In April of 2016, ranking members of the Senate Finance Committee proposed to simplify the rules governing investments in business property with a comprehensive tax overhaul.
Now, I know what you are thinking when see and hear “comprehensive tax overhaul”. You’re thinking “yeah…right!” or “of course, the large corporations win again.” And, that’s if you are willing to listen or read it at all. However, it is very important for small business owners to pay close attention to this proposal, because of the direct effect to your business’s assets.
Proposed Overhaul of Depreciation and Capital Recovery Provisions
As the business property investment cost recovery system stands now, there are many systems for which to choose cost recovery with many different time frames and classes of property. In fact, there are over 100 current depreciation schedules under the current cost recovery system. This convolutes the tax system requiring massive man hours researching the best applicable cost recovery system for your business.
This “discussion draft”, as Ron Wyden, D_Ore. has called it, if accepted into legislation and passed, will dissolve the unfairness between industries and between large and small businesses; essentially bringing our tax codes out of the dark ages and modernizing it by simplifying the depreciation system in place.
The new system would replace the current 100+ schedules with six “pools”, which would, in turn, be depreciated at the same rate. According to Brant Goldwyn of Wolters Kluwer News, the new system will also:
- Maintain accelerated depreciation
- Simplify and expand the tax-free reinvestment rules to all same-pool machines and equipment, without the like-kind rules
- Repeal 1st year conventions that limit depreciation deductions in the first year
- Reinstate Treasury authority, subject to congressional oversight, to update asset lives, allowing them to account for new technologies and a modern economy
- Expand a simplified version of mass or general asset accounting to all assets while easing current tax consequences
- Address issues of mixed or personal use by treating assets with 50% or more business use under the normal rules and allowing the assets with business use under 50% to claim a proportionate amount