CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. IRS Issues Guide On New Depreciation And Expensing Rules

IRS Issues Guide On New Depreciation And Expensing Rules

by Mike Godfrey, Tax-News.com, Washington

24 April 2018


The United States Internal Revenue Service (IRS) has issued a new fact sheet explaining the new deprecation and expensing rules included in the Tax Cuts and Jobs Act (TCJA).

Fact sheet FS-2018-9, last updated on April 20, 2018, includes information on section 179 expensing, temporary 100 percent bonus depreciation, changes to depreciation limitations on luxury automobiles and personal use property, alterations to the treatment of farm equipment and property, and the recovery period for real property.

With regards to the section 179 deduction, the fact sheet explains that a taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from USD500,000 to USD1m. It also increased the phase-out threshold from USD2m to USD2.5m.

The new law also expands the definition of section 179 property to allow the taxpayer to elect to include the following improvements made to nonresidential real property after the date when the property was first placed in service:

  • Qualified improvement property, which means any improvement to a building's interior. Improvements do not qualify if they are attributable to:
    • the enlargement of the building,
    • any elevator or escalator or
    • the internal structural framework of the building.
  • Roofs, heating ventilation and air conditioning (HVAC), fire protection systems, alarm systems and security systems.

These changes apply to property placed in service in taxable years beginning after December 31, 2017.

The fact sheet explains that the TCJA increases to the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. The bonus depreciation percentage for qualified property that a taxpayer acquired before September 28, 2017, and placed in service before January 1, 2018, remains at 50 percent. Special rules apply for longer production period property and certain aircraft.

The definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after September 27, 2017, although the cost of the used qualified property eligible for bonus depreciation doesn't include any carryover basis of the property, for example in a like-kind exchange or involuntary conversion.

However, the TCJA added qualified film, television, and live theatrical productions as types of qualified property that are eligible for 100 percent bonus depreciation. This provision also applies to property acquired and placed in service after September 27, 2017.

The new law also changed depreciation limits for passenger vehicles placed in service after December 31, 2017. If the taxpayer doesn't claim bonus depreciation, the greatest allowable depreciation deduction is:

  • USD10,000 for the first year,
  • USD16,000 for the second year,
  • USD9,600 for the third year, and
  • USD5,760 for each later taxable year in the recovery period.

If a taxpayer claims 100 percent bonus depreciation, the greatest allowable depreciation deduction is:

  • USD18,000 for the first year,
  • USD16,000 for the second year,
  • USD9,600 for the third year, and
  • USD5,760 for each later taxable year in the recovery period.

However, the new law removes computer or peripheral equipment from the definition of listed property. This change applies to property placed in service after December 31, 2017.

The fact sheet also reiterates that the TCJA shortens the recovery period for machinery and equipment used in a farming business from seven to five years. However, farm businesses electing out of the new interest deduction limit (which applies to farms with gross receipts of more than USD25m), must use the alternative depreciation system to depreciate any property with a recovery period of 10 years or more, such as single purpose agricultural or horticultural structures, trees or vines bearing fruit or nuts, farm buildings, and certain land improvements. This provision applies to taxable years beginning after December 31, 2017.

Last, it explains that the new law keeps the general recovery periods of 39 years for nonresidential real property and 27.5 years for residential rental property. But, effective January 31, 2017, the law changes the alternative depreciation system recovery period for residential rental property from 40 years to 30 years. Qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property are no longer separately defined and given a special 15-year recovery period under the new law.

TAGS: tax | business | interest | law | real-estate | tax planning | United States | retail | Tax

To see today's news, click here.

 
















Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »



Stay Updated

Please enter your email address to join the Tax-News.com mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.


To manage your mailing list preferences, please click here »