Well, they pushed it until the last minute, but the tax extenders bill we’ve been waiting for has passed both the House and Senate and is on its way to the President for signature. It was worth the wait! Here are provisions in the bill of interest to business owners:
Section 179 – Every year we wait to see whether higher Section 179 limits will be extended, and now they’ve been made permanent. Taxpayers can immediately deduct (rather than depreciate) up to $500,000 of the cost of qualifying assets. This deduction phases out when the cost of property eligible for expensing exceeds $2 million. Without an extension, these thresholds would have dropped to $25,000 and $200,000, but now the higher limits will be indexed for inflation beginning in 2016.
Property eligible for Section 179 is generally limited to tangible, depreciable, personal property acquired by purchase for use in the active conduct of a trade or business. The §179 election can only be taken for the year equipment is placed in use and cannot be taken in future years. There are special rules regarding expensing computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property), which have also been permanently extended. For property placed in service after December 31, 2015, the Act provides that air conditioning and heating units are eligible for §179 expensing.
Bonus Depreciation – Bonus depreciation refers to an additional 50% depreciation deduction in the first year for qualified property. PATH retroactively extends bonus depreciation for two years so that it applies to qualified property acquired and placed in service before January 1, 2017. The bonus depreciation percentage is 50% for property placed in service during 2015, 2016 and 2017 and phases down to 40% in 2018 and 30% in 2019.
In general, an asset qualifies for bonus depreciation if it is:
• Property eligible for MACRS with a recovery period of 20 years or less
• Certain computer software
• Qualified leasehold improvement property
• Certain water utility property
• Originally used by the taxpayer
For property placed in service after December 31, 2015, bonus depreciation applies to qualified improvement property – any improvement to an interior portion of a building which is nonresidential real property – if such improvement is placed in service after the date the building was first placed in service.
15-Year Writeoff for Qualified Leasehold and Retail Improvements and Restaurant Property – The provision to depreciate qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property over 15 years under MACRS has been made permanent. Without this provision, the recovery life of this property would have been 39 years.
Work Opportunity Tax Credit (WOTC) – Many organizations have been waiting for a WOTC extension, and it’s now been extended through 2019. An additional targeted group has been added for new hires beginning in 2016 to include qualified long term unemployed individuals – those who have been unemployed for 27 weeks or more – and increases the credit for hiring these individuals to 40% of the first $6,000 of wages.
The Indian employment tax credit has also been extended through 2016.
Empowerment Zone Tax Incentives – Tax benefits for certain businesses operating in empowerment zones have been extended through 2016. Empowerment zones are economically distressed areas, and the tax benefits available include tax-exempt bonds, employment credits, increased expensing, and gain exclusion from the sale of certain small business stock.
Cadillac Tax Delayed – The Affordable Care Act (ACA) included a 40% excise tax on “high value” employer health plans which was to have taken effect in 2018. This tax has been delayed to 2020.
As more information becomes available, we’ll be updating our blog and newsletters. If you have any questions, please contact your Mize Houser relationship manager.