Extension and Modification of Bonus Depreciation and Section 179 Rules
On December 18, 2015, the 2015 Protecting Americans from Tax Hikes (PATH) Act was passed by Congress, which extended, modified or made permanent several depreciation related provisions including:
• Bonus depreciation was extended for an additional five years, through the 2019 tax year. For property placed in service during 2015, 2016 and 2017, the bonus depreciation percentage remains at 50 percent, however for property placed in service in 2018 and 2019 the percentage is reduced to 40 and 30 percent, respectively.
• Beginning in 2016, qualified improvement property replaces qualified leasehold improvement property and includes a broader definition. The new category includes any improvement to an interior portion of a building which is nonresidential real property if the improvement is placed in service after the date the building was first placed in service, but not including any improvement for which the expenditure is attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework of the building.
• For qualified improvement property placed in service after December 31, 2015, the 2015 PATH Act treats interior building improvements as qualified property without regard to whether the improvements are property subject to a lease and also removes the requirement that the improvement be placed in service more than three years after the date the building was first placed in service.
• Section 179 expensing is restored and permanently extended at the annual allowable expense limitation of $500,000. The $500,000 limit begins to be phased out once the cost of Section 179 property placed in service during the tax year exceeds $2,000,000.
• For passenger automobiles under 6,000 pounds gross (unloaded) vehicle weight or less and placed in service during the 2016 tax year, the first year depreciation expense deduction is limited to $3,160 or $11,160 if bonus depreciation applies.
• Heavy SUVs, which are built on a truck chassis and are rated at more than 6,000 pounds gross (loaded) vehicle weight, are exempt from the above luxury-auto dollar cap limits. However, the maximum Section 179 deduction that is allowed is limited to $25,000 per SUV, but bonus depreciation is not limited if the SUV qualifies as a new purchase.
• Trucks that are over 6,000 pounds gross (loaded) vehicle weight and have an interior cargo bed length of six feet or longer, are not subject to any annual depreciation limits. However, if the truck has an interior cargo bed length of less than six feet, the maximum Section 179 deduction that is allowed is limited to $25,000, but bonus depreciation is not limited if the truck qualifies as a new purchase.
Please contact your advisor with KBCA, LLC at (775) 885-8847 if you have any questions about the extended modified depreciation rules.