IRS Issues Pre-Released Version of Final Bonus Depreciation Regs

IRS Issues Pre-Released Version of Final Bonus Depreciation Regs

Internal Revenue Service

The IRS has issued a pre-released version of final regulations (T.D. 9916) that provide guidance on the additional first-year depreciation deduction under <a href="/research/federal/usc26/168#cp0w-0000455" resolve="/lr/resolve//cp0w#cp0w-0000455">section 168(k)</a>. The regs reflect and further clarify the increased deduction and the expansion of qualified property, particularly to some classes of used property authorized by the Tax Cuts and Jobs Act. The final regs adopt, with changes, proposed regs (<a href="/lr/resolve//29y5c">REG-106808-19</a>) issued in September 2019. T.D. 9916 also withdraws a portion of those proposed regs. The final regs provide guidance on issues regarding the application of <a href="/research/federal/usc26/168#cp0w-0000455" resolve="/lr/resolve//cp0w#cp0w-0000455">section 168(k)</a> that were not addressed in final regs (<a href="/lr/resolve//29y5b">T.D. 9874</a>) issued in September 2019, along with clarifying changes to those regs. The final version of the regs will be posted on the Federal Register website at a later date and will incorporate any changes made during the government’s review process. For purposes of property described in <a href="/research/federal/usc26/168#cp0w-0000857" resolve="/lr/resolve//cp0w#cp0w-0000857">section 168(k)(9)(B)</a>, Treasury and the IRS will issue guidance addressing a commentator’s request for specified transition relief regarding floor plan financing indebtedness. For determining if a taxpayer or predecessor had a depreciable interest in property before acquiring the property (thus treating it as used by the taxpayer or predecessor), the final regs clarify the five-year safe harbor in response to comments, including adding more examples to clarify its application. The regs also clarify the application of the de minimis use rule regarding prior depreciable interest in a property. Additional examples illustrate the application of the rule in various situations. The final regs withdraw the proposed partnership look-through rule, which addressed the extent to which a partner is deemed to have a depreciable interest in property held by a partnership. Under the final regs, a partner will not be treated as having a depreciable interest in partnership property solely by virtue of being a partner in the partnership. The final regs simplify the proposed related-transactions rule and modify it to consider changes in the relationship between the parties, including a party ceasing to exist, over the course of a series of related transactions. The final regs also provide a special rule that disregards some transitory relationships created under a series of related transactions. Examples illustrate the revised rules. Treasury and the IRS agreed that the proposed consolidated acquisition rules could create uncertainty and raise implementation issues. Thus, the final regs adopt an alternative approach (delayed bonus approach) to alleviate many of the concerns raised by commentators. The delayed bonus approach treats an asset acquisition as occurring on the actual acquisition date for all federal income tax purposes. The final regs adopt the approach for actual and deemed acquisitions of eligible property that meet specified requirements. The delayed bonus approach does not include a 90-day requirement and applies only to specified depreciable property. The regs allow taxpayers to elect out of the application of the delayed bonus approach for all eligible property that otherwise would be subject to it. The final regs include additional examples to clarify the application of other special rules for consolidated groups.  The final regs make some clarifications regarding acquisitions of property and expand the larger self-constructed property that is eligible for the component election. The regs also remove the requirement that the larger self-constructed property be qualified property under <a href="/research/federal/usc26/168#cp0w-0000459" resolve="/lr/resolve//cp0w#cp0w-0000459">section 168(k)(2)</a>, as in effect on the day before the TCJA’s enactment. The regs retain the proposed rule to be eligible for the component election and the proposed rule that excludes qualified film, television, and live theatrical productions from eligibility.  The final regs provide changes to the definitions in the 2019 final regs for qualified improvement property, predecessor, and class of property. As a result of changes made by the Coronavirus Aid, Relief, and Economic Security Act, the regs provide that for purposes of the qualified improvement property definition, the improvement must be made by the taxpayer. The preamble addressed questions regarding the meaning of “made by the taxpayer” and specified that qualified improvement property is not eligible for the additional first-year depreciation deduction in the hands of the transferee taxpayer. The definition of qualified improvement property under the final regs applies to depreciable property placed in service by the taxpayer after December 31, 2017. The preamble provides the applicability dates for other provisions of the final regs and the tax years for which taxpayers may rely on some provisions of the proposed regs if some conditions are met.

