Final and Proposed Regulations on 100% Bonus Depreciation Deduction Issued

On September 13, the IRS released final regulations and additional proposed regulations under Section 168(k) of the Internal Revenue Code on the new 100% additional first-year depreciation deduction, which allows businesses to deduct most depreciable business assets in the year they are placed in service.

Bonus depreciation provisions permit businesses to immediately deduct a large share of their purchases of depreciable business assets with a recovery period of 20 years or less, instead of depreciating these investments over a number of years. Purchases of machinery, equipment, computers, appliances, and furniture generally qualify for the deduction. The TCJA increased bonus depreciation to 100% from 50% previously for qualifying property acquired and placed in service between September 27, 2017, and January 1, 2023, followed by a phase-down period ending in 0% on January 1, 2027. The deduction was also expanded to include purchases of used equipment.

The final regulations finalize the proposed regulations issued in August 2018, which implement several provisions included in the Tax Cuts and Jobs Act (TCJA). The regulations provide clarifying guidance on the requirements that must be met for property to qualify for the deduction, including used property; and provide rules for qualified film, television, and live theatrical productions.

In addition, in the proposed regulations, the IRS proposes rules regarding certain property not eligible for the additional first year depreciation deduction; a de minimis use rule for determining whether a taxpayer previously used property; components acquired after September 27, 2017, of larger property for which construction began before September 28, 2017; and other issues that were not dealt with in the previous proposed regulations released in August 2018. The proposed regulations also withdraw and re-propose rules regarding application of the used property acquisition requirements to consolidated groups, and to a series of related transactions.