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ski resorts, which often use lines of credit with their local its income)—giving ski areas even more incentives to use
banks and finance larger capital projects. Now, under the bonus depreciation to purchase chairlifts, groomers, snow-
new changes to the tax code, Congress has dramatically making equipment, and other assets.
limited the amount of interest businesses can deduct from The key will be to act quickly. These bonus deprecia-
their federal income taxes. Starting in 2018, a company tion rules will phase out after 2022. After that, the bonus
can only deduct interest expense of up to 30 percent of depreciation rules are reduced over time (80 percent for
its EBITDA (earnings before interest, taxes, depreciation, assets placed in service in 2023, 60 percent in 2024, 40
and amortization) until 2022, followed by an even tougher percent in 2025, and 20 percent in 2026). Beginning in
threshold after that. 2027, these benefits expire entirely. With such immedi-
However, fortunately for smaller businesses, the new tax ate expensing, ask your CPA how these bonus depreciation
law allows those with annual gross receipts rules can be leveraged to create operating
of $25 million (averaged over three years) $38 billion losses and shield income from federal tax-
to deduct their interest on debt. In other ation. And, the bonus depreciation rule
words, smaller, mom-and-pop ski areas The amount Apple will applies retroactively to assets purchased
will not need to finance large purchases have to pay in new taxes and placed in service after September 27,
or lines of credit with retained earnings. 2017 (when the bill was originally intro-
Along with the new bonus depreciation rules and Section duced in Congress).
179 liberalization, the business interest deduction for small Notably, many states do not allow for this type of
businesses will enable these ski areas to make capital invest- bonus depreciation—including New York, California, and
ments far more affordably. Vermont—so ask your CPA about this impact on state
tax rates.
Immediate Expensing & Bonus Depreciation And, for the first time ever, these new immediate
In addition to the steep corporate tax rate cuts, perhaps expensing and bonus depreciation rules now apply to pur-
the most impactful change in the new tax law is the ability chases of used assets, not just new assets. For those ski areas
for businesses to immediately expense 100 percent of their that decide to replace an older chairlift with a newer albeit
assets placed into service. This will not only benefit both used chairlift, or a used snow cat, these bonus depreciation
small and larger ski areas alike, but it also will certainly rules will now be available to ski areas.
benefit most of the suppliers and vendors to resorts around
the country. Section 179 Deductions
Immediate expensing allows businesses to deduct the In another victory for smaller businesses, Congress
costs of any assets they acquire right away, instead of delay- expanded the ability of businesses to deduct certain prop-
ing the deductions over time under depreciation rules. This erty improvements under Section 179 of the Tax Code,
will definitely boost certain parts of the US economy, as separate and apart from the generous bonus deprecia-
it will provide incentives for businesses to buy more assets tion changes. “Section 179 property” can be immediately
and in turn, spur manufacturing. expensed, without depreciating it over time. These changes
For ski areas, this key change to the tax code could will allow a lot of smaller and mid-sized ski areas to make
lead to an acceleration in purchases of new or used chair- some critical property upgrades through these expanded
lifts, groomers, snowmaking equipment, and other criti- deductions.
cal assets (bonus depreciation, however, does not apply to Under Section 179, businesses can now elect to expense
real estate assets). Ski area suppliers and vendors will be up to $1 million of certain property placed into service in
quick to use these bonus depreciation benefits to encour- a given year, and up to $2.5 million total. (After that, this
age ski areas to replace aging chairlifts, upgrade snowmak- deduction phases out dollar for dollar.) Given these caps,
ing systems, and make other deferred investments now that Section 179 becomes less impactful to larger businesses; it
the tax code is incentivizing these capital upgrades. This is is often referred to as a true “small business tax incentive.”
hugely beneficial to the ski industry. Importantly for ski areas, the new law expands the list
Equally important, bonus depreciation is not lim- of property eligible for such expensing to include certain
ited to your taxable income. You can deduct any amount improvements to nonresidential real property, including
of bonus depreciation, and if the deduction creates a net roofs, HVAC systems, and alarm and surveillance systems.
operating loss, a business may elect to offset future income For ski areas, and their insurance companies, improve-
with a net operating loss (but only up to 80 percent of ments like installing or upgrading fire suppression systems

18 | NSAA JOURNAL | SPRING 2018