There’s big news coming out of Washington in regard to small businesses buying and financing equipment. The days of waiting until the end of the year to purchase equipment to see if Congress will make adjustments to Section 179 or the bonus depreciation are over! The PATH Act outlines some very advantageous provisions for small business owners looking to purchase equipment, which includes many types from heavy machinery to office equipment. This means the more money business owners can save, the more they can invest in their business’ growth, which can in turn create more jobs.
Business owners are not the only ones who are excited about the passing of the PATH Act, the newly appointed Speaker of the House, Paul Ryan (R-Wis.), said in a press conference, “I think this is one of the biggest steps toward a re-write of our tax code that we’ve made in many years. And it will help us start a pro-growth, bold tax reform agenda in 2016.”
The main points of the PATH Act that will affect businesses purchasing equipment are the increase and extension of the Section 179 expensing limit and phase-out of bonus depreciation. Let’s take a quick look at the details of these changes.
Perhaps the part of the PATH Act that most small business owners have been waiting for is the increase of the Section 179 expensing limit. The limit went from $25,000 for the 2015 fiscal year all the way up to $500,000. The latter amount was made permanent through 2019. This means that businesses can deduct the full price of qualifying equipment up to $500,000 from their gross income (starting next year, air conditioning and furnace units are considered qualifying equipment). Businesses that spend more than $2 million –but less than $2.5 million – in a fiscal year on qualifying equipment will get a dollar-for-dollar phase out cap.
Many of the enhancements in the PATH Act will expire at the close of 2016, with the exception of four provisions. One of those exceptions was Section 179, which was extended through the end of 2019. This alleviates a lot of year-end stress for small businesses. The extension and permanence means no more waiting until the end of the year to scramble purchasing, taking delivery, and using your equipment before December 31st hits. Now businesses can purchase the equipment they need when they need it, without having to wonder if Congress will raise the expensing limit after they have already purchased their equipment.
Along with the extension and increase to the Section 179 expensing limit, the PATH Act also outlined some coming changes for businesses that plan to purchase new equipment. The bill currently allows the full 50% depreciation, but beginning in 2016, the PATH Act will start to phase-out the bonus depreciation. However, through the end of 2017, business owners will still be able to depreciate half the cost of any qualifying equipment on their taxes, while the rest depreciates over the remaining life of the equipment. Then, beginning in 2018, the depreciation bonus dips slightly to 40%, and then dips again to 30% in 2019. Despite eventually being phased out, businesses still have three full years to take advantage of the bonus depreciation.
Both of these provisions were designed to aid business owners when it comes to the growth of their businesses. You can apply this to your own business. Having more equipment can mean expanding operations, creating jobs, and simply investing in the future of your business.
For more information, you can read the Committee on Ways and Means’ summary of the proposed PATH Act here.