Issue link: http://winesandvines.uberflip.com/i/629061
24 WINES&VINES February 2016 WINE INDUSTRY NEWS W ashington, D.C.—When U.S. presi- dent Barack Obama signed the Pro- tecting Americans from Tax Hikes (PATH) Act of 2015 on Dec. 18, 2015, he ex- tended multiple temporary tax provisions for up to five years and made some tax provisions permanent. The legislation also included new provisions that could benefit vineyard owners—particu- larly those planting new vines. It might encour- age them to plant sooner rather than later, as bonus depreciation of vines is winding down. David Pardes, tax partner for Pricewater- houseCoopers, explained some of the conse- quences of the code for Wines & Vines. "Bonus depreciation has been extended, but it will be phased out in five years," he said. "Bonus depreciation was allowed to encourage investment and economic recovery after the 2008 recession. We never expected it to be permanent, but we weren't sure when it would end. Each year, Congress would renew it at the last minute, making it difficult for growers to make good decisions." Pardes added that it is very unlikely Con- gress will reinstate the PATH Act at the end of five years. "Everyone is looking to slow down depreciation, not speed it up." Until the new legislation was passed and signed into law, qualified property had to be placed in service before Dec. 31, 2014. The new provision extends the date qualified prop- erty can be placed in service through Dec. 31, 2019, and will allow bonus depreciation of 50% for tax years 2015-17, 40% in 2018, and 30% in 2019. The PATH Act, which is also commonly called a tax-extender package, has provided new legislation around bonus depreciation and election of provision §179 of the Internal Rev- enue Code (IRC). The package contains new language per- taining to permanent crops such as trees and vines. The legislation also made the expense limitation of $500,000 permanent. Historically, bonus depreciation on trees and vines was not allowed until the year the crop first became commercially harvestable. With the amendment to IRC §168(k), growers can elect bonus depreciation in the year the trees and vines are planted. Since grapevines typically take three years to become produc- tive, the grower couldn't take the bonus depre- ciation immediately. Now the grower can. Under Treasury Regulations §1.263A-4, trees and vines are not considered placed in service until the end of their pre-productive period. At that time, taxpayers can depreciate 50% of the adjusted basis of the vines placed in service. Family wineries, which often use cost- method accounting, cannot take advantage of this accelerated bonus depreciation too, but they can deduct pre-production costs. It is important to note that the legislation includes an exception to IRC §263A that es- sentially states that any taxpayer who elects bonus depreciation on vines or trees in the year of planting will not have to capitalize this de- preciation expense into inventory. —Paul Franson 145 Jordan Street • San Rafael, CA 94901 • 415-457-3955 • Fax 457-0304 • www.boswellcompany.com Bonus Depreciation on Vines Extended Until 2019 GROWING GRAPES UNDER THE PATH ACT Tax Year 2015-17 2018 2019 Allowable bonus depreciation 50% 40% 30%