August 15, 2020 - Douglas Myser

Path Act and IRS. The Protecting Americans from Tax Hikes Act of 2015, or path act, enacted less than a year and a half ago on Dec. 18, 2015, has generated a number of questions, some of which the IRS has recently tried to address and others that are still in need of additional guidance. As a stop gap before regulations can be issued, the IRS issued Rev Proc. 2017-33 this spring. This guidance seeks to clarify the application of several changes made by the path act to the expensing allowable under Code Sec. 179, and the bonus depreciation deduction under Code Sec. 168(k)0. Path Act and IRS.

Code Section 179 expensing. The path act deleted a provision in Code Section 179(d) that defined qualifying Section 179 property by striking "and shall not include air conditioning or heating units," effective for property placed in service in tax years beginning after 2015. Fortunately, this election does not mean what it might if read without additional context. Rev. Proc. 2017-33 clarifies that taxpayers may generally continue to expense air conditioning and heating units that qualify as  Code Sec. 1245 property, such as portable air conditioning and heating units.

The big newsmaker from the path act on bonus depreciation was that it extended depreciation but under a phase out schedule that calls for a 50 percent rate through 2017, falling to 40 percent in 2018, and 30 percent in 2019, before ending in 2020. The phase out was in part based upon the expectation that another expensing and or rate reduction regime would replace bonus depreciation well before its sunset. Many taxpayers, however, can benefit from reading beyond this headline news to take advantage of several clarifications made by Rev. Proc. 2017-33 to Code Sec. 168(k). Especially high on the list of clarifications is a timing rule involving qualified improvement property.

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