Any fan of late-night infomercials knows that a key part of the marketing pitch is that final offer that pushes the perceived value of the package well past the asking price. Similarly, the extension of bonus depreciation is the literal “bonus” of the Protecting Americans from Tax Hikes (PATH) Act that can deliver impressive value for business owners — but only for a limited time.
Act Now on This Valuable Bonus Depreciation Offer
Bonus depreciation is the opportunity to take a substantial depreciation deduction on certain property in the year that it is placed in service. This offer is a “bonus” because it is an additional deduction taken after any Section 179 expensing and before regular depreciation rates. It is available for most tangible personal property (e.g., furniture, tools, equipment), computer software, and certain qualified improvement property.
The provision was scheduled to expire for property placed in service after 2014 until the PATH Act extended it for five years. However, businesses looking to take the greatest advantage of this “bonus” should move quickly. The bonus allowance falls from 50% to 40% for property placed in service in 2018. It drops again the following year to 30% before going “out of stock” in 2020.
Qualified Improvement Property (QIP): Now Better Than Ever
The new law also makes some impressive changes related to the depreciation of improvements to real property. The old rules limited bonus depreciation to certain improvements to leased property. The PATH Act allows bonus depreciation for the improvement of an interior portion of any nonresidential real property — as long as the improvement does not involve elevators or escalators, enlarge the building, or change the internal structural framework of the building.
Permanent Expensing: Yours With No Obligation
Not everything in the PATH Act is “limited time only.” The act also made permanent Section 179 expensing, which allows taxpayers to deduct as an expense up to $500,000 of otherwise depreciable assets in the year of purchase. That $500,000 limit will be adjusted for inflation going forward — meaning that the value of this gift gets better over time.
A Special Offer Just For Retailers and Restaurants
In addition to the law change, the IRS released guidance regarding how retailers and restaurants should treat improvement-related costs. Because these customer-facing businesses tend to refresh their spaces more often than most, the IRS created a safe harbor that allows them to classify costs for these undertakings as either immediately deductible expenses or capital assets that must be depreciated.
The safe harbor allows retail and restaurant businesses to treat 75% of remodeling costs as expenses in the current year, with 25% of the costs capitalized and depreciated over time. When they combine the safe harbor provision with the bonus depreciation of 50% of the capitalized costs (if the property is placed in service before 2018), retailers and restaurant owners could recoup the vast majority of their upgrading costs in the first year.
Call CRI to Discuss Your Bonus Depreciation Opportunities Today
Taking advantage of these taxpayer-friendly provisions requires foresight and planning. So why are you waiting? Your CRI tax advisors are standing by, ready to review all of the opportunities to help maximize your tax savings. Contact us today!