The enactment of the Tax Cuts and Jobs Act (TCJA) in December of 2017 led to one of the more chaotic tax filing seasons in recent memory. The new law included several provisions that affected bonus depreciation treatment and calculations, and some taxpayers may have filed their returns without fully considering the different options that were available.
In response to these concerns, the IRS has taken the unusual step of allowing taxpayers who meet certain requirements to make a late election into or out of bonus depreciation treatment for qualifying asset purchases. The most likely beneficiaries would be businesses that made qualifying asset purchases after September 27, 2017, placed those assets in service during the tax year that includes September 28, 2017, and did not previously elect bonus depreciation treatment for those assets.
Rules for Bonus Depreciation Elections
Under normal circumstances, bonus deprecation is automatic. Taxpayers must elect out of bonus deprecation by attaching a statement to their timely filed (including extensions) return. A taxpayer cannot change bonus depreciation treatment by filing an amended return. Permission from the IRS Commissioner is required to make any changes into or out of bonus deprecation.
This latest IRS guidance allows certain taxpayers to now make or unmake the election into or out of bonus depreciation for assets acquired and placed in service after September 27, 2017. If taxpayers have not yet filed a subsequent return, you can now amend the return or make an administrative adjustment request (for partnerships subject to centralized partnership regime). For instance, a calendar-year corporation that filed its 2017 return without the election could now file an amended 2017 return if it has not yet filed its 2018 return (subsequent return). If a subsequent return has been filed, taxpayers can still take advantage of the election by filing an Application for Change in Accounting Method, Form 3115.
The IRS guidance basically acknowledges that some taxpayers may have filed their previous returns before fully evaluating the options and allows them this small window of time to make or unmake an election.
Changes Are Now Available
The TCJA expanded bonus depreciation options in several ways, including:
- Raising the percentage of the additional first-year bonus depreciation from 50% to 100%.
- Allowing certain used equipment that met the “acquired and placed in service” requirements to qualify.
- Making bonus depreciation available to new asset categories, such as certain film, television, and theatrical productions.
In a few instances, this expansion of bonus depreciation might make bonus depreciation more attractive than the immediate expensing of assets under Section 179 of the Tax Code. If you think this change might apply to your business, review depreciation calculations with your tax advisor as soon as possible and be sure to contact CRI for additional information.