Protecting Americans from Tax Hikes Act of 2015 (PATH Act), Sections 143-144

Where this comes from

From 2008 through 2014, bonus depreciation was revived or extended year by year, often retroactively. Businesses had trouble planning because they could not count on the bonus being available when they made investment decisions.

The PATH Act of 2015, signed in December of that year, changed that. Sections 143 and 144 extended bonus depreciation through a multi-year schedule: 50% through 2017, 40% in 2018, and 30% in 2019. The certainty was new and meaningful.

What it established

Section 143 extended the 50% bonus under Section 168(k) through 2017. The phase-down schedule ran from 50% (2015-2017) to 40% (2018) to 30% (2019), after which bonus depreciation was set to expire entirely.

Section 144 introduced qualified improvement property, or QIP. QIP covers improvements made to the interior of a nonresidential building that has already been placed in service. It excludes elevators, escalators, structural changes, and work on the internal structural framework. The PATH Act made QIP a 15-year MACRS asset eligible for bonus depreciation.

Note: The Tax Cuts and Jobs Act of 2017 accidentally removed QIP's 15-year life in a drafting error, placing it at 39 years. The CARES Act of 2020 fixed that error and restored the 15-year life with retroactive effect.

How it shows up in a study

For property placed in service from 2016 through 2019, the PATH Act schedule set the applicable bonus rate. A study covering a building placed in service in 2016 used the 50% rate. A study covering 2018 used 40%. The multi-year schedule made it easier to plan studies in advance.

The QIP category added a new tool. Studies on buildings that had undergone interior renovations after the original placed-in-service date could identify QIP components and apply bonus depreciation to them. This opened a bonus opportunity in properties with leasehold or tenant improvement work.

What it does not mean

The PATH Act schedule was set to end after 2019. The Tax Cuts and Jobs Act of 2017 arrived first and replaced the entire phase-down with a new 100% bonus. But the PATH Act rules still govern the depreciation of property placed in service in 2016 and 2017 (for the portion of 2017 before September 28, when the TCJA rules took effect for acquisitions).

QIP's bonus eligibility also had complications. The drafting error in the TCJA temporarily removed QIP from the bonus pool. That was resolved by the CARES Act in 2020. For studies involving QIP in the 2018 and 2019 tax years, the history of the QIP rules matters.