When Congress passed the contentious Tax Extenders Bill last week, partisanship may have overshadowed the very real benefits afforded your business.
The mega deal included 52 tax provisions which were either temporarily extended or officially made permanent.
Included among those measures were the two bills we wrote about back in September: H.R. 765 and H.R. 2510.
Now, the benefits outlined by those bills have been signed into action by the president and could make a big impact on how you choose to invest in your business going forward.
As a review, here’s what the bills do:
- H.R. 765 (Restaurant and Retail Jobs and Growth Act) – Allows businesses to write off larger portions of remodeling and improvement costs due to a “bonus depreciation” measure. The usual 39-year write-off period for building improvement projects is permanently trimmed to 15 years under the new bill, enacting a permanent amendment to the Internal Revenue Code. The bill was explained this way by its sponsor back in September: “The ability to prepare for business expenditures –– knowing what tax liabilities will be in subsequent years –– is vital to making informed business decisions that result in economic growth (which is) what the Restaurant and Retail Jobs and Growth Act will do.”
- H.R. 2510 – Also dealing with bonus depreciation, this bill calls for a 50 percent depreciation allowance in the first year of an improvement project.
We liked the example given by Chain Store Age when we first wrote about this and we’ll use that again here:
. . . Under (old) law, if a store spent $500,000 on expanding its showroom, it would only be allowed to deduct less than $13,000 of the expansion costs in the first year, with depreciation spread out over nearly four decades.
However, under the (recently-passed) bills, the same store would be allowed to deduct $250,000 from its tax bill the first year and then spread out the remaining $250,000 over the next 14 years, freeing up more money early on for further investment.
No matter how you feel about the other 50 provisions, or which side of party lines you find yourself on, these two particular tax breaks were described to be “apple pie” by Chuck Marr, the director of federal tax policy at the Center on Budget and Policy Priorities. Indeed, they're nearly universally approved of in Washington and almost certainly approved of by business owners.
“Bonus depreciation” was first introduced in 2009, as part of the economic stimulus package which came in response to the recession of 2007, and is a part of what a lot of supporting politicians credit with the economy’s upturn in recent years. Improvement projects, of course, are meant to boost business and they usually help to create jobs. Projects inspired by energy efficiency, meanwhile, save businesses money in the long run and help to create environmental sustainability on top of the other benefits.
Part of the Tax Extenders Bill was, in a roundabout way, a doubling down on The Energy Policy Act of 2005, which was enacted to create immediate tax incentives for energy efficiency projects. The act is known in legislation circles at Section 179D.
To learn more about Section 179D, Energy Tax Savers’ one-page might help.
Houston-based alliantgroup, an organization which says its mission is “to strengthen American businesses by helping U.S. companies and the CPA firms that advise them to take full advantage of federal and state tax credits, incentives, and deductions,” commended the measures in a press release last Thursday. “The Section 179D tax deduction for energy-efficient commercial buildings will be a massive help to companies across the nation, putting valuable tax dollars back into the pockets of U.S. businesses for job creation and growth,” the group wrote.
In addition to the two bills outlined above, there are many other energy-related tax breaks which came down in the Tax Extenders Bill.
Finally, one thing to note about the permanence of bonus depreciation –– in 2019, immediate first-year write-offs will be reduced from 50 percent to 30 percent.
So in more ways than one, the bills passed last week add truth to the old cliché: “there’s no better time than the present” (when you’re thinking about improving your business’s space, whether with energy-efficient lighting or something else).
Even though we aren’t tax experts, we knew these bills could have profound implications for your business and the way you deliberate over prospective projects when we originally wrote about them back in September, so we wanted to be sure to keep you posted on how they developed.