IRS finalizes rules for 100% depreciation deduction

The Internal Revenue Service and the Treasury Department released the final regulations Friday for the new 100 percent additional first year depreciation deduction included as part of the Tax Cuts and Jobs Act, allowing businesses to write off most depreciable business assets in the year they are placed in service, along with a new set of proposed regulations on the tax break.

The deduction generally 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 deduction. It applies to qualifying property acquired and placed in service after Sept. 27, 2017.

Sign in front of IRS building in Washington, D.C.
The IRS building in Washington, D.C.

The document issued Friday finalizes the proposed regulations that were issued in August 2018 to implement some of the provisions of the Tax Cuts and Jobs Act of 2017, but it also includes some new provisions that weren’t addressed previously. They include some clarifying guidance on the requirements that need to be met for property to qualify for the deduction, including used property. The final regulations also contain rules for qualified film, television and live theatrical productions.

In the new set of proposed regulations, the Treasury Department and IRS also propose rules pertaining to (i) certain property not eligible for the additional first year depreciation deduction, (ii) a de minimis use rule for determining whether a taxpayer previously used property; (iii) components acquired after Sept. 27, 2017, of larger property for which construction began before Sept. 28, 2017; and (iv) other aspects not dealt with in the previous August 2018 proposed regulations. The proposed regs also withdraw and repropose some rules pertaining to the application of the used property acquisition requirements (i) to consolidated groups; and (ii) to a series of related transactions.

For details on claiming the deduction or electing out of claiming it, see the final regs or the instructions to Form 4562, Depreciation and Amortization (Including Information on Listed Property). For tax years that include Sept. 28, 2017, see Rev. Proc. 2019-33 for further information about making a late election or revoking an election.

Taxpayers who elect out of the 100 percent depreciation deduction need to do it on a timely-filed return. Those who have already timely filed their 2018 return and didn’t elect out of the deduction but still want to do so have six months after the original deadline, without an extension, to file an amended return.

The IRS noted that the regulations released Friday have been submitted to the Federal Register and may vary slightly from the published documents due to minor editorial changes. The documents published in the Federal Register will be the official documents.

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