5. State and local
tax deduction
6. Depreciation changes
A very impactful change included
in the final bill is the limiting of the
deduction available to individuals for
sales, income, or property taxes
paid to state or local tax authority to
$10,000 ($5,000 for a married tax-
payer filing a separate return) for tax
years beginning after Dec. 31, 2017
and beginning before Jan. 1, 2026.
This limitation does not apply to
property taxes paid or accrued in
connection with carrying on a trade
or business.
The limitation does not apply to
state and local taxes of businesses
taxed as a ‘C’ corporation.
The bill specifically includes a
provision that disallows a 2017 de-
duction for prepaying state or local
income tax for a taxable year begin-
ning after Dec. 31, 2017. Any
amount paid in a taxable year begin-
ning before Jan. 1, 2018 shall be
treated as being paid on the last day
of the tax year for which the tax ap-
plies. The bill includes a provision that
allows for 100 percent expensing
through bonus depreciation of cer-
tain business assets placed in serv-
ice after Sept. 27, 2017 through
Dec. 31, 2022. The amount of
bonus depreciation allowed is then
phased-down over four years as fol-
lows starting: 80 percent in 2023,
60 percent in 2024, 40 percent in
2025, and 20 percent in 2026. The
requirement that the property be
new was also removed and re-
placed with a requirement that the
property simply be new to the tax-
payer – an impactful distinction.
The bill includes some additional
changes that have the potential to
benefit many contractors. For exam-
ple, Section 179 expensing limits
will be increased to $1 million with
the phase-out threshold being in-
creased to $2.5 million with both
thresholds subject to inflation in-
creases for tax years beginning
after Dec. 31, 2017. Furthermore,
the definition of qualified property is
expanded to include improvements
to non-residential real property in-
cluding roofs, heating, ventilation,
and air-conditioning property, fire
protection and alarm systems, and
security systems if placed in service
after the date such real property
was first placed in service.
7. Interest expense deduction
limitation The bill also includes a provision
that limits the deduction for interest
expense incurred by a trade or busi-
ness to the sum of business inter-
est income, floor plan financing
interest and 30 percent of the ad-
justed taxable income of a taxpayer
for the year. For tax years beginning
before Jan. 1, 2022, adjusted tax-
able income will be computed with-
out regard to depreciation,
amortization, or depletion expense.
Adjusted taxable income is other-
wise generally defined as a tax-
payer’s taxable income without
regard to any income, gain, deduc-
tion or loss not properly allocable to
the trade or business, any business
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10 — Winter 2018 — The North Carolina Construction News