100% Bonus Depreciation Available for Qualified Improvement Property

On April 17, the IRS released Revenue Procedure 2020-25, which provides guidance that allows a taxpayer to change depreciation for qualified improvement property (QIP) under §168 of the Internal Revenue Code. The CARES Act retroactively changed the recovery period for QIP to 15 years, thus making it eligible for bonus depreciation. The new guidance permits taxpayers to file an amended return, administrative adjustment request (AAR), or Form 3115, Application for Change in Accounting Method, to change their method of depreciation in the 2018, 2019 or 2020 taxable year for QIP placed in service after December 31, 2017.

It’s important to note that Rev. Proc. 2020-25 does not apply to QIP placed in service by a taxpayer that made a late (or withdrew a) real property trade or business election under Section 163(j), but does address changes to depreciation affected by a late or withdrawn election related to the business interest deduction limitation.

Rev. Proc. 2020-25 also provides guidance related to several depreciation elections, allowing taxpayers to make a late election or revoke a prior election that was made during a tax year ending in 2018, 2019 or 2020. The following are covered:

• Elections to depreciate any class of property under the alternative depreciation system (ADS);
• Elections out of bonus depreciation for a class of property placed in service during the taxable year;
• Elections to claim bonus depreciation at 50%, in lieu of 100% for the tax year that included September 28, 2017; and
• Elections for farming businesses to apply special bonus depreciation rules to one or more plants.

For the most part, taxpayers can make late elections or revoke previously made elections described above by either filing an amended return or a Form 3115. If the taxpayer is revoking its use of the ADS method for a class a property, however, Rev. Proc. 2020-25 requires the filing of an amended tax return or an AAR.

If you’re interested in learning more about what’s described above, or any other strategies to maximize the tax benefits of real estate ownership, contact a member of the Schneider Downs Real Estate Team or email [email protected].