Bonus depreciation appears on the brink of both a five year extension and extinction, as part of a more than $600 billion tax package that snuck out of the Senate late Tuesday night.
The provision gives bonus depreciation a retroactive extention for equipment acquired and placed in service this year through 2019, with an additional year for certain property with a longer production period. Bonus depreciation, which allows for the immediate expensing of 50 percent of an asset’s acquisition costs, is set to continue through 2017 at its current level. In 2018, it is scheduled to begin its phase-out with a drop to 40 percent, then 30 percent the following year. After 2019, it will expire.
“The provision continues to allow taxpayers to elect to accelerate the use of alternative minimum tax (AMT) credits in lieu of bonus depreciation under special rules for property placed in service during 2015,” according to the summary from Ways and Means Committee chairman, Kevin Brady. “The provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation.”
The provision also permanently extends Section 179 small business expensing limitation and phase-out amounts in effect from 2010 to 2014 – $500,000 and $2 million, respectively. These amounts currently are $25,000 and $200,000, respectively.
“The special rules that allow expensing for computer software and qualified real property, including qualified leasehold improvement property and qualified retail improvement property, also are permanently extended,” according to the summary. “The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.”
Bonus depreciation is typically paired with higher Section 179 expensing levels.
A House vote on this bill is expected Thursday. The National Auto Dealers Association has been involved in efforts to make the Section 179 business expensing permanent and say they support bonus depreciation’s five-year renewal.