How does the Tax Cuts and Jobs Act impact Cost Segregation and Bonus Depreciation?

The new Tax Cuts and Jobs Act has made 2018 a very busy and exciting year! This legislation coupled with a high-quality Cost Segregation Study will provide your clients with new opportunities related to 100% bonus depreciation on newly constructed and purchased properties alike. However, bonus depreciation for the Improvement Property categories took a step backwards due to an apparent oversight in the final bill.

The return of 100% bonus depreciation/expensing is a major win. The real coup is for the first time, the benefit of bonus depreciation will translate to purchased property! Yes, bonus depreciation on purchased buildings, and yes, 100% Bonus! To qualify for 100% bonus, buildings (purchased or newly constructed) must be placed in service after September 27, 2017. Starting January 1st, 2023 bonus depreciation lowers to 80% and will be reduced in 20% increments every year until it is fully eliminated in 2027. Like the last time we had 100% bonus, transition rules and binding contract rules apply.

Due to a drafting error, the TCJA’s effort to simplify and create 100% bonus for Qualified Improvement Property did not come off as planned. First, the new legislation consolidated the categories of Qualified Leasehold Improvements (QLI), Qualified Retail Improvements (QRI), Qualified Restaurant Improvements (QRP), and Qualified Improvement Property (QIP) into a single Qualified Improvement Property (QIP) designation – Congress did make this change. Second, Congress transferred the definition of QIP out of the bonus depreciation subsection intending to give it a 15-year recovery period (previously a 39-year recovery period), therefore eligible for 100% bonus – Congress did not make this change. A technical correction is hoped for later this year, but until then, Qualified Improvement Property will continue to have a 39-year life.

It is now more important than ever to work with qualified cost segregation providers—not all providers or their reports are created equal! The engineers and professionals at The Jennings Denovich Group (JDG) have provided high-quality cost segregation services for nearly two decades. Considered among the best in the industry, The JDG professionals actively work with accounting firms and their clients to navigate the often-confusing maze of changing tax rules and regulations.

We at The Jennings Denovich Group look forward to the opportunity to provide you with high-quality Cost Segregation Studies. After all, it’s our commitment to quality that sets us apart from others. For more information, please visit our website at or call us at (678) 999-8702 or (678) 999-8714.