There are some important changes to depreciation resulting from the enactment of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), that may impact business decisions and timing. Prior to the enactment, there were a number of tax provisions that had expired at the end of 2014, specifically, Section 179 expensing and bonus depreciation.
Extension of Bonus Depreciation through 2019
The PATH Act extended bonus depreciation, which permits taxpayers to elect to take a current deduction of a percentage of the cost of property in the year it is placed in service. Under the PATH Act, the extended bonus depreciation deduction gradually reduces over time as follows:
Bonus Depreciation Allowed for "Qualified Improvement Property"
Prior to the passage of the PATH Act, bonus depreciation for real estate assets was limited to "Qualified Leasehold Improvement Property," which also qualified for a 15 year recovery period. The PATH Act created a new class of property called "Qualified Improvement Property" which defined similarly to "Qualified Leasehold Improvement Property." Generally, it is an improvement pursuant to a lease to the interior portion of a building, which is nonresidential real property except that:
Additionally, excluded from definition of "Qualified Improvement Property" and "Qualified Leasehold Improvement Property" are:
Recovery Period Changes:
Section 179 Changes
Phase-down of First Year Depreciation Cap Increase on Passenger Automobiles
Under the present law, the first year depreciation cap on passenger automobiles on which bonus depreciation is claimed is: $11,160 ($8,000 bonus + $3,160 first year rate)
Under the new law, the $8,000 bonus depreciation is reduced to $6,400 for passenger automobiles placed in service in 2018 and $4,800 for passenger automobiles placed in service in 2019.
Questions? Contact your Berdon advisor.
Berdon LLP New York Accountants