The “Protecting Americans from Tax Hikes (PATH) Act of 2015.”
Signed into law on December 18, 2015, the PATH Act makes permanent the enhanced Code Sec. 179 expensing and phase-out limits; and 15-year write-off for qualifying leasehold improvements. In addition, the Act provides for a retroactive extension of a host of other depreciation provisions for businesses that had expired at the end of 2014, including the extension of 50% bonus first-year depreciation.
Here are some of the details:
SECTION 179: The Act retroactively extends and makes permanent the $500,000 expensing limitation and $2 million phase-out amounts. If you spend more than $2M, you can’t take Section 179. Also, you may not use Section 179 to create a taxable loss. Any unused amount carries forward. Both the $500,000 and $2 million limits are indexed for inflation after 2015.
LEASEHOLD IMPROVEMENTS: This is huge! The Act retroactively extends and makes permanent the inclusion of qualified leasehold improvement property in the 15-year depreciation schedule (previously 39-years). And, qualified leasehold improvements are eligible for Section 179 expensing ($250,000 in 2015 & $500,000 after 2015). Qualified leasehold improvements are those made by or for a lessee/renter, not an owner/user. Dentists who rent space will depreciate improvements over 15 years but those who own their space (dental condo, free-standing building, partnership interest, etc.), must still use a 39 year depreciation schedule. Therefor, it is important for owner/dentists to have a Cost Segregation Study performed to re-allocate improvements into shorter depreciation categories as appropriate.
BONUS DEPRECIATION: The immediate expensing of new assets placed into service that have existed in a variety of forms since 2001 will end after 2019. It will be 50% for 2015, 2016 and 2017 before going down to 40% in 2018 and 30% in 2019.
There is much more included in the new legislation but these are the primary tax attributes of importance to dentists.