Wednesday, September 18, 2019

New Final and Proposed TCJA 100% Bonus Depreciation Regs Effective Dates

Today, the Federal Register's Public Inspection desk published advance copies of Treasury Decision 9874 and REG-106808-19, final bonus depreciation regulations and new, proposed bonus depreciation regulations, respectively. These regulation packages are scheduled to be published in the Federal Register on September 24, 2019.

Final Regulations Effective Date

The final regulations will be effective when published in the Federal Register, which is scheduled to be on September 24, 2019.

Proposed Regulations Reliance Date

The proposed regulations provide that taxpayers may rely on them prior to the eventual publication of final regulations in the Federal Register. If a taxpayer chooses to rely on these proposed regulations, they must rely on these proposed regulations in their entirety, i.e. there is no picking and choosing provisions upon which to rely. The different provisions in the proposed regulations have slightly different effective dates for reliance.

  • The General Rule. Taxpayers may rely on these regulations for qualified property acquired and placed in service or planted or grafted after September 27, 2017 for taxable years ending on or after September 28, 2017.
  • The Rule for Components. If a taxpayer constructs a larger, self-constructed property and the manufacture, construction, or production began before September 28, 2017, taxpayers may rely on these proposed regulations for components that are qualified property acquired or self-constructed after September 27, 2017 in taxable years ending on or after September 28, 2017.

Impact of the Effective Dates

Because these regulation packages will be published in between the 9/16 and 10/15 deadlines, tax practitioners may need to discuss the disparate impact of these regulations on pass-through entities and C corporations/individuals. For example, consider an individual taxpayer that treated all floor plan financing interest as taken into account and the taxpayer owns both C- and S-corp auto dealerships. The entity returns have or will be filed at the extended filing deadlines. In this situation, the S-corp returns may have different filing positions for 2018 due to the unavailability of these new proposed regulations at the 9/16 filing deadline! How can this be fixed?

For some issues, such as claiming bonus depreciation for auto dealerships above the interest cap by permanently forgoing interest deductions, taxpayers may need to amend their previously filed 2018 tax returns. For other areas, taxpayers may be able to amend their 2018 tax returns or file a Form 3115, Application for Change in Accounting Method under the previously issued Rev. Proc. 2019-33 to make certain late elections or revoke certain elections under the TCJA bonus depreciation rules. In many other areas, taxpayers may be able to file a Form 3115 under the one-year rule of section 6.01 of Rev. Proc. 2018-31 with their 2019 tax returns to comply with these regulations. This would apply to the example in the previous paragraph. Alternatively, the taxpayer could amend their 2018 return prior to filing their 2019 return.

If you need assistance with these issues, please feel free to reach out to me. My contact information can be found here.