Congress Extends, Makes Permanent Business-Friendly Tax Provisions
By Tony Perricelli
For all of 2015, CPAs, tax preparers, and many of their tax-paying clients were frustrated by the lack of
certainty in the tax law. As we neared the end of the year we wondered if Congress would pass
legislation extending many of the provisions that expired at the end of 2014. Some of these provisions
had become very important to business owners and individuals seeking to minimize their tax burdens so
we were eager to see them extended. Congress finally came through in mid-December and even added
something unexpected to the mix—permanent status for some items that had typically been only
extended year-to-year.
The PATH Act
On December 18, 2015 President Obama signed the Protecting Americans from Tax Hikes Act of 2015
(PATH Act). The PATH Act accomplishes two things of particular interest to businesses. First, it makes
permanent certain key business tax provisions that previously only had temporary status. Second, it
extends other provisions for a period ranging from two to five years.
Permanent status was granted to several business-friendly provisions including:
 Enhanced Sec 179 expensing
 The Research Tax Credit
 15-year cost recovery for qualified leasehold improvements, restaurant property, and retail
improvements
Enhanced Section 179 expensing
Without passage of the PATH Act, Sec 179 expensing for businesses would have plummeted to $25,000
on a maximum property investment of only $200,000 for 2015. With the PATH Act, though, the 2015
amounts are now back to 2014 levels--a $500,000 maximum deduction that does not phase out until
you reach $2 million in property acquisitions each year. These new 2015 amounts will also be indexed
for inflation beginning with the 2016 tax year.
Research & Development Credit
The PATH Act also permanently extends the Research & Development (R&D) Tax Credit, a credit for
companies that invest in qualified research expenses. Research-intensive businesses have clamored for a
permanent extension of this credit for years because of the long-term nature of many research and
development activities. In addition to a permanent extension, the PATH Act also adds two new features
to the R&D Credit that will benefit small businesses and startups. First, the R&D Credit will now be
allowed to offset Alternative Minimum Tax for eligible small businesses that are privately held and have
$50 million or less in revenue. Second, startup companies with current year revenue of less than $5
million and no previous revenues can use the R&D credit to offset their employer’s payroll tax up to
$250,000 if they don’t have taxable income. Permanent status and the enhanced ability for smaller and
startup businesses to use it will make the R&D credit a boon to technology-based businesses for many
years.
15-year cost recovery
The PATH Act permanently extends a special 15-year cost recovery rule for certain types of real estate
improvements. Under general tax rules, improvements to real estate are depreciated over 39 years for
commercial property. Several years ago, Congress acknowledged that many property users—in
particular, those in the restaurant and retail industries or using space for commercial offices—will
improve or refresh their properties more often than once every 39 years. To give such users the ability
to deduct their improvement costs more quickly and avoid continuing to depreciate outdated costs,
Congress passed a special 15-year cost recovery exception for three categories of improvements:
 Qualified leasehold improvements—generally commercial office space
 Qualified restaurant property—more than 50% of property is used for prep & consumption of
meals
 Qualified retail property—property open to the public selling tangible goods
The special 15-year rule is only allowable for properties that have been in service more than 3 years at
the time the improvements are made and does not apply to improvements that enlarge the building.
New for 2016, bonus depreciation (as described in the next section of this article) is allowed for a new
class of property called “qualified improvement property” or QIP. QIP is defined similarly to Qualified
Leasehold Improvements but with two changes. The new law removes the 3 year use rule and the
requirement that the improvements must be made pursuant to the terms of a lease. This allows bonus
depreciation to be taken by either the tenant or the owner of the property—a change from prior years.
Also a change from prior years, most restaurant and retail improvements fall under the definition of QIP
so they are now eligible for bonus depreciation.
Temporary Extensions
The PATH Act also extended many tax provisions on a temporary basis. Probably of most interest to
businesses is the extension of bonus depreciation for 5 years and at declining rates and the two-year
extension of the Work Opportunity Tax Credit.
Bonus depreciation is similar to Sec 179 expensing in that it allows an immediate deduction for
purchases of property that would otherwise be depreciated over several years. Unlike Sec 179, though,
bonus depreciation is only allowed on a pre-set percentage of the purchase price and the property must
be purchased new—no used items. The PATH Act lays out the pre-set percentages to be deducted each
year of the extended period as follows:
 50 percent for 2015-2017 (same as before the extension)
 40 percent in 2018
 30 percent in 2019
After 2019, bonus depreciation will once again expire and will have to be renewed by Congress.
The Work Opportunity Tax Credit is a credit employers can take if they hire employees from targeted
groups such as:
 Recipients of public assistance and food stamps
 Ex-felons
 Recipients of SSI
 Unemployed or disabled veterans
 Long-term unemployed individuals
The employer who hires individuals from these qualifying groups can take a credit of up to 40% of the
$6,000 of wages paid to the employee.
The PATH Act also contains numerous permanent and temporary extensions of individual tax provisions.
For more details on the individual extenders, please visit our website at www.scottandco.com.