However, proactive actions utilizing proven expertise is essential.
Based on the PATH Tax Act, businesses can depreciate 50 % of equipment cost and construction costs segregated as 5 & 7 year property retroactively placed in service during 2015, and forward to 2016 and 2017. Thereafter, the bonus depreciation is reduced to 40 percent in 2018 and 30 percent in 2019.
Bonus depreciation is an additional 50% deduction in year 1, plus regular depreciation for the remaining basis. For $1 Million of 5 year property, the first year deduction is 60% or $600,000 resulting in a savings of $240,000 (at 40% tax rate)! An asset qualifies for bonus depreciation if it is property eligible for MACRS with a recovery period of 20 years or less (includes land improvements) or qualified leasehold improvement property (see below)
Improvements placed in service after Dec. 31, 2015 are “qualified improvement property” and eligible for bonus depreciation.
The PATH Tax Act liberalizes the prior rules in three ways:
(1) building improvements are eligible for bonus depreciation regardless if the improvements are property subject to a lease or not;
(2) the improvement need not be more than three years after the date the building was first placed in service; and
(3) structural components of a building that benefit a common area are no longer excluded from the definition of qualified improvements.
15-Year Write-off for Qualified Leasehold, Retail, and Restaurant Property Improvements
The provision to depreciate qualified leasehold, retail, , and restaurant property improvements over 15 years under MACRS has been made permanent. Without this provision, the recovery life of this property would have been 39 years.