JOURNAL OF TAX CREDITSWritten by Glenn Graff, Published by Novogradac & Company LLP, Journal of Tax Credits, April 2016, Volume VII, Issue IV
On Dec. 18, 2015, President Barack Obama signed the Consolidated Appropriations Act, 2016. In addition to the five-year extension of the new markets tax credit (NMTC) and the permanent extension of the 9 percent floor for the applicable percentage for low-income housing tax credit (LIHTC) developments, tucked into the law is an extension of yield-enhancing bonus depreciation through 2019. The following paragraphs will examine what bonus depreciation is and how it can impact current and future real estate projects.
Bonus depreciation under Internal Revenue Code (IRC) Section 168(k) allows a project to expense up to 50 percent of certain new assets when they are placed in service. This can significantly accelerate the losses generated by a project. Increased losses result in a better yield for investors and can therefore allow for better equity pricing.
