Since the Tax Cuts and Jobs Act (TCJA) raised bonus depreciation from 50% to 100% for the first year property is placed in service, many business owners have benefitted. The IRS also extended the definition of qualified property to include assets like used property. However, there are still businesses left out in the cold.
Some of the latest news on the bonus depreciation front include the following points:
- Partnership transactions can jeopardize it. While used assets have been added to the definition of qualified property, they cannot have been previously used by anyone associated with the business. This puts partner-contributed assets and property involved in mergers and similar transactions at question when it comes to eligibility. Read more here.
- Car dealerships and similar businesses were left in the lurch. The new bonus depreciation definition excluded any property used in a trade or business that benefitted from floor plan financing interest. The IRS is considering giving these businesses—mostly car dealerships—more leeway in choosing which election they want to utilize. Read more here.
- The “retail glitch” still lingers. A glaring oversight in the law’s language made qualified improvement property (QIP) ineligible for 100% bonus depreciation and, instead, subjects it to a lengthy 39-year depreciation period. QIPs include interior improvements to buildings including lighting, flooring, and fixtures. The IRS and U.S. Treasury Department recently issued final regulations stating that fixing the oversight is out of their hands and that legislative action is required instead. Read more here.
For some of these businesses, Section 179 expensing may be a great option. It was also dramatically expanded including an increased maximum deduction up to $1 million. We compiled some tips on deciding between the two elections ahead of last year’s tax season. You can read those tips here. And for other questions, feel free to contact us.