1. Qualified Leasehold Improvement Property, Qualified Retail Property, and Qualified Restaurant Property are axed in favor of Qualified Improvement Property starting in 2018.
2. Electing Real Property Trades or Businesses form a new class mandatory ADS property starting in 2018.
3. Research and experimentation expenses now must be amortized over five years, unless they are for specified foreign research, in which case the period rises to fifteen years. This starts in 2022.
4. The development of new software is now defined as an R&E expense. This also starts in 2022.
5. The accrual method has been modified so that income cannot be delayed any later than when it is included for financial income reporting purposes. Rev Proc 2004-34 has been made into a statute. These rules apply starting in 2018.
6. Interest is now limited to the business interest income plus 30% of the adjusted taxable income of the taxpayer plus the floor plan finance interest of the taxpayer. Small taxpayers that meet the $25 million test are exempt from this limit.
7. The Section 199 DPAD is repealed.
Friday, December 15, 2017
If you don't have it already, you can find the bill here.
2. Increased Cash Method Availability and Related Rules. The conference report follows the House version of the bill and increases the availability of the cash method of accounting to taxpayers with $25 million or less in average annual gross receipts. This provision is now adjusted for inflation. Section 263A "UNICAP" no longer applies to taxpayers that meet the $25 million test. Similarly, section 471 is modified so that the Service may no longer force taxpayers to use inventories (and the accrual method of accounting) if they meet the $25 million test. Taxpayers who meet the $25 million test will also be allowed to treat inventory as non-incidental materials and supplies, (similar to how Revenue Procedures 2001-10 and 2002-28 currently work), OR are permitted to use an inventory method that conforms to their financial accounting method or, if they don't have financials, their book method. There will also be a similar exemption from the Percentage Completion Method for taxpayers with long-term contracts. All of these provisions will apply across entity types (including sole proprietorships) and will be available in tax years beginning after 12/31/2017.
3. 100% Expensing. Bonus depreciation goes to 100% in 2018 with a 20% per year drawdown starting in 2023. Bonus depreciation will now be available for used property not previously used by the taxpayer and that was not acquired from certain related parties or the basis of which is not determined with reference to the adjusted basis in the hands of another taxpayer (including the basis step-up of property received from a decedent). Taxpayers involved in real property trades or businesses or who have certain floorplan financing arrangements. The new 100% bonus rules generally apply for property placed-in-service after September 27, 2017 so long as the property was not acquired before September 28, 2017.