We have enjoyed the benefits of 100% bonus depreciation, since the Tax Cuts and Jobs Act was enacted at the end of 2018. It was scheduled to sunset in 2023, reducing 20% each year until it hits 0% in five years.
We hope that the Congress will see that this was beneficial in spurring on economic activity and they will consider bringing it back.
However, beginning in 2023 — bonus depreciation will be reduced to 80%.
How will this affect our investments at FIC?
In this article, we will discuss the implication of this change on our CO2 funds.
The good news is that despite this change of rule, we will still be able to take 100% of the depreciation. It will be spread out over the first 6 years of the deal, with most of it being taken in the first year.
Below you will find a table that shows the way we will be taking the depreciation for our next leveraged fund, CC6 Shares.
Remember that the bonus depreciation includes the $100,000 investment and the $100,000 loan for each share: a total of $200,000 eligible for depreciation.
You will notice there are two schedules for depreciation over six years. We will be using the half year convention for all funds in the first 3 quarters of 2023. For the 4th quarter funds we will be using the mid-quarter convention.
You will notice in this table that the depreciation for Year One includes the 80% bonus depreciation of $160,000 plus the 20% of the scheduled depreciation ($8,000) of the balance, totaling $168,000.
Below you will find a table that shows the way we will be taking the depreciation for our next leveraged fund, Oshares 05. This schedule looks the same as the schedule above but the minimum share in this fund is 200,000 with no loan.
Depreciation will be equivalent to a deduction against W-2.
You may be concerned that we are no longer able to maximize the amount of W-2 income we can offset because we must be a general partner to get this benefit. We are then converting to a limited partnership after the first year with 18% of the depreciation remaining.
However, the income from this deal remains active throughout the deal. Any depreciation offsetting this active income in subsequent years will be equivalent to a deduction against W2 income.
The “phantom” income created by the repayment of the loan is also an active income that is taxed at the active tax rate. So you can see that there are several opportunities to use the remaining depreciation to offset income taxed at the active income rate.
You will not notice the reduction of bonus depreciation as much in the first year as you will in subsequent years, but this change will only spread out the depreciation. It will not eliminate it.
Let’s talk about your investment concerns.
Perhaps our congressmen will see how beneficial bonus depreciation was in spurring economic investing in affordable housing and other businesses and may consider reinstatement.
If you have any questions, please feel free to reach out to our Investor Relations Manager, John Harasin, by scheduling a call.
We thank you for your continued support.
This newsletter is for informational purposes and to gauge potential investor interest. This email summary is not intended to be a securities offering of any kind.
Prior to making any decision to contribute capital, all investors must review and execute all private offering documents, including the Private Placement Memorandum and its exhibits, which contains the complete information about this investment opportunity.
The information contained herein is from sources believed to be reliable, however no representation by Freedom Impact Consulting, LLC, either expressed or implied, is made as to the accuracy of any information on this property and all investors should conduct their own research to determine the accuracy of any statements made.