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      "title": "The Section 179 and Section 168(k) Expensing Allowances: Current Law and Economic Effects",
      "summary": "Expensing is the most accelerated form of depreciation. Section 179 of the Internal Revenue Code allows a taxpayer to expense (or deduct as a current rather than a capital expense) up to $1 million of the total cost of new and used qualified depreciable assets it buys and places in service in 2018, within certain limits. Firms unable to claim this allowance may recover the cost of qualified assets over longer periods, using the depreciation schedules from Sections 167 or 168. While the Section 179 expensing allowance is not expressly targeted at smaller firms, the limits on its use effectively tend to confine its benefits to such firms.\nSection 168(k) allows taxpayers to expense 100% of the cost of qualified assets bought and placed in service between September 28, 2017, and December 31, 2022. There is considerable overlap between the property eligible for the Section 179 and Section 168(k) expensing allowances.\nSince 2002, the two allowances have been used primarily as tax incentives for stimulating the U.S. economy. Several studies have assessed the economic effects of the 30% and 50% bonus depreciation allowances from 2002 to 2004 and from 2008 to 2010. Their findings suggested that accelerated depreciation did affect investment in qualified assets, but that it was a relatively ineffective tool for stimulating the U.S. economy during periods of weak or negative growth.\nAvailable evidence also suggests that the expensing allowances have a moderate effect at best on the level and composition of business investment and its allocation among industries, the distribution of the federal tax burden among different income groups, and the cost of tax compliance for smaller firms. The allowances of course have advantages and disadvantages. On the one hand, an expensing allowance simplifies tax accounting, and a temporary allowance has the potential to stimulate increased business investment in favored assets in the short run by reducing the user cost of capital, increasing the cash flow of investing firms, and giving firms an incentive to make qualifying investments before the incentive expires. On the other hand, an expensing allowance is likely to interfere with an efficient allocation of capital among investment opportunities by diverting capital away from more productive uses with relatively low after-tax returns.\nIn December 2017, the House and the Senate agreed on a measure (H.R. 1, P.L. 115-97) to revise key parts of the federal tax code. The new tax law made significant changes to both Section 179 and Section 168(k).\nIn the case of the Section 179 expensing allowance, P.L. 115-97 permanently raised the maximum allowance to $1 million, and the phaseout threshold for the allowance to $2.5 million, beginning in 2018; it also indexed both amounts for inflation starting in 2019. The act also expanded the definition of qualified property to include qualified improvement property, specified improvements (e.g., new roofs and heating systems) to nonresidential real property, and property used in connection with lodging. In another change, the $25,000 expensing limit for heavy-duty sport utility vehicles imposed in 2003 was indexed for inflation starting in 2019.\nIn the case of the bonus depreciation allowance, P.L. 115-97 increased it to 100% for qualified property acquired and placed in service between September 28, 2017, and December 31, 2022; the allowance is scheduled to phase out to 0% starting in 2027. In addition, the placed-in-service deadlines for property with relatively long production periods and for noncommercial aircraft were set one year longer. The wording of the final bill led to the unintended result that qualified improvement property became ineligible for bonus depreciation, as it no longer had a 15-year recovery period. As things now stand, such property is treated as 39-year nonresidential real property, unless Congress alters the language.",
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      "retrieved": "2016-04-06T17:02:19.558816",
      "title": "The Section 179 and Bonus Depreciation Expensing Allowances: Current Law and Issues for the 114th Congress",
      "summary": "Expensing is the most accelerated form of depreciation. Section 179 of the Internal Revenue Code allows a taxpayer to expense (or deduct as a current rather than a capital expense) up to $500,000 of the total cost of new and used qualified depreciable assets it buys and places in service in 2016, within certain limits. Firms unable to claim this allowance may recover the cost of qualified assets over longer periods, using the depreciation schedules from Sections 167 or 168. While the Section 179 expensing allowance is not targeted at smaller firms, the limits on its use effectively confine its benefits to such firms.\nSection 168(k), which provides a so-called bonus depreciation allowance, allows taxpayers to expense 50% of the cost of qualified assets bought and placed in service in 2016. Taxpayers have the option of forgoing the bonus depreciation allowance and instead claiming unused alternative minimum tax credits, within certain limits; taxpayers choosing this option are required to recover the cost of the assets over longer periods using the straight-line method of depreciation. \nSince 2002, the two allowances have been used primarily as tax incentives for stimulating the U.S. economy. Several studies have examined the economic effects of the 30% and 50% bonus depreciation allowances from 2002 to 2004 and from 2008 to 2010. Their findings indicated that accelerated depreciation is a relatively ineffective tool for stimulating the U.S. economy during periods of weak or negative growth.\nAvailable evidence also suggests that the expensing allowances may have a minor effect at best on the level and composition of business investment and its allocation among industries, the distribution of the federal tax burden among different income groups, and the cost of tax compliance for smaller firms. The allowances have advantages and disadvantages. On the one hand, an expensing allowance simplifies tax accounting, and a temporary allowance has the potential to stimulate increased small business investment in favored assets in the short run by reducing the user cost of capital and increasing the cash flow of investing firms. On the other hand, depending on its design, an expensing allowance may interfere with the efficient allocation of capital among investment opportunities by diverting capital away from more productive uses. \nIn December 2015, the House and the Senate agreed on a measure (H.R. 2029, Protecting Americans from Tax Hikes Act of 2015, or PATH Act, P.L. 114-113) to extend more than 90 business and individual tax preferences. \nA number of the provisions were permanently extended, including the enhanced Section 179 expensing allowance that was available from 2010 to 2014. As a result, the maximum allowance is set at $500,000, and the phaseout threshold at $2 million, beginning in 2015 and thereafter. Both amounts are indexed for inflation starting in 2016. The act also removed the $250,000 annual cap on expenditures for leasehold, retail, and restaurant property improvements that could be expensed under Section 179 and permanently added off-the-shelf software for business use to the roster of qualified property.\nIn addition, the PATH Act extended the bonus depreciation allowance from 2015 to 2019. From 2015 to 2017, the allowance is equal to 50% of the cost of qualified property acquired and placed in service during that period; the share drops to 40% for assets acquired and placed in service in 2018, and then to 30% for assets acquired and placed in service in 2019. No allowance may be claimed after 2019. The act retained the option to claim unused alternative minimum tax credits as a refundable credit in lieu of bonus depreciation and removed the dollar limit on the amount of the credit that may be claimed in a tax year. Finally, the act extended the bonus depreciation allowance to the cost of planting or grafting certain trees, vines, and plants that bear fruits or nuts.",
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          "filename": "files/20030624_RL31852_10582da4b1726bdfa9e75bff0475147b2d424d38.pdf"
        },
        {
          "format": "HTML",
          "filename": "files/20030624_RL31852_10582da4b1726bdfa9e75bff0475147b2d424d38.html"
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      ],
      "topics": []
    }
  ],
  "topics": [
    "Economic Policy"
  ]
}