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Capital Investment Incentives on Fast Track

After a long wait, the aviation industry can look forward to some much-needed certainty on bonus depreciation, Sec. 179 expensing, and the research and development (R&D) tax credit.

Late on Dec. 15, House and Senate leaders released the details of a year-end tax and budget deal that accomplishes several of ARSA’s policy priorities. Among other things, as described below, the Protecting Americans from Tax Hikes (or PATH) Act would reinstate bonus depreciation, and permanently increase higher Sec. 179 expensing levels and the R&D tax credit. While the tax and budget deal is not yet law, Congress is set to approve it this week and President Obama is expected to sign it shortly thereafter.

Bonus Depreciation. The PATH Act extends bonus depreciation for new property acquired and placed in service during 2015 through 2019. The bonus depreciation amount is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down to 40 percent in 2018 and 30 percent in 2019. The deal continues to allow taxpayers to elect to accelerate the use of alternative minimum tax (AMT) credits in lieu of bonus depreciation under special rules for property placed in service during 2015. The provision also modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation.

Sec. 179 expensing levels. The PATH Act permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). It also modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016.

R&D tax credit.  The PATH Act also makes the R&D tax credit permanent.  The bill also makes some changes to the law. Starting in 2016, companies with less than $50 million gross receipts can claim the credit against AMT liability and, in certain cases, against payroll tax (FICA) liability.

A section-by-section explanation of the tax bill from the House Ways & Means Committee is here.  The full text of the legislation is here.

Stay tuned to ARSA for further updates and more detailed analysis of both PATH Act and the omnibus appropriations bill.

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