Enhanced Depreciation Provisions Extended

Date01 May 2016
Published date01 May 2016
DOIhttp://doi.org/10.1002/jcaf.22167
85
© 2016 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22167
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IRS
Enhanced Depreciation Provisions
Extended
Shirley Dennis-Escoffier
In December 2015, Congress
passed the Protecting Americans
from Tax Hikes Act of 2015
(PATH Act). The PATH Act
made permanent the $500,000
limit for expensing and extended
bonus depreciation for a few
more years. The treatment of
leasehold improvements along
with restaurant and retail
improvement property was also
extended as well as the election
to claim alternative minimum tax
(AMT) credits in lieu of bonus
depreciation. These changes, in
combination with the recently
announced increase in the de
minimis safe harbor for small
businesses in the repair regula-
tions, are welcomed news and
should provide some certainty for
businesses in their tax planning.
INCREASED EXPENSING MADE
PERMANENT
Under Internal Revenue
Code (IRC) Section 179, busi-
nesses can immediately expense,
rather than depreciate, up to
$500,000 of qualified property
acquired and placed in service
annually. In recent years, the
$500,000 limit has been extended
for only a year or two at a time,
frequently not until December,
leaving businesses uncertain for
most of the year whether the
higher limit would be extended
or allowed to revert to the old
$25,000 limit. Fortunately,
the uncertainty is finally over
because the $500,000 limit is now
permanent and will be indexed
for inflation in the future.
The PATH Act also made
permanent the eligibility of off-
the-shelf software for expensing.
Other qualified property includes
depreciable tangible personalty
(such as equipment but not
buildings) used in the active
conduct of a business. Both new
and used assets are eligible. The
excess purchase price beyond the
expensing limit can be deducted
through regular depreciation.
Example 1: Alpha
Corporation purchases
$548,000 of equipment
that would normally
be depreciated using a
5-year life for tax pur-
poses. Alpha can elect
to expense $500,000.
Regular deprecia-
tion will be $9,600
[($548,000 – $500,000
expensed) × 20% regu-
lar depreciation rate]
resulting in total depre-
ciation of $509,600 in
the first year.
Congress intended the
expensing provision to be a ben-
efit for only small businesses, so
it included a phase-out for busi-
nesses that acquire a significant
amount of assets in any one year.
Before the PATH Act was passed,
the benefit of expensing would
have started phasing out once
more than $200,000 of assets
were placed in service. Fortu-
nately, the new law reinstates the
$2 million phase-out threshold
for 2015 and indexes it for infla-
tion in future years. The $500,000
expensing provision phases out
on a dollar-for-dollar basis, so
once more than $2,500,000 in
eligible assets have been placed in
service, no expensing is allowed.
Example 2: Beta Cor-
poration purchased
$2,400,000 of equip-
ment in 2015, so
its IRC Section 179
expensing allowance
is reduce d to $100,000
[$500,000 – ($2,400,000 –
$2,000,000)]. If Beta h ad

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