ALERT: PATH Act Expands Opportunities for Bonus Depreciation and Section 179 Expensing
February 24, 2016
Last December’s “tax-extender” bill not only made permanent a number of tax-saving provisions, it created new tax-minimization opportunities for businesses which have renovations or remodeling planned for 2016. The new opportunities in the Protecting Americans Against Tax Hikes (PATH) Act are related to both bonus depreciation and the Section 179 deduction.
Bonus depreciation eligibility expanded
Bonus depreciation allows businesses to accelerate deductions for qualified property, including new equipment and certain real property improvements. The PATH Act extended bonus depreciation at 50% for tax years 2015 through 2017, dropping the rate to 40% and 30% for tax years 2018 and 2019, respectively.
Additionally, the PATH Act expanded eligibility for bonus depreciation to include property placed in service after 12-31-2015 that meets the definition of “qualified improvement property.” “Qualified improvement property” includes certain improvements to the interior of a non-residential building which took place after the original building was placed in service. This new term provides a broader definition of what costs associated with real property improvements are eligible for bonus depreciation.
Section 179 expensing eligibility expanded
As with bonus depreciation, Section 179 allows businesses to accelerate deductions for qualified property. The PATH Act made permanent the higher expensing limit of $500,000 each year for assets acquired after 12-31-2014, with the deduction phase-out beginning at $2,000,000 of total asset acquisitions for the tax year. Starting in 2016, these amounts may be indexed for inflation.
An expansion to Section 179 from the PATH Act means costs related to qualified heating and air conditioning (HVAC) units are now potentially eligible for Section 179 expensing. Eligibility requires consideration of the type of unit, its business use and the portion of the property it benefits.
The PATH Act included a number of other changes related to property ownership, maintenance and repair expenses. If your organization plans renovation or remodeling of any buildings this calendar year, please consult with your AGH tax professional to help ensure that you receive all tax benefits for which you’re eligible.
AGH issued an earlier summary of major provisions of the PATH Act.
For more information, contact your AGH tax professional or AGH senior vice president of tax services Shawn Sullivan using the information below.
Senior Vice President
Shawn serves as one of two primary leaders in the firm’s large tax group. He has extensive public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, wholesale/retail distribution, real estate development and management, construction, and contractor industries. In addition to enhancing business performance to minimize tax consequences, he has experience in mergers and acquisitions and international tax and business structuring.
A certified public accountant, Shawn is a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants (KSCPA) and chairs the KSCPA Committee on Taxation.
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NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.