The Coronavirus Aid, Relief, and Economic Security (CARES) Act contains a beneficial change in the tax rules for many improvements to interior parts of nonresidential buildings.
These improvements are referred to as qualified improvement property (QIP).
Under the Tax Cuts and Jobs Act (TCJA), any QIP placed in service after December 31, 2017 wasn’t considered to be eligible for 100% bonus depreciation. Therefore, the cost of QIP had to be deducted over a 39-year period rather than entirely in the year the QIP was placed in service. This was due to an inadvertent drafting mistake made by Congress.
However, the CARES Act was signed into law on March 27, 2020. The Act now allows most businesses to claim 100% bonus depreciation for QIP, as long as certain other requirements are met. What’s also helpful is that the correction is retroactive and it goes back to apply to any QIP placed in service after December 31, 2017. Unfortunately, improvements related to the enlargement of a building, any elevator or escalator, or to the internal structural framework of a building still do not qualify under the definition of QIP.
In the current business climate, you may not be in a position to undertake new capital expenditures — even if the improvements are needed as a practical matter and even if the substitution of 100% bonus depreciation for a 39-year depreciation period significantly lowers the true cost of QIP. But it is good to know that when you are ready to undertake qualifying improvements that 100% bonus depreciation will be available.
And, the retroactive nature of the CARES Act provision presents favorable opportunities for qualifying expenditures you have already made. Your Rudler Team can revisit prior year capital expenditures and the documentation that you’ve already provided to identify QIP expenditures.
For tax returns that have not yet been filed, we can simply reflect the favorable treatment for QIP on the return.
If you’ve already filed returns that didn’t claim 100% bonus depreciation for what might be QIP, we can investigate based on available documentation as discussed above. Your Rudler Team will evaluate your options under Revenue Procedure 2020-25, which was just released by the IRS.
If you have any questions about how you can take advantage of the QIP provision, or anything regarding the CARES Act don’t hesitate to contact your Rudler, PSC advisor at 859-331-1717.
RUDLER'S TAX MANAGEMENT & PLANNING TEAM
This week's Rudler Review is presented by Evan Kandra, Staff Accountant and Audrey Goetz, CPA, CVA.
If you would like to discuss your particular tax situation, contact Evan or Audrey at 859-331-1717.
Rudler PSC has established a Tax Management and Planning Team, a group of professionals who specialize in tax services. These highly qualified and experienced tax specialists meet on a regular basis to discuss upcoming client engagements, current issues relating to our clients and regulatory changes. Be sure to receive future Rudler Reviews for advice from our tax experts, sign up today !