New PATH Act Provisions Mean More Incentives for Real Estate Investments
Extensions of the Protecting Americans from Tax Hikes Act of 2015 (PATH) provided permanent extensions and new incentives for real estate investments. Extensions and modifications to bonus depreciation, Section 179 depreciation and Section 179D deductions can help your small business benefit from equipment investments.
15-year (straight-line) recovery periods for qualified leasehold and retail tenant improvements have been permanently extended. In some instances bonus depreciation may also apply to these improvements in addition to the beneficial recovery period. To qualify for bonus depreciation, the equipment must be new (original use).
Additional first year depreciation extended for five years through 2019 under the following phase-down schedule:
- 50% in 2015-2017
- 40% in 2018
- 30% in 2019
– If you buy enough new equipment to exceed the $500,000 deduction limit, you can take a “bonus” 50% depreciation on the rest.
– There is no total limit of purchases or phase-out for this deduction.
Section 179 Depreciation
Beginning in 2016, the provision modifies the Section 179 property expensing limitation by indexing both the $500,000 and $2 million limits to inflation in $10,000 increments in future years.
– Equipment and software must be purchased/financed and in place by midnight December 31 in order to take advantage of the 179 tax deduction for the year.
– For tax years beginning after 12/31/15 air conditioning and heating units are eligible for expensing. This can really add up in multi-family or large commercial properties.
– When replacing old or broken units, be sure to identify them on your depreciation schedule so that they can be removed and the remaining depreciation allowed.
Section 179D Deduction
Efficient building deduction (not credit) of up to $1.80 per square foot has also been extended through 2016. The deductions are available for energy efficient improvements made to a building’s lighting system, HVAC system or the building envelope.
– 179D is more beneficial to large buildings since the deduction is based on square footage and requires a certification by a qualified person.
The PATH Act provisions have significantly helped many small businesses by lowering the cost of equipment they need to purchase or lease to run their day-to-day operations. If you have any questions on how your real estate or construction investments can benefit, contact Anders.