The Protecting Americans from Tax Hikes Act (PATH) was passed by Congress late last week and signed into law by President Obama. Two key depreciation tax provisions were addressed. To the delight of business owners and CPAs alike, Congress broke from its custom of biannual temporary extensions of Code Section 179 increases and made permanent the enhanced expensing.
The Act retroactively extends and makes permanent the $500,000 expensing limitation and $2 million phase-out amount, which will be indexed for inflation beginning in 2016. The Act expands the definition of Section 179 property to include qualified real property. Qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property are retroactively extended and made permanent. The special rule for expensing computer software is also made permanent. Beginning in 2016, the $250,000 cap with respect to qualified real property is eliminated with no carryover limitation. Air conditioning and heating units placed in service after 2015 are eligible for Section 179 expensing.
The second far-reaching depreciation-related extension is the five-year phase-down of Bonus depreciation, i.e., the additional first-year depreciation deduction. Unlike Code Section 179 expensing, only new property is eligible for Bonus depreciation. The Act extends Bonus depreciation deduction equal to 50% of adjusted basis of qualifying property in the first year it is placed in service for 2015 thru 2017. Bonus depreciation phases down to 40% in 2018 and 30% in 2019.
The Act will now allows Bonus depreciation for qualified improvement property, which includes any improvement to an interior portion of a nonresidential real property building, if such improvement is place in service after the date building was first placed in service, as well as certain trees, vines and fruit-bearing plants when planted or grafted rather than when placed in service.
The Act modifies the AMT rules to increase the amount of unused AMT credits that can be claimed in lieu of bonus depreciation. Bonus depreciation is modified to be adjusted for inflation in computing first-year depreciation for passenger autos. For property placed in service after December 31, 2015 and before January 1, 2018, the Act’s Code Sec 280F limitation for a passenger auto that is qualified property is increased by $8,000. For an auto placed in service in 2018, Code Sec 280F limitation is increased by $6,400 and in 2019 is increased by $4,800.
There is a very narrow window left in 2015 to take advantage of the new PATH law depreciation extenders. However, PATH removes the uncertainty going forward for depreciation tax planning. Please contact one of our tax advisors for any questions or assistance.