The bonus depreciation criteria, as outlined in the provided excerpts, encompass several key elements that determine whether property qualifies for bonus depreciation under section 168(k) of the Internal Revenue Code and related regulations and guidance. These criteria include:
- Qualified Property: To be eligible for bonus depreciation, the property must be "qualified property" as defined under section 168(k)(2)(A). This generally includes property with a recovery period of 20 years or less, to which section 168 applies.
- Acquisition and Placement in Service Dates: Qualified property must be acquired by the taxpayer after September 27, 2017, and before January 1, 2023 (or after December 31, 2022, and before January 1, 2027, for certain property with a long production period and certain aircraft). The property must be placed in service by the taxpayer within these dates to qualify for 100 percent bonus depreciation.
- Exclusions: Certain types of property are not eligible for bonus depreciation. This includes property required to be depreciated under the Alternative Depreciation System (ADS), tax-exempt use property to the extent of a tax-exempt entity's proportional share, and property for which the taxpayer elects not to deduct the additional first year depreciation.
- Substantially Renovated Property: Property that has been substantially renovated may qualify for bonus depreciation even if the taxpayer had a prior depreciable interest in the property before renovation. A property is considered "substantially renovated" if the cost of the used parts is less than or equal to 20 percent of the total cost of the post-renovation property.
- Self-Constructed Property: The acquisition date for self-constructed property, including third-party constructed property, is the date when substantial construction begins. This is a departure from the interpretation that such property is acquired pursuant to a written binding contract.
- Elections: Taxpayers have the option to make late elections or revoke elections under sections 168(k)(5), (7), or (10) for certain property acquired after September 27, 2017. These include electing to deduct additional first year depreciation for certain plants, electing not to deduct additional first year depreciation for any class of qualified property, and electing to deduct 50-percent, instead of 100-percent, additional first year depreciation for certain qualified property.
- Physical Work of a Significant Nature: For property to be considered acquired for bonus depreciation purposes, physical work of a significant nature must begin. Preliminary activities such as planning or designing do not count towards this requirement. A safe harbor rule allows physical work of a significant nature to be considered as begun when more than 10 percent of the total cost of the property is incurred by an accrual basis taxpayer or paid by a cash basis taxpayer.
- All Events Test and Economic Performance Requirement: Costs are considered incurred when they meet the all-events test and the economic performance requirement. This is met when all events have occurred that determine the fact of a liability and the amount of the liability can be determined with reasonable accuracy.
In summary, the bonus depreciation criteria involve a combination of the type of property, its acquisition and placement in service dates, specific exclusions, elections available to taxpayers, the commencement of substantial construction for self-constructed property, and the satisfaction of the all-events test and economic performance requirement for incurring costs.
Sources:
§ 168. Accelerated cost recovery system
§ 1.168(k)-1. Additional first year depreciation deduction.
FAA 20140202F https://app.askbluej.com/source?ref=document/8wgxNjoe
Rev. Proc. 2019-33
T.D. 9874
T.D. 9916
