After a long wait, equipment distributors, manufacturers, and their customers can look forward to some much-needed certainty on bonus depreciation, Sec. 179 expensing, and other tax issues.
Late on Dec. 15, House and Senate leaders released the details of a year-end tax and budget deal that accomplishes several of AED’s policy priorities. Among other things, as described below, the Protecting Americans from Tax Hikes (or PATH) Act would reinstate bonus depreciation and higher Sec. 179 expensing levels for 2015 and beyond. The broader deal also lifts the crude oil export ban. While the tax and budget deal is not yet law, Congress is set to approve it this week and President Obama is expected to sign it shortly thereafter.
Bonus Depreciation. The legislation generally extends bonus depreciation for new property acquired and placed in service during 2015 through 2019. The bonus depreciation amount is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down to 40 percent in 2018 and 30 percent in 2019. The deal 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. 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.
Sec. 179 expensing levels. The legislation permanently extends the small business expensing limitation and phase-out amounts that were in effect from 2010 to 2014 ($500,000 and $2 million, respectively). In other words, for 2015 a company can expense up to $500,000 as long its aggregate capital purchases don’t exceed $2 million. For each dollar in excess of $2 million, the expensing limitation is phased out by one dollar and reaches zero if capital purchases exceed $2.5 million. Companies can combine Sec. 179 and bonus depreciation (i.e., by expensing amounts up to $500,000 and taking bonus on amounts between $500,000 and $2 million). The tax bill also indexes the expensing limitation and phase-out cap starting in 2016. Unlike bonus depreciation (which only applies to new equipment), Sec. 179 is available for both new and used assets.
The PATH Act contains other important provisions, including a permanent extension of the research and development (R&D) tax credit and 15-year straight line cost recovery for qualified leasehold and retail improvements.
A section-by-section explanation of the tax bill from the House Ways & Means Committee is here. The full text of the legislation is here.
Separate from the tax bill, congressional leaders unveiled an omnibus appropriations bill to fund the federal government for the coming year.That package includes a provision to lift the crude oil export ban, AED’s top energy policy priority. By some estimates, lifting the ban will create more than $26 billion in economic activity and support more than 124,000 jobs, many of them in the supply chain (including equipment dealers and manufacturers supplying and supporting the shale oil and gas industry).
