#TaxTipTuesday: Depreciation Changes in the PATH Act that Impact Agriculture


On December 18, 2015, Congress passed and the President signed into law an agreement on tax extenders and numerous other tax provisions in the “Protecting Americans from Tax Hikes (PATH) of 2015” (the Act). Tax extenders are the 50+ tax provisions that are routinely extended by Congress on a one- or two-year basis. The Act makes permanent many of the individual and business extenders. Some of the more pertinent provisions are as follows:

Depreciation Changes in the PATH Act

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) contains a number of items related to depreciation.  A few items merely extended the lapsed tax law from the prior December 31, 2014, expiration date through December 31, 2016.  Other expired provisions were either permanently extended or extended for five years, and many also had modifications made to their use.
Two-Year Extensions
The following depreciation items were extended for two years, through December 31, 2016, without modification:
  • Ability to use three-year life for race horses.
  • Ability to use seven-year recovery period for motorsport entertainment complex property.
  • Election to expense mine safety equipment.
The following depreciation items were extended for two years, through December 31, 2016, and had modifications to the prior expired provisions:
  • Ability to use qualified Native American reservation property depreciation rules, with a modification, effective for taxable years beginning after December 31, 2015, to permit taxpayers to irrevocably elect out of applying the accelerated depreciation rules of this provision.
  • Ability to use special depreciation expensing rules for qualified film and television productions, with a modification, to also allow qualified live theatrical productions, effective for productions commencing (the date of first public performance for a paying audience) after December 31, 2015. The special depreciation expensing rules only apply to the first $15 million of costs.
Five-Year Extensions
Bonus depreciation for 50 percent type property was extended for five years, through December 31, 2019, but has a phase-out requirement attached.
Bonus depreciation is allowed to be claimed on the cost of qualifying depreciable property after reduction for any Section 179 depreciation allowance.
The bonus depreciation rate allowed under the new PATH Act provisions will be 50 percent for the period beginning January 1, 2015, through December 31, 2017. The rate will then begin to phase-out, reducing to 40 percent through December 31, 2018, and to 30 percent through December 31, 2019.
The ability of a corporate taxpayer to elect to use alternative minimum tax credits in lieu of bonus depreciation is still available beginning January 1, 2015.  But, beginning January 1, 2016, a modification allows a potential for increasing the use of unused AMT credits.
In addition, new bonus depreciation provisions allow bonus depreciation to cover qualified improvement property that is not subject to a lease. The provision also removes the requirement that the improvement must be placed in service more than three years after the date the building was first placed in service. In addition, certain fruit or nut bearing trees, vines or plants are eligible for bonus depreciation at the time they are planted or grafted, rather than when they are placed into service.
Permanent Extension
Permanent extension status, effective January 1, 2015, was provided for the following lapsed tax provisions:
  • 15-year straight-line depreciation for qualified leasehold property, qualified restaurant property, and qualified retail improvement property.
  • Section 179 accelerated depreciation for qualified property, including designated computer software and qualifying real property (leasehold, restaurant and retail), to be expensed up to $500,000 per year, subject to a phase-out amount when the total qualifying Section 179 property exceeds $2 million. Modifications to the prior lapsed provision provide for indexing the expensing limitation and the phase-out amount for inflation beginning January 1, 2016, treating air conditioning and heating units placed in service after December 31, 2015, as eligible qualified Section 179 property and, as of January 1, 2016, elimination of the $250,000 expensing cap for qualified real property.

As a reminder, when applying the newly extended lapsed depreciation provisions, be aware of and consider in your tax planning the de minimis expensing rules. A recent IRS Notice, effective for years beginning after December 31, 2015, has increased the ability to expense otherwise capital items for small taxpayers without an Applicable Financial Statement. Planning to combine the use of both the new de minimis rules and the newly extended depreciation provisions may produce additional benefits for taxpayers.



CLICK HERE for some additional examples related to agriculture.  



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