Bonus Depreciation: Changes for 2015 and Beyond

Make sure you calculate your bonus depreciationOne of the most important tax deductions that affects nearly every business is depreciation. Today we are going to take some time to understand bonus depreciation and the changes that have taken place in 2015. Some of this information can get a bit technical but bear with me. This topic is extremely important.

On December 18, 2015, congress passed the Protecting Americans from Tax Hikes (PATH) Act of 2015. The act extended and modified some of the main provision of bonus depreciation.

What is bonus depreciation?

Bonus depreciation is a special allowance under Section 168(k) of the tax code that allows for a large, immediate depreciation write-off before you deduct regular depreciation.   For your 2014 taxes the immediate write off was 50%!

Extension and Modification

After 2014 ended, the bonus depreciation provision was set to expire and this left a great deal of uncertainty throughout a majority of 2015. The PATH Act provision that was recently passed extends bonus depreciation from 2015 through 2019. The bonus depreciation % will be changing over that period as follows:

Year                             Bonus Amount

2015-2017                    50%

2018                            40%

2019                            30%

As the bonus depreciation % changes over the years, there could be some major tax planning opportunities. Make sure you discuss this with your accountant so you don’t miss out. The bonus rules related to AMT have changed beginning in 2016 but we won’t get into those details in this post.

Property that is eligible for bonus depreciation includes the following (used property does not qualify):

– Property with recovery period of 20 years or less (this includes purchase such as computers, vehicles, furniture, etc)

– Qualified improvement property (improvements to the interior of a non-residential building including enlargements, internal structural framework, and elevators/escalators)

– Certain computer software

– Water utility property

Conclusion

Bonus depreciation is an extremely important topic as it can provide businesses with substantial tax savings. Also, you do not need to have income in your business in order to take bonus depreciation.

I understand that this post was very technical and you may not understand it. If you take anything from this post, at a minimum bring this up to your accountant. Make sure they are aware of the changes coming and how it could affect your business. If you have additional questions for me, I am always here to chat.