T.D. 9916, which was posted on the Federal Register website on November 5, 2020, is the <a href="/lr/resolve/official-version/2d5fb" title="official version">official version</a> of the final regs.

The IRS has issued a pre-released version of final regulations (T.D. 9916) that provide guidance on the additional first-year depreciation deduction under section 168(k).

The IRS has issued a pre-released version of final regulations (T.D. 9916) that provide guidance on the additional first-year depreciation deduction under section 168(k). The regs reflect and further clarify the increased deduction and the expansion of qualified property, particularly to some classes of used property authorized by the Tax Cuts and Jobs Act. The final regs adopt, with changes, proposed regs (REG-106808-19) issued in September 2019. T.D. 9916 also withdraws a portion of those proposed regs. The final regs provide guidance on issues regarding the application of section 168(k) that were not addressed in final regs (T.D. 9874) issued in September 2019, along with clarifying changes to those regs. The final version of the regs will be posted on the Federal Register website at a later date and will incorporate any changes made during the government’s review process. For purposes of property described in section 168(k)(9)(B), Treasury and the IRS will issue guidance addressing a commentator’s request for specified transition relief regarding floor plan financing indebtedness. For determining if a taxpayer or predecessor had a depreciable interest in property before acquiring the property (thus treating it as used by the taxpayer or predecessor), the final regs clarify the five-year safe harbor in response to comments, including adding more examples to clarify its application. The regs also clarify the application of the de minimis use rule regarding prior depreciable interest in a property. Additional examples illustrate the application of the rule in various situations. The final regs withdraw the proposed partnership look-through rule, which addressed the extent to which a partner is deemed to have a depreciable interest in property held by a partnership. Under the final regs, a partner will not be treated as having a depreciable interest in partnership property solely by virtue of being a partner in the partnership. The final regs simplify the proposed related-transactions rule and modify it to consider changes in the relationship between the parties, including a party ceasing to exist, over the course of a series of related transactions. The final regs also provide a special rule that disregards some transitory relationships created under a series of related transactions. Examples illustrate the revised rules. Treasury and the IRS agreed that the proposed consolidated acquisition rules could create uncertainty and raise implementation issues. Thus, the final regs adopt an alternative approach (delayed bonus approach) to alleviate many of the concerns raised by commentators. The delayed bonus approach treats an asset acquisition as occurring on the actual acquisition date for all federal income tax purposes. The final regs adopt the approach for actual and deemed acquisitions of eligible property that meet specified requirements. The delayed bonus approach does not include a 90-day requirement and applies only to specified depreciable property. The regs allow taxpayers to elect out of the application of the delayed bonus approach for all eligible property that otherwise would be subject to it. The final regs include additional examples to clarify the application of other special rules for consolidated groups.  The final regs make some clarifications regarding acquisitions of property and expand the larger self-constructed property that is eligible for the component election. The regs also remove the requirement that the larger self-constructed property be qualified property under section 168(k)(2), as in effect on the day before the TCJA’s enactment. The regs retain the proposed rule to be eligible for the component election and the proposed rule that excludes qualified film, television, and live theatrical productions from eligibility.  The final regs provide changes to the definitions in the 2019 final regs for qualified improvement property, predecessor, and class of property. As a result of changes made by the Coronavirus Aid, Relief, and Economic Security Act, the regs provide that for purposes of the qualified improvement property definition, the improvement must be made by the taxpayer. The preamble addressed questions regarding the meaning of “made by the taxpayer” and specified that qualified improvement property is not eligible for the additional first-year depreciation deduction in the hands of the transferee taxpayer. The definition of qualified improvement property under the final regs applies to depreciable property placed in service by the taxpayer after December 31, 2017. The preamble provides the applicability dates for other provisions of the final regs and the tax years for which taxpayers may rely on some provisions of the proposed regs if some conditions are met.

Sec. 168 Accelerated cost recovery system

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IRS Issues Pre-Released Version of Final Bonus Depreciation Regs