IRS provides guidance on bonus depreciation election

The Internal Revenue Service and the Treasury Department released guidance Wednesday enabling taxpayers to make a late election, or revoke an earlier election, for the bonus depreciation tax break for the property they have acquired for a business.

The Tax Cuts and Jobs Act of 2017 made a number of changes to the bonus depreciation tax break, allowing a business to immediately deduct much of the purchase price of eligible assets, such as plant and equipment, rather than write it off throughout the "useful life" of the asset. For example, the additional first-year depreciation deduction percentage increased from 50 to 100 percent. The property eligible for the additional first-year depreciation deduction also expanded to include certain used depreciable property and certain film, television or live theatrical productions. The placed-in-service date was extended to before Jan. 1, 2027. Finally, the date on which a specified plant is planted or grafted by the taxpayer was extended to before Jan. 1, 2027.

Revenue Procedure 2019-33 permits a taxpayer to make a late election, or to revoke an election, under section 168(k) of the tax code for certain property acquired by the taxpayer after Sept. 27, 2017, and placed in service by the taxpayer during its taxable year that includes Sept. 28, 2017. First, a taxpayer can opt not to deduct the additional first-year depreciation for all qualified property that’s in the same class of property and placed in service by the taxpayer in the same tax year. Second, a taxpayer can elect to deduct 50 percent, instead of 100 percent, of the additional first-year depreciation for all qualified property acquired and placed in service by certain dates. Third, a taxpayer can elect to deduct additional first-year depreciation for any specified plant that’s planted or grafted after Sept. 27, 2017, and before 2027.

An IRS office building in East Harlem
An IRS office building in the East Harlem neighborhood of New York

On top of those three options, there are another three first-year depreciation deduction elections available to businesses. A taxpayer can elect not to deduct the additional first-year depreciation for all qualified property that’s in the same class of property and placed in service by the taxpayer in the same tax year. Second, a taxpayer can elect to deduct 50 percent, as opposed to 100 percent, additional first-year depreciation for all qualified property acquired after Sept. 27, 2017, and put in service by the taxpayer during its taxable year that includes Sept. 28, 2017.

Finally, a taxpayer can elect to deduct additional first-year depreciation for any specified plant that is planted after Sept. 27, 2017 and before Jan. 1, 2027, or grafted after and before those dates to a plant that has already been planted. If the taxpayer makes this election, the additional first-year depreciation deduction is allowed for the specified plant in the taxable year in which that plant is planted or grafted.

The new revenue procedure applies to these elections for the taxable year that includes Sept. 28, 2017. If a taxpayer didn’t make these elections on a timely basis for that taxable year, the revenue procedure permits taxpayers to make late elections by filing an amended return or a Form 3115 for a limited period of time. If a taxpayer did make these elections in a timely manner for that taxable year, the revenue procedure lets taxpayers revoke the elections by filing an amended return or a Form 3115 for a limited amount of time.

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