IRS Provides Clarification for Bonus Depreciation and Section 179 Expensing

by Anita Anand, JD

The Internal Revenue Service recently released Revenue Procedure 2017-33, which clarifies certain provisions pertaining to federal bonus depreciation and Section 179 expensing created by the Protecting Americans From Tax Hikes of 2015 (PATH Act).

The PATH Act extended several depreciation provisions and made several changes and modifications to the provisions under the bonus depreciation and Section 179 expensing rules. These changes created uncertainty for taxpayers and this recent guidance is an attempt to help clarify these provisions and reduce the uncertainty surrounding them.

The key provisions of Revenue Procedure 2017-33 are summarized below:

Bonus Depreciation for Qualified Improvement Property:

The PATH Act created Qualified Improvement Property as a new category of property eligible for bonus depreciation.  This specific type of property is eligible for such bonus depreciation if placed in service after 2015.  The guidance clarifies that the term “placed in service” means the first time the building is placed in service by any person.  The guidance further provides helpful examples to clarify the IRS’ interpretation of the rules.

Election Out of Bonus Depreciation and Alternative Minimum Tax (AMT):

The guidance clarifies that even though a taxpayer may elect out of bonus depreciation for a particular class of property, the property retains its status as “qualified property,” and as such, depreciation deductions are not subject to AMT adjustment.  Therefore, it appears that the key determination is whether the property qualifies for bonus depreciation, not necessarily whether bonus depreciation is taken.  There are special rules for 2015/2016 fiscal year taxpayers.

Section 179 Election on Amended Returns:

The guidance clarifies that for any taxable year beginning after 2014, a taxpayer may make a Section 179 election for qualifying property on an amended federal tax return without the Commissioner’s consent.  The Treasury Department and IRS intend to amend the relevant tax regulations to incorporate this guidance.  Until then, taxpayers can rely on the guidance outlined in this Revenue Procedure.

Air Conditioning or Heating Units Qualifying for Section 179 Expensing:

The guidance clarifies that air conditioning or heating units qualify as Section 179 property if the units are Section 1245 property.  For example, the IRS guidance provides that portable air conditioners, such as window air conditioning units and portable heaters, placed in service by the taxpayer after 2015 may qualify as Section 179 property.  The guidance further clarifies that if a component of a central air conditioning or heating system of a building meets the definition of real property, the component may qualify as Section 179 property if the Section 179(f) election is made and the component is placed in service after 2015.

For more information about these provisions and how they might impact you, contact your Brady Ware tax advisor today:

Dayton – 800.893.4283

Columbus – 866.502.8555

Richmond – 800.515.5536

Atlanta – 404.257.9475 or 770.458.5000

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