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Extension means businesses can take bonus depreciation on their 2015 returns – but should they?

Extension means businesses can take bonus
depreciation on their 2015 returns – but should they?

Businesses still have a few tax planning moves that may be made for 2015. One of those opportunities is electing bonus depreciation on equipment that was acquired in 2015. Bonus depreciation allows businesses to recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extended 50% bonus depreciation through 2017.

The break had expired December 31, 2014, for most assets. So the PATH Act may give you a tax-saving opportunity for 2015 you wouldn’t otherwise have had. Many businesses will benefit from claiming this break on their 2015 returns. But you might save more tax in the long run if you forgo it.

Businesses include sole proprietorships, Limited Liability Companies, (LLCs) that are taxed as a sole proprietor, partnerships and  corporations

What assets are eligible for bonus depreciation?

For 2015, new tangible property with a recovery period of 20 years or less (such as office furniture and equipment) qualifies for bonus depreciation. So does off-the-shelf computer software, water utility property and qualified leasehold-improvement property.

Qualified leasehold improvements are improvements to an interior part of a building that is nonresidential real property and the improvements are available for use three years after the building was placed in service and the improvement is section 1250 property.  It does not include enlargement to a building, improvements to the common area, internal structural improvements and, escalators and elevators.

Acquiring the property in 2015 isn’t enough, however. You must also have placed the property in service in 2015.

Should you or shouldn’t you?

If you’re eligible for bonus depreciation and you expect to be in the same or a lower tax bracket in future years, taking bonus depreciation (to the extent you’ve exhausted any Section 179 expensing available to you) is likely a good tax strategy. It will defer tax, which generally is beneficial.

But if your business is growing and you expect to be in a higher tax bracket in the near future, you may be better off forgoing bonus depreciation. Why? Even though you’ll pay more tax for 2015, you’ll preserve larger depreciation deductions on the property for future years, when they may be more powerful — deductions save more tax when you’re in a higher bracket.

We can help

If you’re unsure whether you should take bonus depreciation on your 2015 return — or you have questions about other depreciation-related breaks, such as Sec. 179 expensing — contact the tax team at Bogdanoff Dages and Co., P. C.