The IRS issued final regulation on bonus depreciation under IRC Sec. 168(k) on September 16, 2019. This was a follow up to their previously issued proposed regulation released in August 2018. The final regulation clarified that qualified improvement property placed in service after 2017 is no longer eligible for bonus depreciation. Qualified improvement property is defined as improvements made to the interior portion of a building that is not residential. At the time the proposed regulations were issued, it was widely known by tax preparers that Congress made a drafting error in the Tax Cuts & Jobs Act, leaving qualified improvement property ineligible for bonus depreciation. Accordingly, preparers took bonus depreciation and hoped that Congress would provide new legislation to resolve the matter.
As a result, taking bonus depreciation on qualified improvement property following the issuance of final regulation will require preparers to include additional disclosures in the tax return, since such a position would be contrary to final regulations issued. IRS form 8275-R may protect against related penalties and must be included with the tax return.
The final bonus depreciation regulation will affect many business entities. If you are affected by this change, The Barnes Dennig tax team would be happy to answer your questions. Please feel free to contact a member of our team to further discuss the final bonus depreciation regulations, or call 513-241-8313 to speak with a member of our tax team.