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Taking advantage of the PATH Act

Tax breaks for buying fixed assets and equipment are here to stay

Are you making the most of the new rules for companies that purchase fixed assets and equipment? The tax treatment of purchases such as computers, software, office furniture, telecommunications equipment, and heating and air conditioning units has been more beneficial to businesses since enactment of the Protecting Americans from Tax Hikes (PATH) Act of 2015 in late 2015.

The tax-saving details

The PATH Act permanently extended the increased Section 179 expensing limit for qualifying fixed asset purchases. The expensing limit is now $500,000 and the phaseout threshold starts at $2 million. What’s more, these amounts will be indexed annually for inflation in $10,000 increments.

Expensing fixed assets — in other words, writing them off during the year in which they’re placed in service — offers significant tax advantages. You can realize a larger deduction in the early years of ownership than if you depreciate assets over a number of years.

Previously, the Section 179 expensing limit was only $25,000 and the phaseout threshold started at just $200,000. You must purchase or finance fixed assets and place them in service by midnight on December 31, 2017, to expense them this year. For tax years beginning after December 31, 2015, heating and air conditioning equipment are now eligible for expensing.

In addition, the Act extended first-year bonus depreciation through the end of 2019. You can now expense 50% of the cost of qualifying property that’s purchased and placed in service this year, 40% of this amount in 2018 and 30% of this amount in 2019. However, bonus depreciation phases out completely in 2020, unless, of course, it’s extended yet again.

Bonus depreciation is available for new Modified Accelerated Cost Recovery System (MACRS) property with a recovery period not exceeding 20 years that’s placed in service after December 31, 2015. Computer software, water utility property and qualified restaurant improvement property also qualify for bonus depreciation.

Maximize your benefits

Your tax advisor can help you develop strategies to ensure that your company reaps maximum benefits from the Section 179 deduction and bonus depreciation. Contact us today to learn more.

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