Congress Passes Legislation Establishing New Section 179 Deduction Limits

On December 18, Congress passed the Protecting Americans from Tax Hikes Act of 2015, which, among its provisions, made permanent Section 179 deduction limits and extended 50-percent bonus depreciation.

“This legislation will provide certainty for small businesses in an area where it has long been lacking. Every day that these expired tax provisions have been unresolved has meant another day of uncertainty for small-business owners who are being forced to plan for their business’ future without being able to assess what their annual tax liability will be. We are pleased that Congress has finally taken action on this issue and provided small businesses with certainty for 2016 and beyond,” says Paula Calimafde, Small Business Legislative Council (SBLC) president and general counsel. The SBLC is an independent, permanent coalition of national trade and professional associations who work to maximize the advocacy and presence of small business on federal legislative and regulatory policy issues.

Section 179 and bonus depreciation allow businesses to write off set amounts of annual investment in capital assets, such as machinery, in the year that the asset is purchased or leased in lieu of depreciating the investment over a number of years. In a statement following Congress’ passing of the PATH Act, the SBLC said, “Being permitted to recognize a deduction for the cost of an asset in the year in which the expense is incurred is extremely important for the growth of small businesses. This is particularly true for small businesses in the first few years of existence when significant investments in capital assets are required and the business has not yet become profitable and is at the greatest risk of failure.”

There have been nine temporary increases or extensions to the Section 179 limits since 2003. In 2013, The American Taxpayer Relief Act temporarily increased the Section 179 deduction limit to $500,000 and the cap on the amount of capital assets that a business can purchase in a given year before their eligibility to take the Section 179 deduction is reduced or eliminated to $2 million. In January 2014, these limits reverted back to the pre-2003 level which, without inflation indexing, was a deduction limit of $25,000 and an asset purchase cap of $200,000. Bonus depreciation, which was first introduced in 2002, expired altogether on December 31, 2013. The new tax package makes the increased Section 179 limits permanent and indexes them for inflation. The legislation also extends 50-percent bonus depreciation through the end of 2017; after which it will be decreased by 10 percent each year, to 40 percent in 2018 and 30 percent in 2019.

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