Expanded Eligibility for Bonus Depreciation
The PATH Act of 2015 (Protecting Americans from Tax Hikes) made some significant changes to the 50% bonus depreciation provisions.
by John M. Lohman, CPA
The PATH Act of 2015 (Protecting Americans from Tax Hikes) made some significant changes to the 50% bonus depreciation provisions. Under the previous rules, (which lapsed as of 12/31/14) property eligible for the 50% bonus were original use (new) fixed assets with tax recovery lives of 20 years or less. Also, specifically included in property eligible for bonus was computer software, water utility property and “Qualified Leasehold Improvement Property”.
The PATH Act retroactively reinstated the 50% bonus depreciation deduction for property placed in service in 2015, 2016 and 2017, and provided for bonus phase-downs in 2018 and 2019. The Act also replaced “Qualified Leasehold Property” with a new class of property: “Qualified Improvement Property”.
Under Internal Revenue Code §168(k), “Qualified Improvement Property” (QIP) is defined as improvements made to the interior of any nonresidential real property placed in service after the date the building was first placed in service. Specifically excluded from the definition of QIP are expenditures to enlarge a building, elevators and escalators, and additions to the internal structural framework of the building.
QIP is much more inclusive than the previous “Qualified Leasehold Improvement Property” category. Under the prior rules, bonus-eligible improvements were required to be made to a leased property at least three years old and pursuant to the terms of the lease. As with prior law, to qualify for bonus depreciation, the assets must be new and original use.
Another interesting PATH Act provision benefits farmers by allowing a 50% deduction in place of bonus depreciation for certain plants planted or grafted in the year of planting, rather than the placed-in-service year. The placed-in-service year would be a much later year in which the plants are first expected to bear fruit and be productive.
If you have questions about whether your building improvements or other assets are eligible for bonus depreciation, please contact DGN
about your specific circumstances.