September 21, 2020
Jessica L. Jeane
Director of Public Policy and Communications
Treasury and the IRS have released the second round of final regulations implementing the 100% bonus depreciation deduction.
The final regulations (T.D. 9916), released on September 21, provide guidance regarding the additional first-year depreciation deduction under section 168(k) of the Internal Revenue Code. Generally, the final rules clarify the increased deduction and the expansion of qualified property, particularly to certain classes of used property, as amended by the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136).
The TCJA in 2017 expanded the type of property eligible for the first-year depreciation deduction and increased the deduction percentage from 50 to 100%. Subsequently, the CARES Act amended section 168(e)(3)(E) to provide that qualified improvement property is classified as 15-year property, thereby providing a 15-year recovery period under section 168(c), thus making qualified improvement property again eligible for the additional first year depreciation deduction and consistent with the original intent of the TCJA.
IRS, Treasury Withdraw Partnership Look-through Rule
Notably, the IRS and Treasury also state that the final regulations withdraw the 2019 proposed partnership look-through rule, which generally provided that a person is treated as having a depreciable interest in a portion of property prior to the person’s acquisition of the property if the person was a partner in a partnership at any time the partnership owned the property. The proposed regulations, REG-106808-19, were issued in September 2019 along with the first round of final rules (T.D. 9874) implementing the TCJA’s increased and expanded section 168(k) bonus depreciation deduction.
“The Treasury Department and the IRS have determined that the complexity of applying the Partnership Look-through Rule would place a significant administrative burden on both taxpayers and the IRS,” the final regulations state. “Therefore, under these final regulations, a partner will not be treated as having a depreciable interest in partnership property solely by virtue of being a partner in the partnership.”
The final rules issued on September 21 generally affect taxpayers who depreciate qualified property acquired and placed in service after September 27, 2017. Additionally, Treasury and the IRS plan to issue procedural guidance for taxpayers who opt to apply the final regulations in prior taxable years or to rely on the proposed regulations issued in September 2019.
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