
INSIGHTS FROM OUR NATIONAL TAX OFFICE	JANUARY 5, 2016

Depreciation Changes in the PATH Act

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) contains a number of items related to depreciation. A few items merely extended the lapsed tax law from the prior December 31, 2014, expiration date through December 31, 2016. Other expired provisions were either permanently extended or extended for five years, and many also had modifications made to their use.

Two-Year Extensions

The following depreciation items were extended for two years, through December 31, 2016, without modification:

Ability to use three-year life for race horses.
Ability to use seven-year recovery period for motorsport entertainment complex property.
Election to expense mine safety equipment.

The following depreciation items were extended for two years, through December 31, 2016, and had modifications to the prior expired provisions:

Ability to use qualified Native American reservation property depreciation rules, with a modification, effective for taxable years beginning after December 31, 2015, to permit taxpayers to irrevocably elect out of applying the accelerated depreciation rules of this provision.
Ability to use special depreciation expensing rules for qualified film and television productions, with a modification, to also allow qualified live theatrical productions, effective for productions commencing (the date of first public performance for a paying audience) after December 31, 2015. The special depreciation expensing rules only apply to the first $15 million of costs.

Five-Year Extensions

Bonus depreciation for 50 percent type property was extended for five years, through December 31, 2019, but has a phase-out requirement attached.

Bonus depreciation is allowed to be claimed on the cost of qualifying depreciable property after reduction for any Section 179 depreciation allowance.

The bonus depreciation rate allowed under the new PATH Act provisions will be 50 percent for the period beginning January 1, 2015, through December 31, 2017. The rate will then begin to phase-out, reducing to 40 percent through December 31, 2018, and to 30 percent through December 31, 2019.

The ability of a corporate taxpayer to elect to use alternative minimum tax credits in lieu of bonus depreciation is still available beginning January 1, 2015. But, beginning January 1, 2016, a modification allows a potential for increasing the use of unused AMT credits.

In addition, new bonus depreciation provisions allow bonus depreciation to cover qualified improvement property that is not subject to a lease. The provision also removes the requirement that the improvement must be placed in service more than three years after the date the building was first placed in service. In addition, certain fruit or nut bearing trees, vines or plants are eligible for bonus depreciation at the time they are planted or grafted, rather than when they are placed into service.

Permanent Extension

Permanent extension status, effective January 1, 2015, was provided for the following lapsed tax provisions:

15-year straight-line depreciation for qualified leasehold property, qualified restaurant property, and qualified retail improvement property.
Section 179 accelerated depreciation for qualified property, including designated computer software and qualifying real property (leasehold, restaurant and retail), to be expensed up to $500,000 per year, subject to a phase-out amount when the total qualifying Section 179 property exceeds $2 million. Modifications to the prior lapsed provision provide for indexing the expensing limitation and the phase-out amount for inflation beginning January 1, 2016, treating air conditioning and heating units placed in service after December 31, 2015, as eligible qualified Section 179 property and, as of January 1, 2016, elimination of the $250,000 expensing cap for qualified real property.

As a reminder, when applying the newly extended lapsed depreciation provisions, be aware of and consider in your tax planning the de minimis expensing rules. A recent IRS Notice, effective for years beginning after December 31, 2015, has increased the ability to expense otherwise capital items for small taxpayers without an Applicable Financial Statement. Planning to combine the use of both the new de minimis rules and the newly extended depreciation provisions may produce additional benefits for taxpayers.

Please contact your Eide Bailly professional or Andrea Mouw (612.253.6730) or Julie Helms (612.253.6511) from our National Tax Office team for additional information.

Eide Bailly's National Tax Office serves as a resource for clients to help analyze complex tax issues related to business decisions. Our professionals are committed to helping clients stay informed about tax news, developments and trends through various specialty areas, including cost segregation studies, wealth transfer, state and local taxation, international tax, IRS controversy and procedures, R&D tax incentives, tax-exempt organizations, tax legislation, accounting methods and pass-through entities.

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This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Eide Bailly LLP and the author do not assume responsibility for any individual's reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique before recommending the technique to a client or implementing it on the client's behalf. To request reprints of this publication, send a written request to RequestReprints@eidebailly.com. � 2016 Eide Bailly LLP.