Important tax legislation was recently passed by Congress and signed by President Obama to help small business owners, including those who own veterinary practices.
“Protecting Americans from Tax Hikes Act of 2015" (PATH Act, P.L. 114-113) became law on Dec. 18, 2015, marking the culmination of a successful effort by a large multi-industry tax coalition, of which the AVMA was a member.
The PATH Act expands and makes permanent the Section 179 expensing deduction that is now set at $500,000 and will be indexed to inflation in $10,000 increments in future years. Businesses with over $2 million of purchases will have the expense deduction phase-out dollar-for-dollar up to $2.5 million. An immediate deduction of the full value of investments in equipment in the year the investment is made is permitted. Qualified real property is included, and expensing for computer software is permitted.
Also extended is bonus depreciation for property acquired and placed in service through 2019. Businesses will be able to depreciate 50 percent of the total cost of equipment acquired and put in service during 2015, 2016 and 2017. Bonus depreciation will phase down to 40 percent in 2018 and 30 percent in 2019. Bonus depreciation may result in substantial tax savings for businesses that already had plans to purchase or construct qualified property. Unlike Section 179 expensing, taxpayers do not need net income to take bonus depreciation deductions. Bonus depreciation is not capped at a certain dollar level, but it is unavailable for used property, tax-exempt use property or tax-exempt financed property.
Qualified leasehold property remains eligible for 15-year Modified Accelerated Cost Recovery System depreciation. Beginning in 2016, “qualified improvement property” replaces qualified leasehold improvement property in the list of bonus-eligible property. However, the definition of qualified improvement property is broader than the definition of qualified leasehold improvement property. Under the new rules, qualified leasehold improvement property remains eligible for bonus depreciation. Qualified improvement property is any improvement to an interior portion of a building that is nonresidential real property if the improvement is placed in service after the date the building was first placed in service. Improvements do not need to be made pursuant to a lease.
IRS Publication 946 provides information on Section 179 and how to depreciate property.
For a full summary of the PATH Act, read the Ways and Means Committee release here.