The IRS has issued guidance to address legislative changes in the CARES Act. QIP placed in service in 2018 and later is now eligible for bonus depreciation and has a GDS life of 15 years (20-years ADS).
The CARES Act, signed into law on March 27, 2020, contained a few tax surprises, including fixing the “retail glitch.” The retail glitch is the term used for language omitted in the Tax Cuts and Job Act (TCJA) that would have made QIP eligible for bonus depreciation. Under the TCJA, QIP placed in service after December 31, 2017, had a GDS estimated life of 39 years (40 years for ADS).
Since the CARES Act retroactively amends the TCJA for the tax treatment of QIP, the IRS needed to address:
On April 17, 2020, the IRS issued Revenue Procedure 2020-25 to offer guidance in these areas for taxpayers who placed QIP in service for the tax years 2018, 2019, and 2020. In addition, bonus depreciation election/revocation relief is provided for these tax years.
Section 3 of Rev Proc 2020-25 covers changing the depreciable life of QIP, but does not apply to:
Section 4 covers the extension of time to file certain elections (i.e. late election) for bonus depreciation and ADS. Section 5 allows for the late revocations for bonus depreciation and ADS. Both of these sections address the option for making late elections or revocations for qualifying property placed in service 2018, 2019, 2020:
Most taxpayers have two options: file amended tax returns or do a change in accounting method by filing a Form 3115. Since the rules for partnerships can be more complex, review Rev Proc 2020-25 and Rev Proc 2020-23 for more detailed information.
If you want to know more about Section 481(a) adjustments and Form 3115 as well as a broad discussion on options for adjusting filed tax returns or returns yet to be filed, see How the CARES Act Changes QIP and Tax Returns.
For information about how to make QIP adjustments in Sage Fixed Assets – Depreciation, see Breaking News: Qualified Improvement Property Now Has a 15-year Life!
Note: The list of DCNs (Designated automatic accounting method change number) appear at the end of the Form 3115 Instructions. As of April 24, 2020, the instructions had not been updated.