Depreciation Changes

It’s been almost a year since the TCJA has passed, but the IRS is still proposing, altering, and clarifying pieces of the act. Most recently, the IRS issued proposed regulations that would offer clarity to how to use the first-year depreciation deduction for qualified property. As many will note, the TCJA pushed the first-year depreciation deduction for qualified property from 50% to 100%, it also extended and modified bonus depreciation.

The TCJA altered the bonus depreciation so that eligible property is 100% deductible immediately as of the year it is placed in service. The amount of allowable bonus depreciation is then phased lower for the following 4 years.

The proposed regulations clarify the statutory requirements that must be met for depreciable property to qualify for the additional first-year depreciation deduction that is provided by section 168(k). Additionally, the proposal shows taxpayers how to calculate the additional first-year depreciation deduction plus the amount of depreciation otherwise allowable.

The proposal would require depreciable property to meet four requirements:

1. The depreciable property must be of a specified type;

2. The original use of the depreciable property must commence with the taxpayer, or used depreciable property must meet the acquisition requirements of Sec. 168(k)(2)(E)(ii)

3. The depreciable property must be placed in service by the taxpayer within a specified time period or must be planted or grafted by the taxpayer before a specified date; and

4. The depreciable property must be acquired after September 27, 2017.

With changes and clarifications for the TCJA constantly coming, be prepared and stay up to date by checking our blogs regularly. As always, if you have any questions contact us at the Center for Financial, Legal & Tax, Inc.