WorldWide Drilling Resource

Drilling Into Money Not Boring by Mark E. Battersby Writing it All Off After the Tax Cuts and Jobs Act Last December’s Tax Cuts and Jobs Act (TCJA) not only slashed tax rates, it allowed many within the drilling industry to expense and immediately write-off more - including a temporary 100% write-off for certain assets. Adding needed equipment, or even a new shop building is now a lot more affordable. Writing-off the cost of newly acquired property in the year it is placed in service has long been possible under the Section 179, first-year expensing rules. Section 179 is an incentive designed by lawmakers to encourage businesses to buy equipment and invest in their operations. In essence, a drilling operation can choose to treat the cost of any Section 179 property as an expense and deduct it in the year the property is placed in service. The new law in- creased the maximum amount which can be deducted from $500,000 to $1 million, and the phase-out threshold from $2 million to $2.5 million. The TCJA increased the maximum deduction for Section 179 property, while also ramping up the other major write-off, so-called “bonus” depreciation, raising it from 50% to 100% for property placed in service before 2023. While the Section 179 deduction is usually taken first, followed by bonus depreciation, the difference between the Section 179 first-year expensing allowance and bonus depreciation has long been both new and used equipment qualified for the Section 179 deduction. Today however, bonus depreciation in- cludes used equipment. For al l property acqui red by the drilling operation or business and placed in service after September 27, 2017, the TCJA requires a full 100% deduction of the cost of eligible new and used property - unless the drilling operation chooses not to claim the depreciation write-off for any class of property. While the new law eliminates the requirement that the original use of the qualified property begin with the drilling operation, so long as it had not previous- ly used the acquired property and the property was not acquired from a related property, it will qualify. The changes in the cost recovery rules are already having a significant impact on whether newly acqui red equipment or business property should be deprec i ated or expensed, and whether or not to choose bonus depreci- ation. However, because the new rules interact with other provisions of the law, every drilling business, equipment dis- tributor, and manufacturer should seek professional advice and assistance in planning to maximize their write-offs for business property and assets. Mark Mark E. Battersby may be contacted via e-mail to michele@ worldwidedrillingresource.com rexmcfadden.com 41 WorldWide Drilling Resource ® JULY 2018