IRS Releases Proposed Guidance on 100 Percent Depreciation

Chris Gaetano
Published Date:
Aug 6, 2018

The IRS has released proposed guidance for the provision of the Tax Cuts and Jobs Act that allows for 100 percent depreciation on qualified property. The tax law, signed in December, allows for a first year depreciation deduction of 100 percent on qualified property acquired between Sept. 27, 2017, and Jan. 1, 2023, increased from 50 percent in the previous code.

The guidance provides that an asset must meet four criteria before it can be counted as a "qualified property" that can be used for the 100 percent depreciation deduction. One, it must be depreciable property of a specified type; the original use of the property must commence with the taxpayer unless it's used property that meets acquisition requirements laid out in Section 168; the property must be placed in serve by the taxpayer within a specified time period or must be planted or grafted by the taxpayer before a specific date; and the property must be acquired by the taxpayer after Sept. 27, 2017. 

By "specified type," the IRS means anything that counts under the Modified Accelerated Cost Recovery System with a recovery time of 20 years or fewer, or certain computer software, water utility properties, film or television productions, live theatrical productions, or plants, provided they themselves meet the definitions as outlined in the tax code. 

Property that is not eligible for the first-year depreciation deduction includes property that is excluded from the application of Section 168 as a result of Section 168(f), which lays out exceptions to the accelerated cost recovery system; property that must be depreciated under the Alternative Depreciation System; any class of property for which the taxpayer elects not to make the deduction in the first year the property is put into service; a specific plant placed in service to make the election for a prior year; any class of property where the taxpayer applied an exemption under Section 168(k)(4), which is about credit in lieu of bonus depreciation; or any property used primarily in a trade or business described in Section 163(j)(7)(A)(iv), which generally has to do with interest. 

Members of the public have 60 days to weigh in on the proposed guidance. 

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