Year-end tax planning for businesses often focuses on acquiring equipment, machinery, vehicles, or other qualifying assets to take advantage of enhanced depreciation tax breaks. Unfortunately, two ‘classic’ depreciation breaks expired on December 31, 2014:
- Enhanced Section 179 expensing election. Before 2015, Sec. 179 permitted companies to immediately deduct, rather than depreciate, up to $500,000 in qualified new or used assets. The deduction was phased out, on a dollar-for-dollar basis, to the extent qualified asset purchases for the year exceeded $2 million. Because Congress has not extended the enhanced election beyond 2014, these limits have dropped to only $25,000 and $200,000, respectively.
- 50 percent bonus depreciation. This provision allowed businesses to claim an additional first-year depreciation deduction equal to 50 percent of qualified asset costs. Bonus depreciation generally was available for new (not used) tangible assets with a recovery period of 20 years or less, as well as for off-the-shelf software. Currently, it is unavailable for 2015 (with limited exceptions).
Lawmakers may restore these breaks retroactively to the beginning of 2015. If they do, quick action may be needed to take maximum advantage. Qualifying assets will have to be purchased and placed in service by December 31. Please check back with us for the latest details.