Final IRS Bonus Depreciation Rules Give Partnerships a Break

Final IRS Bonus Depreciation Rules Give Partnerships a Break

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Final guidance released Monday by the Internal Revenue Service granted partnerships a reprieve from a rule that would have limited the extent they could make use of the 2017 tax law's bonus depreciation provision.

In final regulations under Internal Revenue Code Section 168(k), the IRS said it was revoking the so-called partnership look-through rule for determining whether a partner had a previous interest in property, thereby making it ineligible for the 100% first-year depreciation deduction. Under that rule, proposed in September of last year, a partner would have been treated as having a previous interest in property if the partner belonged to a partnership at any time the partnership owned the property.

"The Treasury Department and the IRS have determined that the complexity of applying the partnership look-through rule would place a significant administrative burden on both taxpayers and the IRS," the agency said in the final guidance. "For this reason, these final regulations withdraw the partnership look-through rule."

Section 168(k) provides a 100% deduction for the cost of depreciable business assets with a recovery period of 20 years or less for the first year the property is placed in service.

Under the statute, previously owned property doesn't qualify for bonus depreciation, as a means to prevent the "churning" of assets in which an asset would be sold and later repurchased to get another 100% deduction.

In the proposed rules, the agency had said a taxpayer would not be considered to have previously owned property that it disposed of within 90 days of its being placed in service, as long as that asset was not purchased and placed in service again during the same taxable year. The agency largely affirmed that position in Monday's final rules.

"The Treasury Department and the IRS believe that property that is placed in service, disposed of, and reacquired in the same taxable year is more likely to be part of a predetermined churning plan," the agency said in its final guidance. < /p>

Taxpayers who lease qualified property to businesses are also eligible for bonus depreciation, if they meet certain criteria, the agency said in the final guidance. 

Monday's guidance also finalized rules on the application of bonus depreciation to consolidated groups.

In a previous final rule also released in September of last year, the IRS adopted a safe-harbor period of five years for companies to determine if they had a previous depreciable interest in property, which could disqualify them for the deduction.

On Monday, the agency clarified that the lookback period is limited to the time during which taxpayers or their predecessors were in existence.  

--Additional reporting by Amy Lee Rosen. Editing by Tim Ruel.


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Partnerships got a better sense of bonus depreciation rule application.

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