On December 18, 2015, Congress passed the “Protecting Americans from Tax Hikes” (“PATH”) Act, which preserves, modifies, and extends several key tax provisions. Notably, the PATH Act extends bonus depreciation on property acquired and placed in service during 2015 through 2019. Bonus depreciation provides an additional amount of depreciation above and beyond what normally is available for taxpayers. Bonus depreciation may be taken in the first year that “qualified property” is placed in service.
The Path Act simplified what type of property qualifies for bonus depreciation after 2015. After 2015, bonus depreciation is available for “qualified property” that meets the following requirements: 1) new modified accelerated cost recovery system (“MACRS”) property with a recovery period of 20 years or less, “off the shelf” computer software, water utility property, and qualified improvement property; 2) property the original use of which begins with the taxpayer after December 31, 2007; and 3) property placed in service before January 1, 2020. Bonus depreciation is not available for tax-exempt use property, tax-exempt financed property, used property, or property used outside of the United States.
The PATH Act also phases out bonus depreciation over several years. For property placed in service in 2015, 2016, and 2017, a 50% bonus depreciation deduction is permitted. In 2018, the deduction phases to 40% and in 2019, the deduction phases to 30%. The PATH Act provides significant benefits to taxpayers because it results in present value tax savings for taxpayers planning to purchase or construct “qualified property.” Also, unlike the Section 179 deduction, a taxpayer is not required to have taxable income in order to achieve the benefit of bonus depreciation.