Attention Business Owners
TAX SAVINGS – BONUS DEPRECIATION ALLOWED For 2017-2023
Take Advantage of the extra tax savings for your FF&E and Renovations
The technical amendments treating QIP as 15-year property allow such property to be eligible for the 100 percent bonus depreciation for QIP placed in service after December 31, 2017. Additionally, for taxpayers electing not to claim 100 percent bonus depreciation, QIP is depreciated over 15 years rather than 39 years. Importantly, these amendments limit QIP to improvements made by the taxpayer, which means that used QIP would not be eligible for 100 percent bonus depreciation or the 15-year recovery period.
Taxpayers may consider filing an amended return for 2018 to claim 100 percent bonus depreciation on eligible QIP (or change from a 39-year to a 15-year recovery period and from a mid-month to half-year or mid-quarter convention) to alleviate cash flow impediments caused by COVID-19. Alternatively, taxpayers generally may file an automatic accounting method change (Form 3115) under section 6.01 of Rev. Proc. 2019-43 to obtain the benefit through a section 481(a) adjustment. A taxpayer that depreciates QIP using a 39-year recovery period for one taxable year may apply the one-year depreciable property rule under section 6.01(1)(b) of Rev.
Proc. 2019-43 to file an automatic accounting method change. For a prior taxable year for which a taxpayer has not yet filed a tax return, the taxpayer may reclassify QIP from a 39-year recovery period to a 15-year recovery period and claim 100 percent bonus depreciation. Additionally, these technical amendments may incentivize investment in improvements while the US recovers from the COVID-19 pandemic.
It is anticipated that the Treasury and the IRS will issue procedural guidance regarding filing accounting method changes and amending tax returns under these technical amendments.
The addition of the 20-year alternative depreciation system (ADS) recovery period would likely impact taxpayers that made the real property trade or business (RPTOB) election or any taxpayer that made an ADS election under section 168(g)(7). The technical amendments do not include a corresponding correction for section 168(g)(8).