On Friday, August 3, the Treasury Department published proposed Tax Cuts and Jobs Act (“TCJA”) bonus depreciation regulations to the Federal Register’s Public Inspection Desk. Following the TCJA, these proposed regulations make substantial modifications to the bonus depreciation and §179 rules. You can read the full article here.
We have reported on some of these changes in our prior blog posts here, here, and here. As proposed, the regulations would go further than what has so far been reported.
Before discussing the changes to the bonus depreciation regulations, it is important to note that these regulations are not retroactive. These are proposed regulations. Prior to the issuance of final regulations, taxpayers may rely on these regulations for qualified property acquired and placed-in-service, (or planted and grafted), after September 27, 2017 for taxable years ending on or after September 28, 2017. Alternatively, taxpayers have the option of not applying these proposed regulations until they are published as final regulations in the Federal Register. This means if a taxpayer has taken a filing position at odds with the proposed regulations on their 2017 tax return, they do not have to amend their tax return to comply with the regulations at this time.
The proposed bonus depreciation regulations reflect the first major revision to the §1.168(k)-1 regulations in 11 years. The following bullet points provide a high-level overview of the major changes.
Property acquired under a written binding contract prior to September 28, 2017 does not qualify for 100 percent bonus depreciation under the TCJA. Treasury has chosen to extend the meaning of “written binding contract” to include written binding contracts between a taxpayer and a third-party producing property for the taxpayer, e.g. a general contractor. This means that “self-constructed” assets produced by third parties for a taxpayer will often fall under the PATH Act bonus depreciation rules in the last quarter of 2017 and beyond for long-term development projects. In effect, most construction placed-in-service in 2017 and 2018 will fall under the PATH Act and will not receive 100 percent bonus depreciation under the TCJA.
Assets acquired under §336(e) and §338 will be treated as meeting the acquired by purchase requirement of §179 and will qualify for bonus depreciation.
Remedial allocations under §704(c), the basis of property distributed under §732, and basis adjustments under §734(b) will not qualify for 100 percent bonus depreciation. If a §754 election is in effect, a basis step-up under §743(b) will qualify for 100 percent bonus depreciation as used property so long as the partner, (or its predecessor), has not previously used that specific interest in the asset. A partner’s §743(b) adjustment may qualify for bonus depreciation even if the partnership has elected out of bonus.
Qualified Improvement Property (QIP) has not been changed to address the drafting errors in the TCJA
As anticipated, QIP placed-in-service after 12/31/2017 will not have a 15-year recovery period under the new proposed regulations. Assigning a 15-year life to QIP may not be done at the regulatory level but must be addressed through a technical correction.
QIP will still NOT receive bonus depreciation after 12/31/2017.
If you have any questions about the proposed regulations, including how this guidance might impact your 2017 or 2018 placed-in-service projects, please reach out to us.
If you are dissatisfied with the changes outlined in the proposed regulations, please voice your concerns to Treasury or Congress via your respective trade associations. In some cases, such as with 15-year QIP property or the acquisition date rules for self-constructed property produced under a written binding contract, Congress may need to pass a technical corrections bill.
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 Remember that the definition of a when a contract becomes a “written binding contract” is determined at a state level.
 It is important to remember that bonus depreciation under the PATH Act has a tail. PATH Act bonus began at 50% but decreases each year after 2017 until it is eliminated in 2020. Property placed-in-service under the PATH Act in 2018 receives 40% bonus; in 2019 receives 30% bonus; and in 2020 receives no bonus depreciation.
 The 2017 Tax Cuts and Jobs Act § 13204(a)(1)(A)(i) removes former I.R.C. § 168(e)(3)(E)(iv), former I.R.C. § 168(e)(3)(E)(v), and former I.R.C. § 168(e)(3)(E)(ix), which provided a 15-year recovery period for QRP, QRIP and QLHI. QIP replaces QLHI, QRIP, and QRP for property placed-in-service after 12.31.17 but DOES NOT have a 15-year recovery period. This has been reported as a drafting error, which seems correct.
 § 13204(a)(4)(A) of the TCJA removed QIP from the list of property eligible for bonus depreciation. This may have been a drafting error but remains in effect until such time as a technical correction is issued.