The IRS last Friday announced the publication of final and proposed regulations for the first-year bonus depreciation deduction, bookending regulations that were proposed last year.
Before passage of the Tax Cuts and Jobs Act, taxpayers could take an additional 50-percent depreciation deduction on qualifying, depreciable business assets the year they were put into service. After the tax-reform legislation was signed into law, the deductible amount was raised to 100 percent, and the definition of qualifying assets was updated.
According to the IRS, the final regulations “provide guidance on the requirements that must be met for property to qualify for the deduction…[and] provide rules for qualified film, television, and live theatrical productions.” Meanwhile, the newly proposed regulations outline other rules for property eligibility, including a de minimis for “determining whether a taxpayer previously used property.”
An IRS fact sheet indicates property may qualify for the deduction if it meets these criteria:
- The taxpayer or its predecessor didn’t use the property at any time before acquiring it.
- The taxpayer didn’t acquire the property from a related party.
- The taxpayer didn’t acquire the property from a component member of a controlled group of corporations.
- The taxpayer’s basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.
- The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.
- Also, the cost of the used property eligible for bonus depreciation doesn’t include the basis of property determined by reference to the basis of other property held at any time by the taxpayer (for example, in a like-kind exchange or involuntary conversion).
For more information on the section 168(k) 100-percent additional depreciation deduction, here are some links provided by the IRS:
- About Form 4562, Depreciation and Amortization (Including Information on Listed Property)
- Proc. 2019-33. The and IRS Fact Sheet 2018-9 may also have helpful information for determining what qualifies for the deduction.