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Jason Favreau, CPA

This PATH can lead to tax saving opportunities for your business

2016-03-08

The President signed the Protecting Americans from Tax Hikes (PATH) Act of 2015 into law on December 18th — just in time for individual taxpayers to make revisions to their estimated tax requirements for the fourth quarter. The PATH Act contains numerous tax benefit provisions, generally referred to as tax extenders – a well-earned description based on the history of these incentives being extended for only one or two years at a time.

Things to know

Unlike previous legislation, the PATH Act offers taxpayers predictability by permanently extending some tax incentives and extending many others beyond this year. Some highlights:

  • Enhanced Section 179 deduction limits are now permanent extending the tax benefit beyond small businesses to many mid-size businesses
  • Eligible businesses can deduct up to $500,000 each year for personal property expenditures
  • Bonus depreciation has been extended through 2019 and should continue having a significant impact on businesses, especially those looking at renovation, tenant fit-up, or construction projects
  • The bonus depreciation percentage on qualifying capital expenditures is 50% for tax years 2015 through 2017, 40% for 2018, and 30% for 2019

Other tax saving opportunities: Cost segregation and energy efficiency opportunities

Cost segregation studies continue to be an area of opportunity for accelerated tax benefits, and the extension of bonus depreciation should continue increasing the benefits of this tax savings strategy. In addition, cost segregation can improve your ability to obtain favorable financing for a project by improving cash flow and reducing ongoing estimated tax requirements.

If you are unfamiliar with the concept of cost segregation or have missed an opportunity for cost segregation on a past project, “look-back” studies allow you to claim the tax benefits of cost segregation, including a catch-up adjustment in the current year, for projects placed in service as early as January 1, 1987. We have helped numerous businesses perform look-back studies that resulted in catch-up depreciation adjustments ranging from $100,000 to well over $1MM.

EPAct (Energy Policy Act of 2005) studies offer businesses the potential for additional tax savings by providing the necessary testing and documentation to claim a Section 179D deduction for energy efficient commercial properties, especially for new construction projects. The potential deduction is capped at $1.80 per square foot, depending on the energy-efficient performance of the lighting, HVAC system, and building envelope. For example, a 50,000 square foot facility with energy efficient construction could qualify for a maximum Section 179D deduction of $90,000.

The PATH Act has extended the Section 179D opportunity to projects placed in service during 2015 and 2016. Businesses engaged in designing and constructing energy efficient buildings for local, state, and federal government also have an opportunity to benefit from Section 179D. Along with a reduction in income tax, using the incentive during the bidding process provides a competitive advantage. Sharing the potential Section 179D benefits with the project owner can translate to a greater award rate on bids for energy efficient design and construction work.

With the numerous incentives extended, the PATH Act provides tax savings opportunities to most every business. For more information on how these tax incentives benefit your business, please contact Jason Favreau in our Tax Services Group.