Protecting Americans from Tax Hikes Act (PATH)

Definition

The Protecting Americans from Tax Hikes Act (PATH) is a piece of legislation enacted in 2015 aimed at making certain tax benefits permanent and providing additional clarity on various tax provisions. It specifically addresses issues like the extension of certain business deductions and credits, including provisions related to expensing and depreciation that affect business investments.

5 Must Know Facts For Your Next Test

1. The PATH Act made key tax provisions permanent, including an increase in the Section 179 expensing limit, allowing businesses to deduct more in the year they purchase qualifying equipment.
2. Under the PATH Act, bonus depreciation was extended and modified, allowing for a higher percentage deduction for certain property placed in service after September 27, 2017.
3. The Act aimed to provide stability for businesses by reducing uncertainty around temporary tax incentives, encouraging investment and growth.
4. One significant change under the PATH Act is the elimination of the ability to claim bonus depreciation on used property unless it meets specific requirements.
5. The PATH Act also introduced stricter rules on claiming certain tax credits and deductions, requiring taxpayers to provide additional documentation to avoid fraudulent claims.

Review Questions

• How does the PATH Act impact Section 179 expensing and bonus depreciation for businesses seeking to invest in new equipment?
  • The PATH Act significantly impacts both Section 179 expensing and bonus depreciation by making these provisions more favorable for businesses. The act increased the Section 179 expensing limit, allowing businesses to write off a larger portion of their capital investments in the year they make the purchase. Additionally, the extension and modification of bonus depreciation enable businesses to accelerate their deductions, encouraging them to invest in new equipment and technology more readily.
• What changes did the PATH Act introduce regarding used property and its eligibility for bonus depreciation?
  • Under the PATH Act, there were stricter requirements for claiming bonus depreciation on used property. Previously, taxpayers could claim bonus depreciation on any qualified property; however, the act limited this benefit primarily to new property unless specific conditions were met. This change aimed to encourage investment in new assets while still recognizing the importance of used property within the business landscape.
• Evaluate the long-term implications of the PATH Act on business investment strategies in the context of tax planning.
  • The long-term implications of the PATH Act on business investment strategies are significant as it provides more certainty regarding tax incentives that businesses rely on for planning their investments. By making key provisions permanent and modifying others, companies can better forecast their tax liabilities and optimize their capital expenditures accordingly. This predictability can lead to increased investments in equipment and technology, ultimately driving economic growth. Moreover, with tighter regulations on fraudulent claims, businesses must also enhance their compliance measures while planning their investments.

Related terms

Section 179 Expensing: A tax deduction that allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year.

Bonus Depreciation: An additional depreciation deduction that allows businesses to recover the costs of certain capital investments more quickly, typically allowing a large percentage of the asset's cost to be deducted in the first year.

Tax Extenders: Temporary tax provisions that are typically renewed or extended by Congress, affecting various deductions, credits, and incentives for both individuals and businesses.