Proposed Regulations under Sections 168(k) Bonus Depreciation


The IRS issued proposed regulations regarding the first-year bonus depreciation under Section 168(k). Section 168(k) extends and modifies bonus depreciation, allowing businesses to immediately deduct 100% of the cost of qualified property in the year it is acquired and placed in services through 2022, generally.  The regulations address definition of qualified property, eligibility of used property for bonus deprecation, placed in service definition, and time and manner of making elections.


Qualified Property:   Property may be qualified property for bonus depreciation if it is of a specified type.  Property is of a specified type if it is a Modified Accelerated Cost Recovery System (MACRS) asset which had a recovery period of 20 years or less, generally.


Used Property:  Property may be qualified property if the original use of the property begins with the taxpayer or the taxpayer acquires used property that meets certain requirements.  An acquisition of property meets the requirements of the provision if the property was not used by the taxpayer at any time before the acquisition, and the acquisition is not between the related parties, among controlled group members, or where the nonrecognition provisions apply.


Acquired and Please-In-Service Date:  With an exception to long term contract, to be eligible for 100% bonus depreciation, the property must be acquired and placed in service after September 27, 2017 and before 2022.


Elections:  Consistent with prior law, taxpayers may make an annual election to elect out of bonus depreciation on a class-by-class basis, and it is irrevocable.  Additionally, taxpayers can elect to claim 50% bonus depreciation in lieu of 100% bonus deprecation


Additionally, the regulations provide that Section 754 optional basis adjustment related to 743(b) transactions allocated to qualified property of a partnership may qualify for the bonus depreciation.

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