Cost Segregation Depreciation Benefits | FTI Consulting

Cost Segregation Studies

Now Crucial To Take Full Advantage of Additional Bonus Depreciation Benefits

Corporate Finance & Restructuring | Real Estate

July 19, 2019

With the approval of the Tax Cuts and Jobs Act (TCJA), it is critical that property owners pay closer attention to the important beneficial changes to the depreciation rules:

  • Under the new law, businesses may take advantage of bonus depreciation on both used and new qualified property. Previously, only owners and investors who constructed or purchased new property were able to benefit from bonus depreciation. This is a significant and favorable benefit for owners/purchasers of used property.
  • Under the new law, bonus depreciation of 100% can be taken in a taxpayer’s first taxable year. This change doubles the former permissible depreciation allowance.
  • Properties that can qualify for bonus depreciation benefits include those acquired and placed in service after September 27, 2017 and before January 1, 2023. Property acquired prior to September 28, 2017, but placed in service after September 27, 2017, remain eligible for bonus depreciation under pre-TCJA. Property owners must be warned that closer attention must be paid to the determination of placed-in-service dates, as these dates will be subject to IRS scrutiny.
  • Qualified property, also known as Section 1245 property, is defined as tangible personal property with a recovery period of 20 years or less and includes property that is commonly depreciated over a period of five, seven or 15 years. Properties with components that fall into this category will be the greatest beneficiaries of the new law.
  • The Modified Accelerated Cost Recovery System (MACRS) general depreciation system (GDS) recovery periods of 39 and 27.5 years for nonresidential and residential rental property will remain the same; however, the alternative depreciation system (ADS) recovery period for residential rental property has been reduced from 40 to 30 years for property placed in service on or after January 1, 2018.
  • The Act also changed Section 179 rules that apply to property placed in service in taxable years beginning after December 31, 2017. The maximum amount a taxpayer may now expense has been raised to $1 million and the investment limit was raised to $2.5 million.
  • Section 179 definition of qualified real property was expanded and now includes any improvement to a building’s interior; unless, improvements are attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework of the building. Moreover, it also includes roofs, HVAC, fire protection, alarm systems, and security systems.

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