Time Is Running Out for 100% Bonus Depreciation Election

The IRS is reminding business taxpayers that there are precious few days left to make a special deprecation election for 2017 returns. If you choose, you have until October 15, 2018 to bypass the special 100% “bonus depreciation” allowance for qualified property placed in service late last year (IR-2018-196, 10/4/18).

The Tax Cuts and Jobs Act (TCJA) authorized the 100% bonus depreciation tax break in conjunction with a host of other business tax incentives.

Specifically, the TCJA doubled the previous 50% bonus depreciation deduction to 100% for qualified property placed in service after September 27, 2018. This applies to business assets with a cost recovery period of 20 years or less and certain other types of property. Machinery, equipment, computers, appliances, furniture, certain plants and qualified film, television and live theatrical productions generally qualify. In addition, the TCJA expanded the definition of qualified property to include used, as well as new, property.

Currently, 100% bonus depreciation is scheduled to be gradually phased out, based on the following schedule:

80% for property placed in service in 2023;

60% for property placed in service in 2024;

40% for property placed in service in 2025;

20% for property placed in service in 2026.

Unless Congress takes further action, the bonus depreciation deduction disappears for good for property placed in service after 2026.

Calendar-year taxpayers who placed qualified property in service between September 28, 2017 and December 31, 2017 were able to claim 100% bonus depreciation on their 2017 returns. However, they could elect to forego this tax break on a timely-filed return. For instance, a business taxpayer may prefer to save bigger depreciation deductions for future years if 2017 was a low tax year.

Although 2017 tax returns were due to be filed by April 17, 2018, a business may have chosen to extend the filing due date until October 15, 2018. In that case, the IRS notes that you can still make the election to forego 100% bonus depreciation within the next few days. This is done by attaching a statement to the return. For details, see the instructions for Part II of Form 4562.

If you have already filed your 2017 return, the IRS says you can still claim the election by filing an amended return. The deadline for filing the election is six months after the initial deadline. For calendar-year corporations, this is October 15, 2018.