Following the passage of The Tax Cuts and Jobs Act (TCJA) last December, the IRS has proposed regulations to address the new 100 percent depreciation deduction that allows businesses to write off most depreciable business assets in the year they are placed in service.
The TCJA increased the percentage of the additional first-year depreciation deduction from 50 percent to 100 percent for property acquired after September 27, 2017. It also expanded the property eligible for the additional first-year depreciation to include certain used depreciable property and certain film, television, or live theatrical productions.
Generally, the 100 percent depreciation deduction applies to depreciable business assets with a recovery period of 20 years or less. Such assets include in part machinery, equipment, computers, appliances, and furniture. The deduction may apply to certain other property, as well.
The proposed regulations provide guidance on what property qualifies for the deduction, and rules for qualified film, television, live theatrical productions and certain plants.
Property of a Specified Type
In order to be considered qualified property, the proposed regulations require that property must be:
- MACRS property that has a recovery period of 20 years or less;
- Certain computer software;
- Certain water utility property as;
- Qualified film or television production;
- Qualified live theatrical production; or
- Specified plant for which the taxpayer has made an election
The proposed regulations provide that qualified property must be placed in service by the taxpayer after September 27, 2017, and before January 1, 2027.
For specified plants, it must be planted or grafted before January 1, 2027.
The proposed regulations also provide that qualified film or television productions be treated as placed in service at the time of initial release or broadcast. A qualified live theatrical production is treated as placed in service at the time of the initial live staged performance.
Under the proposed regulations, the property must be acquired by the taxpayer after September 27, 2017, or acquired by the taxpayer pursuant to a written binding contract after September 27, 2017.
The proposed regulations may also apply to certain property that is manufactured, constructed, or produced for the taxpayer by another person under a written binding contract prior to its use by the taxpayer in its trade or business or for its production of income.
For self-constructed property, the acquisition rules are met if the taxpayer begins manufacturing, constructing, or producing the property after September 27, 2017.
The proposed regulations provide that a qualified film or television production is treated as acquired on the date principal photography commences. Qualified live theatrical production is treated as acquired on the date when all of the necessary elements for producing the live theatrical production are secured. These elements may include a script, financing, actors, set, scenic and costume designs, advertising agents, music, and lighting.
For a specified plant to qualify, it must be planted or grafted after September 27, 2017 to a plant that has already been planted, by the taxpayer in the ordinary course of the taxpayer’s farming business.
The proposed regulations provide rules for making the election out of the additional first-year depreciation deduction. Taxpayers who elect out of the 100 percent depreciation deduction must do so on a timely filed return. Those who have already filed their 2017 return and either did not claim the mandatory deduction on qualifying property, or did not elect out but still wish to do so, will need to file an amended return.
If you have any questions regarding these rules or any other tax matters, please consult a member or our tax team.