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Final Regulation 100% Bonus Depreciation

Final Regulations on 100% Bonus Depreciation Issued, Along With New Proposals

Final regulations for the 100% bonus depreciation allowance for qualified property acquired and placed in service after September 27, 2017, allow property which is constructed under a pre-September 28, 2017 binding contract to qualify for the 100% rate. The final regulations adopted the proposed regulations with certain modifications, including a revised constructed property rule. In addition, the IRS has issued a new set of proposed regulations awaiting finalization.

Written Binding Contract Rules

Constructed property. The proposed regulations provided that property manufactured, constructed, or produced for the taxpayer by another person, under a written binding contract entered into prior to the manufacture, etc., of the property, is acquired pursuant to a written binding contract. Therefore, if the contract was entered into before September 28, 2017, the 100% bonus rate did not apply.

That rule was eliminated in response to negative feedback. Instead the final regulations provide that such property is treated as self-constructed property, and the contract is ignored for purposes of determining when the property is deemed acquired. The acquisition date is now the date that the taxpayer begins manufacturing, constructing, or producing the property as determined under rules similar to those that apply to 50% bonus property.

Acquisition date. The final regulations provide that the acquisition date of property acquired pursuant to a written binding contract is the later of:

  • the date on which the contract is entered into;
  • the date on which the contract is enforceable under state law;
  • if the contract has one or more cancellation periods, the date on which all cancellation periods end; or
  • if the contract has one or more contingency clauses, the date on which all conditions subject to such clauses are satisfied.

Qualified Improvement Property

The IRS once again declined to make qualified improvement property placed in service after 2017 eligible for bonus depreciation. A legislative change is required to give this property its intended 15-year recovery period. With a 15-year recovery period, qualified improvement property will be eligible for bonus depreciation under the general rule that allows bonus depreciation on property with a Modified Accelerated Cost Recovery System (MACRS) recovery period of 20 years or less.

Used Property

Property previously used by the taxpayer or a predecessor of a taxpayer does not qualify for bonus depreciation if the taxpayer or predecessor had a depreciable interest in the property. The final regulations define “predecessor” as:

  • a transferor of an asset to a transferee in a transaction to which Internal Revenue Code (IRC) Section 381(a) applies;
  • a transferor of an asset to a transferee in a transaction in which the transferee’s basis in the asset is determined, in whole or in part, by reference to the basis of the asset in the transferor’s hands;
  • a partnership that is considered as continuing under IRC Section 708(b)(2);
  • the decedent in the case of an asset acquired by an estate; or
  • a transferor of an asset to a trust.

For more information about this article, please contact our tax professionals at or toll free at 844.4WINDES (844.494.6337).
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