Last week Congress passed a $622 billion tax bill that will allow dealers and their customers to expense a larger portion of business equipment purchases. The “Protecting Americans from Tax Hikes Act of 2015” lowers taxes and gives automotive retailers (and their customers) increased certainty.
The applicable provisions included in the legislation will be of interest to those purchasing passenger automobiles and trucks for business purposes, but those vehicles are subject to limits on the amount that can be deducted under Sec. 179 expensing and bonus depreciation allowances.
Extension and modification of increased expensing limitations and treatment of certain real property as Section 179 Property. The provision contained in the Bill permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended. The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016, and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision modifies the expensing limitation for qualified real property by eliminating the $250,000 cap beginning in 2016.
Extension and modification of bonus depreciation. This provision extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The bonus depreciation percentage is 50% for property placed in service during 2015, 2016, and 2017, and phases down to 40% in 2018, and 30% in 2019. The provision continues to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015. The provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation. The provision also modifies bonus depreciation to include qualified improvement property.
There is also an extension of an additional $8,000 in first year-depreciation for certain business vehicles purchased in 2015. This provision provides substantial potential savings for a dealership’s business customers, but in order to use the provision in 2015, they must purchase qualifying vehicles before December 31, 2015. (This $8,000 amount continues into 2016 and 2017, but is gradually phased out beginning in 2018.)
President Obama is expected to sign this legislation. NADA and ATD strongly supported and advocated for the permanency and extension of these pro-dealer measures.
Dealers are encouraged to consult their tax advisor to determine how to best maximize their potential tax savings.