Section 179 Limit and Bonus Depreciation Changes for 2015, 2016, and Beyond Announced by IRS

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) includes some important tax breaks for small businesses.

Congress passed the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) which included the following important tax breaks for small businesses.

Section 179 Limit Made Permanent at $500,000

Section 179 expensing (named for Section 179 of the Internal Revenue Code) allows a business owner to deduct in one year the cost of new or used personal property used in business more than 50% of the time. The Section 179 deduction is subject to an annual dollar limit. The Section 179 limit has varied over the years and had reverted to its historic low of $25,000 on January 1, 2015. However, Congress has now permanently set the Section 179 annual limit at $500,000, made retroactive to January 1, 2015. In addition, a business owner may purchase up to $2 million in business property that qualifies for the Section 179 deduction each year. The deduction is phased out for those who purchase more than this amount. These limits will be indexed for inflation starting in 2016.

Bonus Depreciation Extended through 2019 With Phase-Out

Bonus depreciation enables a business owner to deduct in a single year a substantial amount of a new long-term asset’s cost. In recent years, the bonus depreciation amount has been 50%. Bonus depreciation expired at the end of 2014, but Congress has retroactively extended it through 2019. However, the bonus depreciation percentage will be gradually phased out as follows:

• 50% for 2015 through 2017


• 40% in 2018


• 30% for 2019.

Thus, a taxpayer may deduct in one year 50% of the cost of an item that qualifies for bonus depreciation that is placed in service during 2015 through 2017. For example, if an item that costs $10,000 is placed in service in 2016, $5,000 may be deducted the first year through bonus deprecation with the remaining $5,000 deducted using regular depreciation over several years. If the same item is purchased in 2019, only 30% of the cost can be deducted the first year with bonus depreciation. Bonus depreciation will not be available in 2020 or later.

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**Snow Mountain Alpacas does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.**