The new final bonus regulations (T.D. 9916) (2020 Regulations) under section 168(k) once again may provide additional opportunities for taxpayers to apply 100% bonus depreciation to qualifying property acquired and placed in service after Sept. 27, 2017.
In September of 2019, the Treasury and IRS issued final (T.D. 9874)(2019 Regulations) and proposed (REG-106808-19)(2019 Proposed Regulations) regulations related to bonus depreciation to reflect the changes made to section 168(k) by TCJA. The 2020 Regulations provide guidance not previously addressed in the 2019 Regulations, make clarifying changes to the 2019 Regulations, and withdraw a portion of the 2019 Proposed Regulations.
Specifically, the guidance includes but is not limited to the following:
- Updates to reflect the changes made to qualified improvement property under the Coronavirus Aid, Relief, and Economic Security Act
- Rules regarding the application of the mid-quarter convention
- Confirmation that section 163(j) does not treat the benefits of floor plan financing interest as optional
- Clarifications to the five-year safe harbor for determining a prior depreciable interest
- Clarifications and examples under the de minimis use rule
- Elimination of the partnership lookthrough rule in determining whether a person has a prior depreciable interest
- Revisions and examples of bonus depreciation eligibility for property transferred in a series of transactions
- Revisions and examples for property transactions within and related to consolidated groups
- Clarification that provisions related to binding contracts extend to contracts for certain sales of stock if treated as an asset sale
- Provisions for a 10% safe harbor for property not acquired pursuant to a written binding contract
- Expansion of the election to treat one or more components of larger self-constructed property as eligible for 100% bonus depreciation
The 2020 Regulations apply generally to depreciable property acquired after Sept. 27, 2017 and placed in service during or after a taxpayer’s taxable year that begins on or after Jan. 1, 2021. A taxpayer may choose to apply the 2020 Regulations to depreciable property acquired and placed in service after Sept. 27, 2017, provided the taxpayer applies all of the rules in their entirety in a consistent manner. Additional rules apply in the case of property and transactions within the section 1502 regulations.
Taxpayers do not need to rush to apply the 2020 Regulations. Taxpayers, however, may want to apply the 2020 Regulations not only to current and future taxable years, but to prior taxable years with property acquired and placed in service after Sept. 27, 2017. Taxpayers may have an opportunity to file a superseding return, amend a tax return or file an accounting method change to follow the final regulations with a historical adjustment. Also, taxpayers will need to give additional consideration to M&A or restructuring transactions to determine whether bonus depreciation applies. Taxpayers are encouraged to contact a tax professional to determine the potential impact of the proposed regulations.