Last Chance to Correct Past Bonus Depreciation Elections

Early last year, the Coronavirus Aid, Relief and Economic Security (CARES) Act gave legislators the opportunity to make a technical correction to the 100% bonus depreciation provision in the Tax Cuts and Jobs Act (TCJA). Originally, the TCJA authorized this benefit only for new and used property with a class life of 20 years or less.

The CARES Act expanded this benefit to qualified improvement property (QIP) by designating QIP as 15-year property for depreciation purposes, retroactive to the date the TCJA was enacted (September 27, 2017).

Since then, the IRS has issued guidance for taxpayers who reported straight-line depreciation for QIP placed in service between 2018 and 2020 under the TCJA limitation. To go back and claim the bonus depreciation or to elect out of it, the IRS is allowing the correction to be made on original (not amended) returns filed on or after April 17, 2020 and on or before October 15, 2021.

Act Now to Make the Correction

This means that most calendar-year taxpayers only have until their March or April 2021 tax filing deadline to make the correction. This is important to do even if you want to elect out, since bonus depreciation is mandatory, and a return that does not claim it for property placed in service between 2018 and 2020 could be flagged as “incorrect.”

Between the CARES Act’s net operating loss (NOL) carryback benefit and the expansion of 100% bonus depreciation, taxpayers have significant lucrative incentives to take another look at past years’ returns.

Jeffrey G. Cohen Jeffrey G. Cohen, CPA is the Partner-in-Charge of Tax Services at Grassi. With over 30 years of experience, Jeff specializes in serving companies within the Manufacturing and Distribution Industry, with an emphasis on the Food & Beverage and Pharmaceutical sectors. A leading tax expert in the New York Metropolitan area, Jeff has enabled his clients to realize significant tax savings through proper Income and... Read full bio

Matthew McCullough Matthew McCullough, EA is a Tax Controversy Principal at Grassi. He works across a variety of industries including but not limited to Construction, Architecture & Engineering, Manufacturing & Distribution, Real Estate, and Not-For Profit. Matthew is proficient in tax audits for the IRS, New York State, New Jersey, Connecticut, California, Florida, Texas, and many others. His areas of specialty include sales tax audits, franchise... Read full bio