Extending Depreciation

Since October is here, the US Supreme Court is back in session, Congress (as usual) enacts a temporary budget bill for the new fiscal year (which starts on October 1st), and most schools, colleges, and/or universities are in full swing, which means the fall/autumn season has started, and 2015 is about to come to a close (about 90 shopping days to Christmas), and one thing that bears in mind in tax planning world, is what Congress is going to extend on certain tax provision which will expire (or have expired) in 2015.  One item that is on most tax practitioners’ minds is extending § 179.

What the federal tax code provides is that when a person and/or business purchases major machinery and/or equipment for business purposes, then the individual and/or business would need to depreciate, or decrease the value of such machinery and/or equipment over the years, as it is being used.  After all, almost any major assets or item that is purchased does deteriorate and/or depreciate over time (except for land and tradable securities, because these items tend to fluctuate in value).  According to the federal tax code, most machinery and/or equipment (including cars and/or truck used for business) last for five years.  Furthermore, the individual and/or business has a choice of either claiming depreciation on a “straight-line” or flat rate basis for five years, or the individual and/or business could “front-load” the depreciation under the tax code’s “Modified Cost Accelerated Recovery System (MACRS)”.  What MACRS does is that it will allow certain higher amount of depreciation in the earlier years, and then a lower amount of depreciation in the latter years, over the five year period on most machinery and/or equipment that was purchased and used for business purposes.  However, the third choice of course is to claim § 179 depreciation.

What § 179 of the federal tax code provides is that instead of claiming either the “straight-line depreciation or the “MACRS depreciation” (as explained before) is for the individual and/or business to claim the entire cost of the purchased machinery and/or equipment as a one-time depreciation, in the year it was bought, of course subject to certain limitation amounts.  However, Congress as allowed the maximum amount of § 179 depreciation to be at $250,000 from 2007 – 2009, and increased it to $500,000 for 2010 – 2014, but left it back to only $25,000 (which was the pre-2007 limitation amount) for 2015.  What a drop!!!!  So what most tax practitioners are speculating is if Congress will extend the $500,000 limitation amount on § 179 depreciation for at least 2015, and as it was said before we are in October, and 2015 is coming to close, so we  have to wait and see if Congress will extend the higher dollar limitation for § 179 depreciation.

So if you have bought major machinery and/or equipment for your business, please let us know at info@kayatax.com, and we would be more than happy to look over your depreciation options, especially Congress does (or doesn’t) extend the higher limitation amount under § 179