The Protecting Americans from Tax Hikes (PATH) Act of 2015 recently passed both the House and Senate – thus, expanding the Section 179 deduction limit to $500,000 from the previous $25,000.
As detailed at Section179.org, Section 179 will be at the $500,000 level permanently. Businesses exceeding a total of $2 million of purchases in qualifying equipment will have the Section 179 deduction phase-out dollar-for-dollar and completely eliminated above $2.5 million. Additionally, the Section 179 cap will be indexed to inflation in $10,000 increments in future years.
In addition, 50 percent bonus depreciation will be extended through 2019. Businesses of all sizes will be able to depreciate 50 percent of the cost of equipment acquired and put in service during 2015, 2016 and 2017. Then bonus depreciation will phase down to 40 percent in 2018 and 30 percent in 2019.
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment from gross income from the year the equipment was purchased, rather than writing off the depreciation of the equipment over several years. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves. Qualifying property includes equipment (machines, etc.) purchased for business use, tangible personal property used in business, air conditioning and heating units, business vehicles with a gross vehicle weight in excess of 6,000 pounds, computers, software, office equipment and office furniture.
Equipment has to be purchased and put into service by December 31.
“There is no single item in the tax code more crucial to incentivizing small-business investment than Section 179 expensing,” said National Small Business Association President and CEO Todd McCracken. “But, for years, small-business owners’ ability to plan for these investments has been held hostage by a dysfunctional Congress that has time and again failed to address these critical tax provisions in a timely or long-term manner, forcing many to hold off on growing their business.
“Today, more small businesses cite administrative burdens as their number-one issue with the federal tax code than do the actual financial cost. A major factor in the growing complexity is various sunsets, expiring, and extended tax laws passed by Congress. Infusing permanency into one of the most highly used small-business tax benefits is a critical step forward in easing tax complexity.”
