2015 Tax Extenders – Bonus Depreciation, 179D, and 45L Amongst Extenders Considered

Blog post by Kevin Sullivan

In an ongoing effort to inform our clients on the status of tax incentives that are expected to be extended (and expanded) in the next few days, we’re reporting on the progress of the tax extenders in Washington. Read about the exciting developments on the Research and Development (R&D) Tax Credit here.

Thursday, the House passed the Protecting Americans from Tax Hikes (PATH) Act Of 2015. The Senate is likely to combine this bill with the proposed omnibus spending measure and pass both of them at any moment. Within this bill, the Section 179D Energy Efficient Commercial Building Deductions, Section 45L Residential Home Tax Credits, Section 179 Expensing and Bonus Depreciation, as well as the R&D Tax Credits will be extended and expanded. With Congress set to go on vacation December 18th, any legislation would need to be sent to the President for signature quickly or be delayed until Congress reconvenes in early January 2016.

179 Expensing

The proposed bill permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended. The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.

Bonus Depreciation

The proposed bill extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down, with 40 percent in 2018, and 30 percent in 2019.

179D Commercial Building Tax Deductions

The proposed bill extends through 2016 the above-the-line deduction for energy efficiency improvements to interior lighting, HVAC and hot water systems, and building envelope systems of commercial buildings. The provision modifies the deduction for energy efficient commercial buildings by updating the energy efficiency standards to ASHRAE Standard 90.1–2007 beginning in 2016.

There has been discussion to expand 179D to allow Indian Tribal Governments and certain Non-profits to allocate the deduction to designers and constructors of their commercial buildings, but at this time that provision is not be included in the proposed bill.

45L Residential Home Tax Credits

The provision extends through 2016 the tax credit for builders of energy-efficient residential homes. An eligible builder may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home (including multi-family homes) that meets qualifying criteria.

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