In response to technical corrections made by the Coronavirus Aid, Relief and Economic Security (CARES) Act, the IRS has provided guidance allowing a taxpayer to change its depreciation under Internal Revenue Code (IRC) Section 168 for qualified improvement property placed in service by the taxpayer after December 31, 2017, in its taxable year ending in 2018 (2018 taxable year), 2019 (2019 taxable year), or 2020 (2020 taxable year), in response to technical corrections made by the CARES Act. The revenue procedure also allows a taxpayer to make a late election, or to revoke or withdraw an election, under IRC Section 168(g)(7), IRC Section 168(k)(5), IRC Section 168(k)(7), or IRC Section 168(k)(10) for the taxpayer’s 2018 taxable year, 2019 taxable year, or 2020 taxable year, respectively.
The Tax Cuts and Jobs Act of 2017 (TCJA) amended IRC Section 168 to allow 100% additional first-year depreciation deductions (100% Bonus Depreciation) for certain qualified property. The TCJA eliminated pre-existing definitions for (1) qualified leasehold improvement property, (2) qualified restaurant property, and (3) qualified retail improvement property. It replaced those definitions with one category called qualified improvement property (QIP). A general 15-year recovery period was intended to have been provided for QIP. However, that specific recovery period failed to be reflected in the statutory text of the TCJA. Thus, under the TCJA, QIP fell into the 39-year recovery period for nonresidential rental property, thereby making it ineligible for 100% Bonus Depreciation.
The Act provides a technical correction to the TCJA, and specifically designates QIP as 15-year property for depreciation purposes. This makes QIP a category eligible for 100% Bonus Depreciation. QIP also is specifically assigned a 20-year class life for the Alternative Depreciation System. The amendments made by CARES Act are effective for property placed in service after December 31, 2017.
The Revenue Procedure permits taxpayers to file an amended return, or a Form 3115, Application for Change in Accounting Method, to change their depreciation of certain qualified improvement property placed in service after December 31, 2017, in the taxpayers’ 2018, 2019, or 2020 taxable year.
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