placed in service after September 28, 2017, to December 31 2023 is still eligible for 80% Bonus Depreciation. This will become 60% , 40% in 2025, 20% in 2025, and so on.
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New vs. Used Equipment
Just as it was noted above, to be eligible the car wash equipment will have to be new (not used) and also possess a useful life of 20 years or less. However, the Tax Relief and Health Care Act of 2006 introduced “qualified improvement property” (QIP) as being qualified for bonus depreciation.
Note that QIP encompasses improvements done to the interior of nonresidential buildings after the buildings have been placed in service. Have it in mind that certain drafting mistakes in the TCJA ensured that some QIPs are not qualified for bonus depreciation, but recent reviews or regulatory changes might have adjusted this issue.
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Phase-Out
You have to understand that bonus depreciation won’t last forever. According to the current tax code, the bonus depreciation will decrease by 20% every year until it’s entirely erased by 2026. For property placed in service after December 31, 2022, and before January 1, 2027, the bonus depreciation percentage will moderately decrease.
Have it in mind that it will be 80% for property placed in service in 2023, 60% for 2024 and 2025, 40% for 2026, and 20% for 2027.
Conclusion
Car washes can be eligible for bonus depreciation as long as they meet the necessary criteria. Note that to become eligible for bonus depreciation, the car wash equipment will need to be new (not used) and also have a useful life of 20 years or less.
Nevertheless, it is vital that you contact a tax professional to get a good grasp or ascertain if your car wash equipment is eligible for bonus depreciation. These experts will also guarantee you have the most accurate and up-to-date details regarding your distinctive situation.