tax law

How TCJA Changes for Section 168(k) May Adjust

Aug 20th 2018
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The IRS has published in the Federal Register proposed regulations that provide guidance concerning the additional first year depreciation deduction under Section 168(k) of the Internal Revenue Code.

The proposal reflects changes made under the Tax Cuts and Jobs Act, and which affect taxpayers who deduct depreciation for qualified property acquired and placed into service after Sept. 27, 2017.

Comments or requests for a public hearing are due by Oct. 9 to the addresses in the notice. The proposed regulations describe and clarify the statutory requirements that must be met for depreciable property to qualify for the additional first-year depreciation deduction provided by Section 168(k).

Further, the proposed regulations instruct taxpayers how to determine the additional first-year depreciation deductions and the amount of depreciation otherwise allowable for this property. Because the Tax Cuts and Jobs Act made substantial amendments to Section 168(k), the proposed regulations update existing regulations in Internal Revenue code 1.168(k)-1 by providing a new section at Internal Revenue Code 1.168(k)-2 for property acquired and placed in service after Sept. 27, 2017 and make conforming amendments to the existing regulations.

On Dec. 22, 2017, Section 168(k) and related provisions were amended by Sections 12001(b)(13), 13201, and 13204 of the Tax Cuts and Jobs Act (TCJA) to provide further changes to the additional first-year depreciation deduction. Unless otherwise indicated, all references to Section 168(k) hereinafter are references to Section 168(k) as amended.

The proposed regulations follow Section 168(k)(2), as amended by the TCJA, and Section 13201(h) of the TCJA to provide that depreciable property must meet four requirements to be qualified property. The four requirements are:

  1. the depreciable property must be of a specified type
  2. the original use of the depreciable property must commence with the taxpayer or used depreciable property must meet the acquisition requirements of Section 168(k)(2)(E)(II)
  3. the depreciable property must be placed in service by the taxpayer within a specified time period or must be planted or grafted by the taxpayer before a specified date
  4. the depreciable property must be acquired by the taxpayer after Sept. 27, 2017.

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