IRS has recently released a proposed guidance. It is for the provision of Tax Cuts & Jobs Act which permits for 100 percent depreciation deduction on the qualified property. This tax law was signed in December that permits for the 1st year 100 percent depreciation deduction on the qualified property got between September 2017 and January 2023, raised from 50% in the prior code.
This guidance tells that the asset should fulfill 4 criteria before this could be typically counted as the "qualified property" which could be simply used for 100 percent depreciation deduction. First, it should be actually the depreciable asset of some specified type.
The original use of this property should commence with a taxpayer until it is some used property which meets the acquisition needs that are laid out in Section 168. A property should be actually placed-in-service through a taxpayer within some specific time or should be grafted or planted by a taxpayer before the specified date. The property should be gotten by a taxpayer after September 2017.
Plus, by "specified type," IRS does mean anything which counts under Modified Accelerated Cost Recovery System along with the recovery time that is twenty years or less, or some computer software, film, water utility features or live theatrical production, TV production, or plants, if these fulfill definitions like outlined in tax code.
The property that isn’t eligible for 1st year depreciation deductions includes property which is typically excluded from an application of Section 168. It lays out the exceptions to the accelerated costs recovery system.
The property should be necessarily depreciated under Alternative Depreciation System. Some class of the property which a taxpayer does not elect to make a deduction in 1st-year property is then placed-in-service. Some particular plant is placed-in-service in order to make elections for the previous year.
Some class of the property where a taxpayer applies for the exemption under Section 168(k)(4). It is all about the credit in lieu of the bonus depreciation. A property is used in the business or trade described in Section 163(j)(7)(A)(iv) that usually has something to do with the interest.
Property Eligible for 100 Percent Bonus Depreciation is:
Though, list of the qualified property is a bit different for the properties acquired & placed-in-service after Sept. 2017 and before Jan. 2018.
Summary of Proposed Regulations:
Rules of Placed-in-Service: Proposed regulations retain rules of placed-in-service under the pre-Act section that is 168(k). For being eligible for hundred percent bonus under TCJA, a property should be placed-in-service between Sept. 2017 & Jan. 2027 (& Jan. 2028 for the long-lived aircraft and property). Also, proposed regulations contain specific rules for determining the placed-in-service date while a taxpayer involves in the “step in shoes” transactions under the section 168(i)(7) or the technical termination (before 2018).
“Used” property versus “Original use”:
With pre-Act rules, being eligible for new 100 percent bonus depreciation, there is “original use” of an asset. It should start in the presence of a taxpayer that actually does claim his or her bonus depreciation. But, & in addition, this newly introduced Act for 1st time also permits the bonus depreciation in some used property. Though, for the used property being eligible, some kind of acquisition should fulfill the particular purchasing needs that are found in the IRC section 168(k)(2)(E)(ii).
Rules of Acquisition Date:
In order to claim 100 percent bonus taxpayers should get the assets after Sept. 2017 or get these properties pursuant to the written binding contracts dated after Sept. 2017. All of the proposed regulations hence consist of the rules to determine when the contract is actually “binding.”
Qualified Assets 2017:
The Congress has made the 100 percent bonus depreciation alterations quite effective for the assets that are acquired & placed-in-service after Sept. 2017 & also made some depreciation related alterations quite effective for the years starting after or on Jan. 2018. Hence, based on all these effective dates, there’s some uncertainty about whether the qualified improvement asset will be the bonus-eligible between Sept. 2017 & Dec. 2017.
John Pournaras Agency