Congress created the qualified improvement property category in the Tax Cuts and Jobs Act with the idea that you could fully expense such qualified property with bonus depreciation.
But Congress made an error in the law, and now you can’t use bonus depreciation for qualified improvement property.
This means that until we get a technical correction to the law, qualified improvement property is ineligible for bonus depreciation. That’s a problem. But you can thank Section 179 for the possibility you could still expense that property this year. Here are the Section 179 rules that apply:
- Limits on deduction. The law limits your Section 179 deduction to $1 million per year in 2018. There is no limit on bonus depreciation.
- Phase-out of deduction. The new law phases out your Section 179 deductions if your total Section 179 property placed in service exceeds $2.5 million in 2018. There is no phase-out of bonus depreciation.
- No losses allowed. Your Section 179 deduction can’t exceed your aggregate net taxable business income, and any excess Section 179 deduction carries to the next tax year.
It’s clear in the conference report that Congress wanted your qualifying improvement property to be 15-year MACRS property eligible for both bonus depreciation and Section 179 expensing. But the drafting error left qualifying improvement property as 39-year MACRS property.
Right now, Section 179 is your best (and only) option to expense 100 percent of your qualified improvement property unless Congress fixes the error it made.
We expect a technical correction to address this oversight.
If you would like to discuss this topic further please do not hesitate to reach out to your team at Luster Tax Consulting.