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IRS Issues Revenue Procedure 2020-25 Providing Guidance on CARES Act Tax Relief for Qualified Improvement Property

One of the most significant tax provisions included in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was the classification of qualified improvement property (QIP) as 15-year property. In general, QIP is any improvement made by the taxpayer to an interior portion of a building which is nonresidential real property and placed in service by the taxpayer after the date such building was placed in service. QIP doesn’t include expenditures related to the enlargement of the building, any elevator or escalator, or the internal structural framework of the building.

The modification contained in the CARES Act retroactively corrected a drafting error in the Tax Cuts and Jobs Act (TCJA), which classified QIP as 39-year property, thus making it ineligible for the additional first year depreciation deduction (bonus depreciation) under Internal Revenue Code § 168(k). As a result of the modification, QIP placed in service by taxpayers after December 31, 2017 is now eligible for bonus depreciation.

Recognizing taxpayers’ immediate need for guidance, the IRS issued Revenue Procedure 2020-25 confirming how taxpayers may retroactively claim bonus depreciation on QIP placed in service during the 2018 and 2019 tax years. Under the Revenue Procedure, taxpayers may claim bonus depreciation on QIP placed in service in 2018 or 2019 by filing an amended return, an administrative adjustment request (AAR), or Form 3115, Application for Change in Accounting Method.

There are significant, and potentially immediate, opportunities to take advantage of these changes. If you have any questions or would like to discuss any of these changes further, please contact your Wolf & Company advisor.