House Passes Permanent Expensing BillFebruary 17, 2015
On Feb. 13, the House passed H.R. 636, America’s Small Business Tax Relief Act of 2015, introduced by Reps. Pat Tiberi (R-Ohio) and Ron Kind (D-Wis.). H.R. 636, approved by a 272-142 vote, would make permanent the now-expired enhanced small business expensing limit of $500,000 and phase-out threshold of $2 million under Section 179.
Expansion of Section 179 expensing—which allows small businesses to deduct up front the cost of purchasing new equipment and property, remains a top NSBA priority—more than one in three members takes advantage of this break as it simplifies tax accounting, aids cash flow and reduces the cost of capital for small firms.
Specially, Section 179 allows a small business to deduct the costs of assets acquired for business use as expenses in the year they purchased the assets, instead of requiring them to be capitalized and depreciated. The Small Business Tax Relief Act of 2010, included an extension for Section 179 expensing with a $500,000 limit, which enabled businesses to plan cash flow needs and invest in new equipment. However, due to a failure to extend this and other small business tax relief provisions that limit expired, and beginning in 2015 reverted back to $25,000. Passage of legislation addressing this issue is crucial, as it will not only allow businesses to plan their capital acquisitions, but also, will jump start the manufacturing sector and create jobs.
H.R. 636 cleared the Ways and Means Committee on Feb. 4. As approved in the House, it incorporates two other measures that were also approved at the same Ways and Means mark-up that would permanently extend 1) the five-year recognition period for built-in-gains tax for S corporations and 2) the basis adjustment for stock of an S corporation making charitable contributions of property.
The legislation would be effective for taxable years beginning after Dec. 31, 2014. According to estimates from the Joint Committee on Taxation (JCT), it would reduce federal revenues by a combined total of $79.2 billion over 10 years.
The House is expected to act on other expired tax provisions over the next few months and to push the American Research and Competitiveness Act of 2015 (H.R. 880), which would make permanent a modified version of the now-expired alternative simplified method for calculating the research and experimentation tax credit effective for tax years beginning after Dec. 31, 2014.
H.R. 636 is now pending in the Senate, where action is unlikely. Additionally, the president has threatened to veto the measure. If this is the case, Republicans will not be able to bypass a veto without the necessary two-thirds majority.