Part One: Replace Depreciation with Full Business Expensing to
Spur Business Investment and Create Jobs

Proposal: Allow businesses and other taxpayers that depreciate property to immediately-expense the cost of the asset in the year of purchase, rather than have to slowly deduct (depreciate) the cost over several tax years

Current Law

Not all business purchases are created equal.  If a business buys a box of paperclips, that’s a tax deduction in the year of purchase.  If, however, that same business buys a computer, it will have to be slowly-deducted (depreciated) over five years.

Small businesses can already deduct most depreciable assets in the first year today (so-called “179 Expensing”).  However, larger businesses and real property owners cannot.  In addition, “structures” (buildings) must be depreciated over many decades.

Below are some common assets and their depreciation lives:

Tractors and Some Livestock3 Years

Computers, Automobiles5 Years

Furniture                         7 Years

Restaurants and
Leasehold Improvements15 Years (Extender Needed)

Residential Rental Property27.5 Years

Office Buildings                    39 Years

These long depreciation lives are even longer for taxpayers entrapped by the AMT.

The principle is a simple one—a business has to spend the money for the asset in the first year.  They should also get the tax deduction in the first year.

Pro-Growth Solution

Depreciation is needlessly complex and economically destructive.  All taxpayers should be able to fully-deduct business assets purchased in the first year.

Alternative Options

  • “Bonus Depreciation”: Allow a certain percentage (say, 50% as was done in 2003) to be expensed the first year (leftover basis depreciated as normal)
  • Uncap Section 179 Expensing to remove current dollar limits
  • Full expensing for all assets except buildings
  • Shorten depreciation lives to move closer to expensing

Fun Fact: House Democrats offered full expensing as one of their alternatives to the Reagan tax cut.  Republicans turned them down.