The Protecting Americans from Tax Hikes Act of 2015 (“PATH” or “Act”), which was signed into law by the President on December 18, 2015, has many favorable year depreciation changes.
Bonus Depreciation
Bonus depreciation has been a benefit for taxpayers every year since September 11, 2001, with the exception of a three-year hiatus for the tax periods from 2005 through 2007, and will now be a benefit for taxpayers from 2015 through 2019 (and as usual, with an additional year for certain properties with a longer production period).
However, this year’s Act provides for a gradual phasedown of bonus depreciation. The bonus depreciation percentage (as an immediate write-off) is as follows for 2015 through 2019:
- As of January 1, 2015 through December 31, 2017: 50%
- As of January 1, 2018 through December 31, 2018: 40%
- As of January 1, 2019 through December 31, 2019: 30%
The special depreciation allowance under Section 168(k) generally provides the following four requirements for property to be eligible for bonus depreciation through December 31, 2019:
- The depreciable property must be a certain type [i.e., qualified property—tangible property under the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less (including off-the-shelf software) and qualified leasehold, restaurant, and retail properties];
- The original use of the depreciable property must commence with the taxpayer after the relevant bonus depreciation date (i.e., bonus depreciation is available only for new equipment);
- The depreciable property must be acquired by the taxpayer before January 1, 2020; and
- The depreciable property must be placed in service before January 1, 2020.
Important Details
Additionally, taxpayers may elect to accelerate the use of alternative minimum tax (AMT) credits in lieu of bonus depreciation under special rules for property placed in service in 2015. In 2016, the provision modifies the AMT rules by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation.
15-Year Recovery Period for Qualified Leasehold, Restaurant, and Retail Properties
As many thought, the provision for the 15-year recovery period for qualified leasehold, restaurant, and retail properties under Section 168(e)(3) was made permanent. Prior to its permanency, this provision has been extended from October 22, 2004 through December 31, 2014 without missing a year.
Energy Tax Incentives
The PATH of 2015 will extend the Energy Efficient Commercial Buildings Deduction through December 31, 2016. Section 179D offers a tax deduction (not to be confused with the energy investment tax credits (e.g., 10% and 30%), which are available for alternative energy sources—solar, geothermal, wind, etc., placed in service on or before December 31, 2016) of up to $1.80/sf to those investing in energy-efficient improvements to reduce energy use within the building envelope (e.g., insulation, doors, windows, etc.), heating ventilation and air conditioning, and energy-efficient lighting. The building’s energy systems must be a specified percentage more efficient than the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) 2001 standards to qualify.
Important Details
Because the deduction is totally predicated on square footage, taxpayers with a significant amount of square footage (i.e., 50,000 square feet or more) would be prime candidates. There is also a provision in Section 179D that allows designers of government buildings (which include architects and engineers) to take the deduction for any federal, state, or municipal property they designed.
TECHNICAL INFORMATION CONTACTS:
Allea Newbold
Principal
Ryan
813.228.7100
allea.newbold@ryan.com
John Belpedio
Director
Ryan
212.871.3901
john.belpedio@ryan.com