The IRS has proposed regulations to incorporate the 100% bonus depreciation rules that were part of the Tax Cuts and Jobs Act (P.L. 115-97). Taxpayers may apply these proposed regs to property acquired and placed in service after September 27, 2017, during tax years ending after that date.
The Tax Cuts and Jobs Act increased bonus depreciation from 50 percent to 100 percent for property acquired after September 27, 2017. It also expanded eligible property to include:
- qualified used property,
- film, television, and live theatrical productions; and
- nut-bearing and fruit-bearing plants.
The proposed regs reflect the four statutory requirements for property to be eligible for bonus depreciation:
- the taxpayer must acquire the property after September 27, 2017;
- property must be of a specified type;
- original use of new property must commence with the taxpayer, or used property must satisfy acquisition requirements; and
- the taxpayer must place the property in service before the deadline.
Property of a Specified Type
Property of a specified type includes the following items:
- MACRS property with a recovery period of 20 years or less;
- qualified computer software;
- water utility property;
- qualified film or television productions;
- qualified live theatrical productions; and
- plants the bear fruit or nuts.
Bonus depreciation also applies to qualified improvement property if the taxpayer:
- acquires it after September 27, 2017, and
- places it in service after September 27, 2017, and before January 1, 2018.
In addition, the taxpayer must place the qualified property in service:
- after September 27, 2017, and
- before January 1, 2027.
January 1, 2027, is also the deadline for the taxpayer to plant fruit- or nut-bearing plants, or to graft them onto other plants that were already planted.
However, the placed-in-service deadline is extended to January 1, 2028, for eligible aircraft property.
A qualified film or television production is placed in service on the date it is initially released or broadcast. Similarly, the placed in service date for a qualified live theatrical production is the date of its initial live staged performance.
The taxpayer must also acquire eligible property after September 27, 2017, or acquire it under a written binding contract entered into after September 27, 2017. A taxpayer may acquire property under a contract if another party manufactures, constructs, or produces the property for the taxpayer.
Self-constructed property meets the acquisition-date test if the taxpayer started manufacturing, constructing or producing it after September 27, 2017.
The taxpayer acquires a qualified film or television production on the date principal photography begins. Similarly, the taxpayer acquires a qualified live theatrical production on the date all of the necessary elements for producing it are secured. These elements may include:
- a script,
- scenic and costume designs,
- advertising agents,
- music, and
Taxpayers may elect out of bonus depreciation on a timely-filed return. However, a taxpayer who already filed a 2017 return may file an amended return to claim bonus depreciation, or to elect out of it.
These regulations apply to qualified property that the taxpayers places in service during or after the taxpayer’s tax year that includes the date that the regulations are adopted as final. Taxpayers may also apply the proposed regulations to qualified property acquired and placed in service after September 27, 2017, during tax years ending on or after September 28, 2017.
Proposed Regulations, NPRM REG-104397-18