The recently enacted Protecting Americans from Tax Hikes (PATH) Act of 2015 made a number of significant taxpayer-friendly changes in the tax law, but few have a wider impact on ordinary businesses than the retroactive permanent extension of the enhanced Code Section 179 expensing rules and the five-year extension of 50 percent bonus first-year depreciation.
Enhanced Section 179 Expensing
Under Code Section 179, a taxpayer – other than an estate, a trust, or certain noncorporate lessors – may elect to deduct as an expense, rather than to depreciate, up to an annual per-taxpayer dollar limit the cost of new or used tangible personal property, off-the-shelf computer software, or qualified real property placed in service during the tax year in the taxpayer’s trade or business.
The annual dollar limit generally is reduced dollar-for-dollar by the amount of Code Section 179 property placed in service during the tax year in excess of a specified investment ceiling. Amounts ineligible for expensing due to the dollar limit can’t be carried forward and expensed in a later year. Rather, they can only be recovered through depreciation.
The amount eligible to be expensed for a tax year can’t exceed the taxable income derived from the taxpayer’s active conduct of trades or businesses. Except for certain deductions attributable to qualified real property, any amount that is not allowed as a deduction because of the taxable income limitation is carried forward to succeeding tax years.
For tax years beginning in 2014:
About Richard H. Sternberg
Richard H. Sternberg, J.D., LL.M, is a senior editor/author with Thomson Reuters Checkpoint within the Tax & Accounting business of Thomson Reuters. Richard concentrates in tax accounting, with further emphasis on cost recovery and the adoption and change of accounting methods. Before joining Thomson Reuters, Richard’s tax law practice experience included work in real estate and municipal bond taxation at major law firms. Richard completed his Bachelor of Arts at Dartmouth College, his J.D. at Fordham Law School, where he was a published member of the Law Review, and his LL.M. in taxation at New York University School of Law.