Through the release of the final regulations under section 168(k) which define the new 100% depreciation provisions, the Treasury Department and Internal Revenue Service (IRS) have provided clarity and new provisions beyond what was proposed in August 2018.
What businesses need to know about the new 100% additional first year depreciation deduction:
- Businesses can write off most depreciable business assets in the year they are placed in service by the business.
- Important new provisions not addressed previously in the Tax Cuts and Job Act (TCJA) include:
- Clarifying guidance on the requirements that must be met for property to qualify for the deduction, including used property.
- It typically applies to depreciable business assets with a recovery period of 20 years or less, and certain other property.
- Machinery, equipment, computers, appliances and furniture generally qualify.
- New rules provide more guidance around:
- Eligibility: Certain property not eligible for the additional depreciation deduction
- Used property determinations: A de minimis use rule for determining whether a taxpayer previously used property
- Effective dates: components acquired after Sept. 27, 2017, of larger property for which construction began before Sept. 28, 2017
- Unclear items: more definition given to aspects not dealt with in the August 2018 proposed regulations – for example, application of the used property acquisition requirements to consolidated groups, and to a series of related transactions
- Opting out: taxpayers may elect out of the 100% depreciation deduction, but need to do so on a timely-filed return. For 2018 returns that have been filed without electing out, taxpayers can still do so (by filing an amended return six months from the original deadline, without an extension).
For more details regarding the application of these final and proposed regulations, guidance around opting out, or advisory for implementing the best tax strategy around the new 100% depreciation deduction, please contact a K·Coe tax advisor.