What’s the status of bonus depreciation and Section 179 expensing?
Posted On: 2-5-2015 | Posted By: Rosemary Jacobson, CPA, EA
In December 2014, Congress voted to extend several tax provisions that had expired on December 31, 2013. Two of those provisions have a potentially large impact on business owners when it comes to capital purchases – bonus depreciation and Section 179 expensing. But while they are available for 2014, their availability for 2015 has not been determined.
For 2014, 50 percent bonus depreciation is once again available on many capital purchases placed in service during the year that have a class life of 20 years or less. The assets must be new, not used.
Section 179 expensing continues to be available up to $500,000, which means capital assets costing up to $500,000 can be expensed in the year they’re purchased, whether new or used, with some limitations. This can give business owners a large deduction immediately, rather than having to spread the cost out over several years. There is a $2 million threshold on asset purchases when using the Section 179 deduction – in other words, if you purchase more than $2 million in assets, the $500,000 current year deduction starts to phase out.
While Section 179 expensing is limited by your business income – Section 179 expense can reduce your business income to $0 but cannot create a loss – Bonus Depreciation has no such limitation and any losses created could potentially be carried back to offset previous years’ income or carried forward to offset future income.
Keep in mind that these two provisions have already expired again, as of December 31, 2014, and unless they are extended for 2015 they will revert to a $25,000 limit on Section 179 expensing and bonus depreciation will be eliminated. However, it’s possible that Congress may enact legislation that would again reinstate these tax provisions.
We advise you to consult your WK advisor for guidance regarding the expensing of capital assets, and we will keep you updated on this issue.