This Alert highlights the principal accounting method provisions; for a general discussion of the bill, see Tax Alert 2015-2375.

For a discussion of the highly significant permanent extension of the research credit and other important related provisions, see Tax Alert 2015-2409. In summary, the significant changes addressed by that separate Tax Alert include making the credit permanent, allowing eligible small businesses to claim the Section 41 research credit against alternative minimum tax (AMT), and allowing qualified small businesses to apply the research credit against the employer’s payroll tax liability (of up to $250,000 annually).

Summary of primary enacted accounting method provisions

Extension and modification of bonus depreciation

The Act extends bonus depreciation under Section 168(k) for property acquired and placed in service during 2015 through 2019. Bonus depreciation would be 50% for property placed in service during 2015, 2016 and 2017 and would decrease to 40% in 2018, and 30% in 2019. Taxpayers can elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015. The Act also extends through 2016 the 50% bonus depreciation for biofuel facilities.

Extension of 15-year straight-line cost recovery

The Act permanently extends the 15-year recovery period for qualified leasehold improvements, qualified restaurant property and qualified retail improvement property.

Extension and modification of expensing limitations and treatment of certain real property as Section 179 property

The Act permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts were $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property are also permanently extended. The expensing limitations are both indexed by the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing.

Section 199

A new Section 199 provision is specific to non-integrated oil refiners (i.e., independent refiners) and limits the amount of cost of goods sold that is attributable to domestic production gross receipts (DPGR) from oil-related transportation activities. In particular, the Act provides that for any taxpayer in the trade or business of refining crude oil and who is not a major integrated oil company (as defined in Section 167(h)(5)(B), determined, without regard to clause (iii) thereof) for the tax year, in computing oil related qualified production activities income under subsection (d)(9)(B), the amount allocated to DPGR for costs related to the transportation of oil shall be 25% of the amount properly allocable. This provision applies to tax years beginning after December 31, 2015, up to and not including any taxable year beginning after December 31, 2021.

Also, as anticipated, the Act extends through 2016 the eligibility of domestic gross receipts from Puerto Rico for the domestic production deduction.

Section 181

Extension of special expensing rules for certain film and television productions

The Act extends through 2016 the special expensing provision for qualified film, television and live theater productions under Section 181. In general, only the first $15 million of costs may be expensed.

Additional provisions

Extension of election to expense mine safety equipment

The Act extends the election to expense mine safety equipment to property placed in service during 2015 or 2016.

Extension and modification of accelerated depreciation for business property on an Indian reservation

The Act extends accelerated depreciation for qualified Indian reservation property to property placed in service during 2015 or 2016.

Extension of seven-year recovery period for motorsports entertainment complexes

The Act extends the seven-year recovery period for motorsport entertainment complexes to property placed in service during 2015 or 2016.

Extension of three-year classification of race horses

The Act extends the three-year recovery period for race horses to property placed in service during 2015 or 2016.

Extension of energy efficient commercial buildings deduction

The Act extends through 2016 the above-the-line deduction for energy-efficiency improvements to lighting, heating, cooling, ventilation and hot water systems of commercial buildings.

Implications

The extension of bonus depreciation was widely anticipated, as was extension of the 15-year recovery period provisions. An extension of these popular provisions for property acquired and placed in service during 2015 through 2019 is a longer extension than granted in the past and offers more certainty for the business community. The permanent extension for Section 179 is also highly beneficial and provides simplification in the asset management context through the expanded current expense rules. Also, significantly, under the favorable Section 179 provision, air conditioning and heating units placed in service in tax years beginning after 2015 are eligible for expensing.

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