Bonus Depreciation and Like-Kind Exchanges

DID YOU KNOW:

Changes have been made to bonus depreciation for like-kind exchanges?

NOW THAT YOU KNOW – HERE’S WHAT IT MEANS:

Bonus depreciation for like-kind exchanges occurring between 9/28/17 and 12/31/17 will only apply to the boot paid, which is the price paid over and above the trade-in value of the relinquished property, and the adjusted basis of the old assets will not be eligible for bonus depreciation as it was under the old law.

AND HERE ARE THE DETAILS:

  • 100% bonus depreciation is available to qualifying property acquired and placed into service after 9/27/17.
  • Taxpayer can elect for property placed in service in the taxpayer’s first tax year ending after 9/27/17 to apply a 50% bonus depreciation rate to the property. (IRC Sec. 168(k)(10)(A)
  • New IRC Sec. 168(k)(2)(E)(ii) is where the acquisition requirements are found for property to be eligible for bonus depreciation.
    • 168(k)(2)(E)(ii)(l) states that such property must not have been used by the taxpayer at any time prior to such acquisition (meaning that used property can now qualify).
    • 168(k)(2)(E)(ii)(ll) states that the acquisition must meet the requirements of 179(d)(3).
      • 179(d)(3) is the part of the Sec. 179 code that states the cost of property qualifying to be Sec. 179’d does not include the adjusted basis of the old property.

Therefore, for like-kind exchanges taking place between 9/28/17 and 12/31/17, the 100% bonus depreciation (or 50% if taxpayer elects) will only apply to the boot paid in such an exchange.  The adjusted basis of the old asset will not be eligible for bonus depreciation as it was under the old rules.

Need help deciphering the tax code? Start Here.

CATEGORIES: Tax, Audit & Accounting
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