Article written by:
Kaz Unalan, CPA
Director, Tax & Business Advisory Services
On Friday, April 17, 2020, the IRS issued Rev. Proc. 2020-25 on how to take advantage of the recently enacted technical correction to the rules for Qualified Improvement Property (QIP) that was part of the CARES Act.
Within the CARES Act, Congress addressed the much anticipated “restaurant/retail glitch” associated with the 2017 Tax Cuts and Jobs Act (TCJA). This rule previously prevented investments in QIP from qualifying for bonus depreciation. With the passing of the CARES Act, the recovery period for QIP is reduced from 39 years to 15 years, thus making it eligible for 100% bonus depreciation through 2022. This change is retroactive to January 1, 2018, forward.
Under Rev. Proc. 2020-25, the IRS issued procedural guidance on three ways taxpayers can take advantage of the QIP correction on their tax returns. Certain taxpayers can elect to take 100% bonus depreciation on the qualified improvement property by filing an amended return, an Administrative Adjustment Request (AAR) under Sec. 6227, or a Form 3115, Application for Change in Accounting Method, to change their depreciation of QIP placed in service after Dec. 31, 2017, in the taxpayers’ 2018, 2019, or 2020 tax year. Based on your specific facts and circumstances, each option should be reviewed to determine the best course of action to take.