These Cost Recovery Provisions Have Yet to be Renewed

December 4, 2015

By Craig Jackson

It’s that time of year again, when business owners and accounting firms try to predict which federal depreciation provisions Congress will renew for 2016 — and which will not make the cut.

Several depreciation provisions expired at the end of 2014, potentially impacting taxpayers who are accustomed to these accelerated depreciation provisions. The uncertainty surrounding which provisions will renew has made the tax planning process challenging and unpredictable.

To help you plan, below are some of the more popular depreciation provisions that may or may not be renewed.

Bonus depreciation. This provision allows businesses to take a bonus depreciation deduction equal to 50 percent of the adjusted basis of qualifying property, in the first year the property is placed in service. In July 2015, the Senate Finance Committee recommended extending this provision, but Congress still hasn’t issued a vote. However, this has been in effect nearly every year since 2001, so the prospects for renewal are favorable. It was last renewed in December 2014, which may serve as a prediction of timing this year.

Increased expensing under section 179. The increased expensing limitation of $500,000 expired at the end of 2014. Without new legislation, the old section 179 provisions return, which allow businesses to deduct $25,000 of the total cost of new and used qualified depreciable assets that were bought and placed in service in 2015, within certain limits.

Fifteen-year straight-line cost recovery for certain improvements. Taxpayers are able to use 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant building improvements and qualified retail improvements. The House Ways & Means Committee is currently reviewing this leasehold depreciation provision, but there has been no action to renew the provision as of Nov. 16, 2015.

Three-year depreciation for racehorses. Racehorses aged two and younger that are placed in service can be depreciated as three-year property under section 168 cost recovery rules. Past efforts have failed to permanently place all racehorses in the three-year category for depreciation purposes.

Several other expired or expiring cost recovery depreciation provisions may be of interest to narrower business segments. Consult with your accountant to discuss changing provisions that could impact your tax returns.

In addition, check back with us through the rest of the year for the latest updates and information on these cost recovery tax provisions.

As a manager, Craig Jackson brings to Wiss & Company, 13 years of experience in public accounting, taxation and financial accounting.