IRS Permits Taxpayers to Change Bonus Depreciation Treatment for Certain Property

The IRS will permit taxpayers to change their bonus depreciation treatment for property acquired after Sept. 27, 2017, and placed in service during a tax year that includes Sept. 28, 2017, the agency announced on July 31 in Revenue Procedure 2019-33.

The Tax Cuts and Jobs Act (TCJA) made several amendments to the bonus depreciation rules under Section 168(k). The legislation increased the first year depreciation deduction percentage from 50% to 100% through 2022. The amount of allowable bonus depreciation is then phased out over four years, from 80% in 2023, to 60% in 2024, 40% in 2025, and 20% in 2026. The TCJA also expanded the property eligible for the additional first year depreciation deduction to include certain used depreciable property and certain plants, film, television, and live theatrical productions.

The IRS clarified that there are three additional first year depreciation deduction elections. First, the taxpayer can elect not to deduct the additional first year depreciation for all qualified property that is 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%, instead of 100%, additional first year depreciation for all qualified property acquired after September 27, 2017, and placed in service by the taxpayer during its taxable year that includes September 28, 2017. Finally, a taxpayer can elect to deduct additional first year depreciation for any specified plant that is planted after September 27, 2017 and before January 1, 2027, or grafted after and before those dates to a plant that has already been planted.

Taxpayers are permitted to make these late elections or revocations of elections provided in the revenue procedure by filing an amended return or a Form 3115 for a limited period of time.