Depreciation & Expensing Provisions in the PATH Act

The PATH Act makes permanent the enhanced Code Sec. 179  expensing and phaseout limits, and 15-year write-off for qualifying leasehold improvements, restaurant buildings and improvements, and retail improvements. In addition, the Act provides for a retroactive extension of provisions that had expired at the end of 2014, including 50% bonus first-year depreciation (at a rate that gradually decreases). For further information and to discuss whether your purchase is a “qualifying property”, please contact us.

Enhanced Expensing Made Permanent

Under pre-Act law. For tax years beginning after Dec. 31, 2014, the maximum expensing limit had dropped to $25,000, and the investment ceiling dropped to $200,000.

New law. The Act makes the following changes to the Code Sec. 179 expensing election:

  • The $500,000 expensing limitation and $2 million phase-out amounts are retroactively extended and made permanent. After Dec. 31, 2015, both the expensing and phase-out limits are indexed for inflation.
  • The rule that allows expensing for computer software is retroactively extended and made permanent.
  • Qualified real property (generally qualified leasehold improvements, qualified restaurant, and qualified retail property) is eligible to be expensed.
  • For tax years beginning after Dec. 31, 2015, air conditioning and heating units are eligible for expensing.

15-Year Write-off for Qualified Leasehold and Retail Improvements and Restaurant Property Made Permanent

Under pre-Act law. The 15-year write-off didn’t apply to property placed in service after Dec. 31, 2014 and, therefore, was depreciable over 39 years.

New law. The Act retroactively extends and makes permanent the inclusion of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property in the 15-year MACRS class.

Bonus First-Year Depreciation Extended Through 2019

Additional first year depreciation, also known as “bonus” depreciation, generally allows an additional first-year depreciation deduction equal to 50% of the adjusted basis of qualified property.

Under pre-Act law. Bonus depreciation expired effective 12/31/14.

New law. The Act extends bonus depreciation (additional first-year depreciation) under a phase-down schedule through 2019: at 50 percent for 2015-2017; at 40 percent in 2018; and at 30 percent in 2019.

Written by Judy Deniz, CPA, Manager