IRS Releases Proposed Regulations on Bonus Depreciation

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On Aug. 3, 2018, the Internal Revenue Service (IRS) issued proposed regulations in connection with the additional first year depreciation deduction (bonus depreciation) in section 168(k) of the Internal Revenue Code (IRC). The proposed regulations are intended to address changes made by the Tax Cuts and Jobs Act (the Act) to bonus depreciation.

The proposed regulations provide clarification regarding the bonus depreciation deduction for qualified property acquired and placed in service after Sept. 27, 2017. Taxpayers may choose to rely on these for property acquired and placed into service after Sept. 27, 2017.

Summary

The proposed regulations contain the first glimpse into the IRS’ thought process on how the changes made by the Act to section 168(k) will be enforced, especially in areas where bonus depreciation guidance was not previously available. Taxpayers equipped with a strong understanding of these proposed regulations will be better able to realize tax savings opportunities through optimal application and deployment of the bonus depreciation rules – resulting in permanent tax savings for the 2017 tax year and accelerated tax savings in the future.

Details

The proposed bonus depreciation regulations expand upon and provide clarity to the changes made by the Act to section 168(k), including:

  • Eligibility requirements for bonus depreciation deduction
  • Property of a specified type
    • Property eligible for the bonus depreciation deduction
    • Property not eligible for the bonus depreciation deduction
  • Elections related to bonus depreciation
  • New property
  • Used property
  • Application to partnerships
  • Syndication transactions
  • Placed-in-service date
  • Date of acquisition
    • Written binding contract
    • Self-constructed property
  • Longer production period property and certain aircraft property
  • Computation of bonus depreciation deduction and otherwise allowable depreciation
  • Special rules

Effective Date

Pending the issuance of final regulations, a taxpayer may choose to apply the proposed regulations for qualifying property acquired and placed in service after Sept. 27, 2017, for tax years ending on or after Sept. 28, 2017.

Please contact your tax advisor for more information. To read the full text of the proposed regulations, please visit: https://www.federalregister.gov/documents/2018/08/08/2018-16716/additional-first-year-depreciation-deduction.

Adam Neporadny
Senior Manager, DHG Tax | tax@dhg.com