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Deal Makes Industry Tax Breaks Permanent

The package adds some much needed certainty to the tax code.

Sat December 12, 2015 - National Edition
Construction Equipment Guide

The new deal retains Section 179 at the higher limits, while indexing them for inflation in future years.
The new deal retains Section 179 at the higher limits, while indexing them for inflation in future years.

Forbes is reporting that after weeks of reports ranging from optimism for permanency to another one-year retroactive extender, a deal was in fact reached in the wee hours of December 16th a Tax Code extender deal had been reached.

Fifty-two provisions of the Internal Revenue Code expired on December 31, 2014. Among the provisions that died on that day were powerful business incentives like the R&D credit, bonus depreciation, and enhanced Section 179 write-offs of asset acquisitions.

This package adds some much needed permanency to the Code, ensuring that we, as taxpayers, can finally act with some certainty over the coming years about the availability of a wide range of tax benefits.

And while this deal is not technically “done,” it is expected to pass the House and Senate this week before being signed by the President.

So what makes this deal different? Let’s take a look.

Business Provisions Made Permanent

R&D Credit: businesses, rejoice! The biggest ticket item of all the 52 extenders has finally been made permanent, as well as bigger and better. Beginning in 2016, businesses with less than $50 million in gross receipts will be free to use the credit to offset alternative minimum tax. In addition, certain start-up businesses who may not have an income tax liability will be able to offset payroll taxes with the credit.

Enhanced Section 179 deductions: In recent years, taxpayers have been entitled to immediately deduct up to $500,000 of the cost of qualifying asset acquisitions (with a phase-out beginning at $2 million). These threshold were due to plummet to $25,000 and $200,000 respectively, beginning on January 1, 2015. The new deal retains Section 179 at the higher limits, while indexing them for inflation in future years. Taxpayers will continue to be eligible to apply Section 179 to purchases of computer software and qualified leasehold, retail, and restaurant improvements (see immediately below).

Abbreviated 15-year life of qualified retail, restaurant, and retail improvements: the shortened 15 — rather than 39 — year recovery life of these three types of assets has been made permanent.

100% exclusion on Section 1202 stock: as I wrote about here, changes made in 2009 and 2010 to Section 1202 — which allows a taxpayer who sells qualifying small business stock held for longer than 5 years to exclude part of the gain — increased the exclusion from 50% to 100% (subject to limitations). This 100% exclusion was made permanent for stock, bringing great relief to investors who acquired QSBS stock in 2015.

Reduction in S corporation built-in gains recognition period: While this change is unlikely to garner much press, it is extremely meaningful to owners of C corporations who have contemplated making an election to be taxed as an S corporation, as the corporation will now only be subject to corporate-level tax on the disposition of appreciated assets owned at the conversion date for five years, rather than the ten under previous law.

Provisions Extended Through December 31, 2019

Not all of the 52 provisions were made permanent, however. The following were extended only through 2019:

The new markets tax credit,

Bonus depreciation: the 50% immediate expensing of asset acquisitions that we’ve known in one form or another since 2001 is on its last legs. It will be permitted at 50% for 2015, 2016 and 2017 before reducing to 40% in 2018 and 30% in 2019, when it will then disappear altogether.

For the full article, click here.

Update: On Thursday afternoon, the House passed the legislation by a vote of 318-109.

The Associated Equipment Distributors (AED) also issued the following statement on Thursday evening:

Today, the U.S. House of Representatives passed the Protecting Americans from Tax Hikes (PATH) Act by a vote of 318 to 109. Among other things, the massive year-end tax bill would reinstate bonus depreciation and increase Sec. 179 expensing for 2015 and beyond.

For 2015, the bonus depreciation amount would be 50 percent and the Sec. 179 expensing level would be $500,000, with a $2 million phase out cap. The legislation remains on track for Senate passage and the president’s signature before the holidays.

For a section-by-section summary of the bill with more details about the bonus depreciation and Sec. 179 expensing provisions, click here:

For the Joint Committee on Taxation’s detailed explanation of the PATH Act, click here:

To see how your representative voted on PATH Act, click here:

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