IRS offers PATH Act guidance

The Internal Revenue Service has released a revenue procedure that provides guidance on several aspects of the Protecting Americans from Tax Hikes Act of 2015, including the expensing of section 179 property, the additional first-year depreciation deduction, and the qualified Indian reservation property depreciation provision.

Revenue Procedure 2017-33 details some of the tax rules surrounding the PATH Act, which was passed at the end of 2015 and brought some measure of predictability to the tax code by making dozens of temporary tax breaks more or less “permanent,” although some of them might still go away if the current Congress manages to pass the comprehensive tax reform plan it has been promising for decades.

In the new revenue procedure, the IRS focused on only a few of the many provisions of the PATH Act. The law amended section 179 of the tax code by making permanent the treatment of qualified real property as section 179 property, and allowing certain air conditioning or heating units to be eligible under some of the provisions.

The PATH Act also amended section 168(k) by extending the placed-in-service date for property to qualify for the additional first-year depreciation deduction, modifying the definition of qualified property, and extending and modifying the election to increase the alternative minimum tax credit limitation instead of the additional first-year depreciation deduction. It also added section 168(k)(5), which allows a taxpayer to deduct the additional first-year depreciation for certain plants bearing fruits and nuts before the plants are placed in service.

The law also added section 168(k)(6), which provides a phase-down of the additional first-year depreciation deduction percentage for future taxable years, and added section 168(k)(7), which permits a taxpayer to elect not to deduct additional first-year depreciation for any class of property.

Section 167(b) of the PATH Act also amends section 168(j) by adding a new section 168(j)(8), which enables a taxpayer to elect not to apply section 168(j) for any class of property.

The section 168(j)(8) election applies to all qualified Indian reservation property that is in the same class of property and placed in service in the same taxable year. Once it is made, the section 168(j)(8) election is irrevocable.

The new revenue procedure doesn't include guidance on the extension and modification of the election under section 168(k)(4) to increase the AMT credit limitation in lieu of the additional first-year depreciation deduction. But the Treasury Department and the IRS expect to issue guidance on the extension and modification of the election under section 168(k)(4) in a separate revenue procedure.