Fixed Asset and Depreciation Opportunities Created by the PATH Act
The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended and made permanent many expiring tax provisions. Unlike prior legislation that worked on a retroactive basis, the PATH Act allows taxpayers to engage in proactive tax planning. In a previous article, McGuire Sponsel detailed the effects that the new act has on Fixed Assets and Depreciation. Today, however, we would like to highlight a few potential opportunities that are created by merging multiple strategies present in the PATH Act.
The new act extended and made permanent the Section 179 $500,000 expensing limit and the $2 million phase out. All too often, we have seen the Section 179 expense applied only to equipment. While this is technically correct, tax savings could be left on the table. Under Section 179, a taxpayer is allowed to expense qualified real property if it meets the criteria of a Qualified Leasehold Improvement, Qualified Restaurant Property or Qualified Retail Improvement Property. The professionals at McGuire Sponsel would recommend taking the expense against any qualified real property. This reduces the basis of the 15-year property instead of the shorter, 5 or 7-year personal property. The taxpayer can then claim bonus depreciation on the remaining eligible assets and capture the remaining basis over the shorter 5 or 7 year life.