Andy Fishburn 2016-03-12 07:20:59
Tax Extensions Become Law
Not Your Run-of-the-Mill Tax Extenders
ON DEC. 18, President Obama signed Public Law 114-113, which included extensions of multiple tax incentives that affect the equipment leasing and financing industry. These extensions include the retroactive application of several tax benefits, making some provisions permanent, as well as the unexpected extension and then ultimate phase out of several.
Bonus Depreciation
Bonus depreciation was extended retroactively to Jan. 1, 2015, and prospectively through Dec. 31, 2019, phasing out during those years. The schedule below is a summary of the effective dates and rates of the bonus depreciation based on the placed in service dates of new qualifying assets, except for certain property that is described as longer period production property, transportation property and for certain aircraft. So for the general assets commonly leased, including assets like trucks, machine tools, medical equipment, renewable energy systems and construction equipment, the bonus depreciation rules are fairly easy to follow. In summary, the bonus depreciation depends on the date the qualifying asset is placed in service and is as follows:
I. 50% bonus depreciation for new property placed in service between 1/1/2015 and 12/31/2017
II. 40% bonus depreciation for new property placed in service between 1/1/2018 and 12/31/2018
III. 30% bonus depreciation for new property placed in service between 1/1/2019 and 12/31/2019
Enhanced Section 179 Made Permanent
Section 179 is similar to 100% bonus depreciation for specified value of new asset additions and taken as an election by the taxpayer. A taxpayer may elect to deduct the amount up to the Section 179 expensing limit, now set at $500,000 with a $2 million overall investment limit. For every dollar of new asset additions above the $2 million overall investment limit, the amount of Section 179 expensing limit is reduced. Thus if an entity acquired $2 million of new depreciable assets, it could expense $500,000 immediately and the balance would be depreciated following the applicable depreciation rules. However if the entity acquired $2.250 million, the Section 179 expensing is limited to $250,000 ($2,250,000. $2,000,000). These values are now indexed for inflation so be sure to check with a tax professional when calculating the applicable levels in any given year.
Implications for the Equipment Finance Industry
The short- and mid-term certainty provided by this bill should remove a significant weight from the economy and, we hope, allow for a reduction in the government imposed headwinds that many ELFA members have seen in the economy in recent years.
The passage of this bill and the decisions made by the Congress in putting the various provisions into different categories of longevity has important implications for a future comprehensive tax reform effort. These actions are being viewed by many as laying a strong foundation for tax reform in the next Congress, which begins in January of 2017. Obviously the outcome of the 2016 presidential elections will play a critical role in the future of tax reform as well.
Several members of the ELFA Federal Tax Committee (Joe Sebik, Glenn Johnson and David Burton) have compiled a summary of the provisions most impactful to the equipment leasing and finance industry. The full paper, which not only goes into more details about the changes to bonus depreciation and Section 179, but also covers changes to other areas, such as solar and wind energy credits, can be found in the advocacy section of the ELFA website at www.elfaonline.org/Advocacy/Fed/pdfs/Mbrs/TaxExtenders.pdf.
Andy Fishburn is ELFA Vice President of Federal Government Relations.
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