IRS finalizes 100% bonus depreciation rules

The Internal Revenue Service and the Treasury Department issued the last set of final regulations Monday to implement the 100 percent additional first-year depreciation deduction from the Tax Cuts and Jobs Act, enabling companies to write off the cost of most depreciable business assets in the year they are put in service.

The 100 percent first-year bonus depreciation deduction was part of the 2017 tax overhaul. 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 usually qualify for the tax break.

The deduction applies to qualifying property (including used property) bought and placed in service after Sept. 27, 2017. The final regs include some clarifying guidance on the requirements that need to be met so property can qualify for the deduction, including used property. They also offer rules for consolidated groups and rules for components bought or self-constructed after Sept. 27, 2017, for larger self-constructed property on which production began before Sept. 28, 2017.

For more details on claiming the deduction, see the final regulations along with the instructions to Form 4562, Depreciation and Amortization (Including Information on Listed Property).

The Treasury Department and the IRS said Monday they plan to issue procedural guidance for taxpayers to opt to apply the final regulations in prior taxable years or to rely on the proposed regulations that were issued last September.

Bonus depreciation didn’t originate with the Tax Cuts and Jobs Act, but section 13201 of the TCJA made some important amendments to the additional first-year depreciation deduction provisions in the existing tax laws. First, the additional first-year depreciation deduction percentage increased from 50 to 100 percent. Second, the property eligible for the additional first-year depreciation deduction expanded, for the first time, to include certain used depreciable property and certain film, TV or live theatrical productions. Third, the placed-in-service date was extended from before Jan. 1, 2020, to before Jan. 1, 2027 (and from before Jan. 1, 2021, to before Jan. 1, 2028, for longer production period property or certain aircraft property). Fourth, the date on which a specified plant may be planted or grafted by the taxpayer was extended from before Jan. 1, 2020, to before Jan. 1, 2027.

For more information about this and other TCJA provisions, visit IRS.gov/taxreform.

Andrew Harrer/Bloomberg