Business taxpayers had many reasons to celebrate the enactment of the Protecting Americans from Tax Hikes (PATH) Act in December 2015. In addition to making the Research and Development (R&D) Credit permanent, extending the Work Opportunity Tax Credit (WOTC) through 2019, and renewing the §179D deduction through 2016, the Act made permanent a maximum §179 deduction of $500,000 and retroactively renewed a 50 percent bonus depreciation deduction.
Under §179 of the tax code, businesses may deduct the entire purchase price, up to a specified dollar amount, of certain types of equipment, software, furniture, tangible personal property, and even vehicles that are purchased, financed, or leased for business purposes. These items must be placed into service during the year that the business claims the deduction. According to the PATH Act, businesses may spend up to $2 million on qualifying purchases and claim a §179 deduction of up to $500,000. These amounts are indexed for inflation and will therefore increase in future years.
In addition to the §179 deduction, businesses have the option of claiming bonus depreciation. Bonus depreciation allows taxpayers to depreciate a specified percentage of new business equipment and other property during the year that it is placed into service and then depreciate the remainder of the cost over the course of the equipment’s useful life. This unleashes more substantial and immediate tax savings than the business would enjoy by depreciating the property’s entire cost over its useful life.
The PATH Act renewed a 50 percent bonus depreciation cap for property placed into service during tax years 2015, 2016, or 2017. After 2017, the deduction will begin to decrease, tapering down to 40 percent in 2018 and 30 percent in 2019. Bonus depreciation is only available for the purchase of new property, whereas the §179 deduction applies to both new and used property.
The modifications to both the §179 deduction and bonus depreciation provide businesses with some measure of stability as they plan their tax strategies and equipment purchases. However, businesses seeking to take advantage of bonus depreciation should be aware that the percentage limit has fluctuated over the years and its future beyond 2019 is uncertain. Therefore, now is the time to purchase qualifying property and reap the benefits of the generous 50 percent depreciation deduction while it is available.
Capital Review Group (CRG) is committed to helping businesses maximize their savings in light of the latest changes to tax laws. Contact CRG today to take advantage of the lucrative opportunities created by the PATH Act!
(Sources: http://www.section179.org/section_179_deduction.html, http://www.cpapracticeadvisor.com/news/12166826/50-bonus-depreciation-and-500k-building-deduction-made-permanent?utm_source=CPA+Tax+%26+Compliance&utm_medium=email&utm_campaign=CCSN160209002, http://www.equipmentworld.com/bonus-depreciation-section-179-tax-breaks-extended-sent-to-president-obama-for-signature/).