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100% Deduction of Business Property – New Regulations Issued

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On September 13, 2019, the Treasury Department and the Internal Revenue Service released final regulations and additional proposed regulations governing the new 100% additional first year depreciation deduction under Sec 168(k) of the Internal Revenue Code (IRC).

The final regulations adopted the August 2018 proposed regulations included in the Tax Cuts and Jobs Act (TCJA) and introduced new provisions not addressed previously. The TCJA 100% depreciation deduction, allows business to immediately deduct 100% of the cost of qualified property in the year which it is placed in service. Generally, it applies to depreciable business assets which have a depreciable life period of 20 years or less and certain other property. Typically, machinery, equipment, computers, appliances and furniture would qualify for this additional depreciation.

The deduction applies to qualifying property acquired and placed in service after September 27, 2017. The final regulations provide guidance on the requirements of the qualifying property for the deduction, including used property and excludes the following property from being classified qualified property: 1) property used 50% or less in a qualified business use; 2) any property required to be depreciated under the alternative depreciation system (ADS) (that is, not property for which you elected to use ADS); 3) property placed in service and disposed of in the same tax year; 4) property converted from business or income-producing use to personal use in the same tax year it is acquired; or 5) property for which you elected not to claim any special depreciation allowance.

To make the 100% bonus depreciation election, a statement should be attached to your timely filed return (including extensions) indicating you are electing to apply section 168(k)(5) and identifying the specified property for which you are making the election. Once the election is made, it may only be revoked with IRS consent.

You may elect out of the 100% bonus depreciation treatment or request 50% bonus depreciation, instead of 100% depreciation, for any class of property placed in service during the tax year. To make an election out of the bonus depreciation, you should attach a statement to your timely filed return (including extensions) indicating the class of property for which you are making the election and informing that you are not to claiming any special depreciation allowance. Taxpayers who have already timely filed their 2018 return and did not elect out but still wish to do so, may amend their return six months from the original deadline.

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