By Dmitriy Gelfand,
CPA and Jonathan Sparacio, CPA
First enacted in the aftermath of 9/11, the federal bonus first-year
depreciation allowance (“bonus depreciation”) has provided an incentive for
businesses to accelerate their purchases. However, the provision expired, once
again, as of December 31, 2013. As a result, significant tax benefits from
prior years may not be available to companies for expensing the cost of this
year’s business equipment purchases and leasehold improvements.
Of course, over the past dozen years, bonus depreciation has died – and
been resurrected by Congress – several times, but has never been made
permanent. The good news: The outlook seems outstanding that some form of bonus
depreciation is likely to be extended retroactively for 2014 (and, probably, for
2015). The bad news: Despite bipartisan support from the tax-writing committees
in both houses of Congress, it appears that bonus depreciation may not
officially be brought back into the tax code until after the November 2014 mid-term
On one hand, the House Ways and Means Committee recently approved
legislation (H.R. 4718) that would make bonus depreciation a permanent part of
the tax code. Specifically, the House bill would allow businesses to
immediately deduct one-half of their new qualified business equipment purchases.
In addition, it would enable companies to elect accelerated alternative minimum
tax (AMT) credits in lieu of bonus depreciation, and it would expand the types
of retail improvements that are eligible for bonus depreciation.
On the other hand, the Senate Finance Committee favors legislation (S.
2260) that would extend the existing 50% bonus depreciation only until December
31, 2015. This action, under the proposed Expiring Provisions Improvement
Reform and Efficiency (EXPIRE) Act, would extend 51 of the temporary tax
provisions for a two-year period.
Before any legislation is enacted, the House of Representatives and the Senate
will need to agree on a final bill that reconciles both proposals and that
provides revenue “offsets” for its costs. However, leaders of both political
parties, in both houses of Congress, seem to agree that it is essential to
provide an incentive – such as bonus depreciation – to encourage immediate
capital investments by U.S. companies.