Tax Reform Cost Recovery Provisions

Cost Recovery
Provisions in Tax Reform

 

Both the House and Senate passed versions of tax reform make substantial revisions to the cost recovery provisions affecting businesses in the Internal Revenue Code (IRC). These proposed changes are outlined in the following chart.

 

Cost  Recovery Provisions in Senate and House Versions of Tax Reform

 

House

Senate

Increased Expensing for
Qualifying Property

100% immediate expensing will be allowed for qualified property placed in service after 9/27/2017 and before 1/1/2023

Increased expensing for qualifying property will be allowed as follows:

·     
100% if placed in service after 9/27/2017 and before 1/1/2023

·     
80% if placed in service after 12/31/2022 and before 1/1/2024

·     
60% if placed in service after 12/31/2023 and before 1/1/2025

·     
40% if placed in service after 12/31/2024 and before 1/1/2026

·     
20% if placed in service after 12/31/2025 and before 1/1/2027

Applicability of Increased Expensing to Used Property

Used property is eligible for the increased expensing for qualified property with certain exceptions

Maintains
the requirement that “original use” begins with the taxpayer

Applicability of Increased Expensing to Real Estate

Increased expensing provision would not apply to real property or personal property used in a “real property trade or business”

Same

Public Utility Exception to Increased Expensing

Increased expensing provision would not apply to public utility property predominately used in the trade or business of furnishing or sale of (1) electrical energy, water, and sewage disposal services (2) gas or steam through a local distribution system, or (3) transportation of gas or steam by pipeline, if the rates for such furnishing or sale are established for approved by a State (or political subdivision thereof) or the Federal Government.

Same

Section 179 Small Business Expensing

Cap is increased from
$500,000 to $5 million with phase-out starting at $20 million

Cap is increased to $1 million with phase-out starting at $2.5 million

Change in Statutory Recovery Periods for Real Property

No
Change

Under the modified accelerated cost recovery system (MACRS) the statutory recovery period for nonresidential real and residential rental property is shortened to 25 years with alternative depreciation system (ADS) recovery decreasing to 30 years for residential rental property; separate definitions of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property are eliminated with these now in a catch all category known as qualified improvement property subject to a 10-year recovery period and a 20-year ADS recovery period

Research and Experimental  Expenditures

Research and experimental expenditures must be capitalized and amortized to expense ratably over a 5-year period (15-year period for expenditures attributable to foreign research) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred; effective after 12/31/2022

Same except provision
becomes effective after 12/31/2025


About The Author

Daniel Quintana

Daniel Quintana of Kurtz & Company, P.C. in Dallas Texas. https://www.linkedin.com/in/drquintana