For much of this year, uncertainty surrounded whether Congress would extend relief in the area of depreciation-related tax breaks. On December 18, clarity finally arrived with the passage of the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). Here is a look at the impact on two ‘classic’ depreciation breaks:
- Enhanced Section 179 expensing election. In 2014, 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, dollar for dollar, to the extent qualified asset purchases for the year exceeded $2 million. Under the PATH Act, these amounts have been made permanent (indexed for inflation beginning in 2016) rather than allowed to fall to much lower limits.
- 50 percent bonus depreciation. In 2014, 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, and certain other assets. That 50 percent amount has been extended for the 2015, 2016, and 2017 tax years. But it will drop to 40 percent for 2018 and 30 percent for 2019.
To reap these benefits on your 2015 tax return, you must acquire qualified assets and place them in service by December 31, 2015. These are but a few of the ways the PATH Act affects business tax planning. Please contact us for more information.