The IRS has released guidance related to Code Sec. 179 expensing, bonus depreciation and other related changes in the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). The guidance describes the procedures for filing amended returns and taking other actions.
Take away. The PATH Act extended and/or modified a host of extenders. Rev. Proc. 2016-48, which is effective August 26, 2016, focuses particularly on transition-type rules for Section 179 expensing and bonus depreciation.
Code Sec. 179 expensing
For tax years beginning after December 31, 2015, the treatment of qualified real property as eligible Code Sec. 179 property for the expensing allowance is made permanent. In addition, the $250,000 limitation on the amount of Code Sec. 179 property that can be attributable to qualified real property is eliminated, and the corresponding provision on carryforwards of disallowed amounts attributable to qualified real property is removed.
The IRS explained that a taxpayer that treated the amount of a 2010, 2011, 2012, 2013 or 2014 disallowed Code Sec. 179 deduction for qualified real property as property placed in service on the first day of the taxpayer’s last tax year beginning in 2014 may continue that treatment, or, if the period of limitations for assessment is open, amend its return for the last tax year beginning in 2014 to carryover the 2010, 2011, 2012, 2013 or 2014 disallowed deduction to any tax year beginning in 2015. However, if the taxpayer’s last tax year beginning in 2014 is open under the period of limitations for assessment and an affected succeeding tax year is closed under the period of limitations for assessment, the taxpayer must continue to treat the amount of a 2010, 2011, 2012, 2013 or 2014 disallowed Code Sec. 179 deduction as property placed in service on the first day of the taxpayer’s last tax year beginning in 2014.
The additional depreciation allowance (bonus depreciation) is extended by the PATH Act to apply to qualifying property placed in service before January 1, 2020 (or before January 1, 2021, in the case of certain noncommercial aircraft and property with a longer production period). The bonus rate is reduced from 50 percent to 40 for property placed in service in 2018 and to 30 percent for property placed in service in 2019.
A taxpayer may elect not to deduct additional first year depreciation for any class of property placed in service by the taxpayer during the tax year. The election not to deduct additional first year depreciation must be made by the due date, including extensions, of the federal tax return for the tax year in which the taxpayer places the property in service.
The IRS explained that taxpayers with a tax year beginning in 2014 and ending in 2015 that filed their 2014 federal tax returns before the enactment of the PATH Act may be uncertain how to claim bonus depreciation for qualified property placed in service after December 31, 2014, in tax years ending in 2015. Rev. Proc. 2016-48 provides the procedures for claiming or not claiming bonus depreciation for this property.