163(j) bonus depreciation

Legislative Sessions: Overview of IRC 163(j) Executive Committee Task Force on State and Local Taxation Scottsdale, Arizona November 17, 2018 •However, most states decouple from federal bonus depreciation rules under IRC 168(k). •If these states conform to 163(j), companies would be denied immediate expensing on

The IRS issued proposed regulations providing guidance on Sec. 168(k), which was amended by P.L. 115-97, known as the Tax Cuts and Jobs Act, to increase the allowable first-year depreciation deduction for qualified property from 50% to 100%.

If a partnership or S corporation is not subject to section 163(j) by reason of proposed section 1.163(j)-2(d) ($25 million gross receipts test), the exempt entity is not required to perform the business interest expense limitation calculations under proposed sections 1.163(j)-2(b) and 1.163(j)-6.

Then, apply bonus depreciation and section 179 for items ineligible under the de minimis rules, considering respective eligibility and phase-out thresholds to maximize the tax benefit. Bonus versus section 179. Consideration and comparison of bonus depreciation and section 179 is critical in planning for depreciation deductions.

Revised 163(j) does not apply to certain regulated public utilities and small businesses. Taxpayers involved in a real property or farming trade or business may elect not to be subject to 163(j), but they must then depreciate property under the Alternative Depreciation System (no 100% bonus depreciation).

This new limitation applies regardless of when the loan to which the interest relates was originated and thus affects existing debt financing structures. However, certain businesses are either exempt from Sec. 163(j) or may make an irrevocable election to "opt out" of Sec. 163(j), which requires adopting a less favorable depreciation method.

The IRS’s proposed regulations (REG-106089-18) on the new limit on interest deductions under Section 163(j) would not allow taxpayers to add back depreciation capitalized under the uniform capitalization (UNICAP) rules in Section 263A in the calculation of adjusted taxable income, potentially subjecting more manufacturers to the interest limit.

However, the regulations do not clarify the new elections allowable under Sec. 163(j) relating to interest expense limitations that may impact the property that is qualified for bonus depreciation. An election out of bonus depreciation that is generally made on a class-by-class basis continues to be available. For purposes of this election, an

The new U.S. tax law (Pub. L. No. 115-97, enacted December 22, 2017) amended section 163(j) to disallow a deduction for business interest when net business interest expense exceeds 30% of adjusted taxable income (ATI) plus floor plan financing interest for …

Property used in a real property trade or business that makes an irrevocable election out of the interest expense deduction limitation under section 163(j) A business that has “floor plan financing indebtedness” – for example, a car dealership; Bonus depreciation + business use vehicles

Initial impressions of proposed regulations under section 163(j) Impressions of regulations under section 163(j) The Treasury Department released proposed regulations (REG-106089-18) relating to section 163(j) as amended by the new U.S. tax law, on Monday, November 26, 2018.

If a partnership or S corporation is not subject to section 163(j) by reason of proposed section 1.163(j)-2(d) ($25 million gross receipts test), the exempt entity is not required to perform the business interest expense limitation calculations under proposed sections 1.163(j)-2(b) and 1.163(j)-6.