Two new laws – the Protecting America from Tax Hikes (PATH) Act of 2015 and the Consolidated Appropriations Act, 2016 – contain provisions that may affect your construction business. These provisions retroactively extend, and in some cases modify, many favorable tax rules that had previously expired. A brief overview follows.
Increase in Expensing Limits
The PATH Act permanently extends the increased Section 179 expensing limit, which allows eligible businesses to expense, rather than depreciate, up to $500,000 per year of the cost of equipment and other eligible property placed in service during the tax year. The election is subject to a dollar-for-dollar phaseout as the cost of expensing-eligible property climbs from $2 million to $2.5 million. For taxable years beginning in 2016, these limits are subject to inflation adjustment. For 2016, the phaseout begins at $2,010,000.
First-year Bonus Depreciation
The PATH Act permits eligible businesses to claim bonus depreciation for qualifying property acquired and placed in service during 2015 through 2019. The available bonus depreciation percentage depends on the year the property is placed in service. The percentage is 50% for 2015 through 2017, 40% for 2018, and 30% for 2019. These percentages apply one year later than indicated (and bonus depreciation will be available through 2020) for certain longer-lived and transportation property.
Increase in “Luxury Auto” Limits
The PATH Act increases the “luxury auto” dollar limit on depreciation deductions by $8,000 for autos, light trucks, and vans placed in service after 2015 and before 2018. The allowable increases drop to $6,400 for vehicles placed in service in 2018 and to $4,800 for vehicles placed in service in 2019.
Energy-efficient Improvements to Commercial Buildings
The PATH Act retroactively extends for two years the deduction for qualifying energy-efficient improvements to lighting, heating, cooling, ventilation, and hot water systems in commercial buildings. The deduction now applies to property placed in service before January 1, 2017.
Energy-efficient Home Construction
Under the Path Act, eligible contractors that construct and sell new energy-efficient residences before January 1, 2017, may continue to claim a credit of either $2,000 or $1,000 per home, depending on the home’s projected fuel consumption.
Solar Energy Credits
The Consolidated Appropriations Act extends through 2021 a credit available to business taxpayers for the installation of qualified solar energy property. The available credit percentage is gradually reduced over five years.
Talk to Us
The expensing limits and the bonus depreciation rules are complex. We would be happy to clarify how these and other changes may impact your business. Please call.