United States

IRS provides relief for certain bonus depreciation elections

TAX ALERT  | 

Rev. Proc. 2019-33 allows taxpayers to revoke or make late bonus depreciation elections for property acquired after Sept. 27, 2017 and placed in service or planted or grafted, as applicable, during a taxable year that includes Sept. 28, 2017.

The guidance addresses three different elections related to bonus depreciation. First, the election to deduct additional first year depreciation for any specified plant that the taxpayer plants or grafts in the ordinary course of the taxpayer’s farming business. Second, the election not to deduct bonus for any class of qualified property (e.g., five year property). Third, the election to deduct 50%, instead of 100% bonus depreciation for qualified property acquired after Sept. 27, 2017, and placed in service by the taxpayer in a year that includes Sept. 28, 2017.

The Treasury and IRS recognized that taxpayers could benefit from additional time to analyze bonus depreciation elections and the burden of amending returns. Accordingly, the guidance allows taxpayers to revoke or make late bonus depreciation elections by:

  1. An amended federal tax return, or an administrative adjustment request by a partnership subject to the partnership audit rules, for the taxable year that includes Sept. 28, 2017, completed before the taxpayer files its federal income tax return for the first succeeding taxable year; or
  2. Form 3115, Application for Change in Accounting Method, filed for the first, second or third taxable year succeeding the taxable year that includes Sept. 28, 2017.

The guidance provides for a new automatic method change, under section 6.18 of Rev. Proc. 2018-31, for taxpayers within the scope of Rev. Proc. 2019-33. The new automatic method change waives the eligibility requirements related to prior changes related to the same item within five years and the final year of a taxpayer’s trade or business.

Takeaways

The IRS handed taxpayers the gift of additional time to analyze bonus depreciation elections for certain qualified property. Taxpayers may now reconsider their prior treatment of certain bonus depreciation choices and take steps to implement the optimal outcome.

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