Bonus Depreciation and the Enhanced Section 179

In July 2015, the Senate Finance Committee voted to extend bonus depreciation and the enhanced section 179 deduction through 2016. Bonus depreciation may result in substantial tax savings for businesses that already had plans to purchase or construct qualified property. Unlike section 179 expensing, you do not need net income to take bonus depreciation deductions. Further, bonus depreciation is not limited to smaller businesses or capped at a certain dollar level. It is not available for used property, property used outside of the US, tax-exempt use property, or tax-exempt financed property.

Congress has made a habit of rushing through tax packages at the end of the year with short time horizons- often passing provisions like this retroactively then applying them only to the next year. Each year, there has been much uncertainty as to whether the tax breaks will be renewed the following year. This has made tax planning particularly challenging the last few years. A deal was reached last night on this and other tax provisions that brings some permanency to the deductions and allows for better tax planning going forward.

The new deal retains Section 179 at the higher limits, while indexing them for inflation in future years. Taxpayers will continue to be eligible to apply Section 179 to purchases of computer software and qualified leasehold, retail, and restaurant improvements. The shortened 15 — rather than 39 — year recovery life of qualified retail, restaurant, and retail improvements has been made permanent.

While this deal is not technically “done,” it is expected to pass the House and Senate this week before being signed by the President. Bonus depreciation helps reduce your tax bill and encourages investment in your business but accounting for it can be tricky. Give us a call to get started on your 2015 tax return and be sure you are depreciating all of your assets properly and receiving the maximum benefit from these tax provisions.

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