IRS Drawing Attention to Building Placed In Service Dates

Purchasing a building or entering into a new lease space for your business may require renovations or some type of improvement before it’s ready to use. Depending on factors such as the size of your project, location and industry, the time of completion may vary. Even if construction is complete and an occupancy permit has been issued, does that mean the new asset is ready to be placed in service for tax purposes?

Bonus Depreciation Phase Out

The PATH Act of 2015 extended bonus depreciation for most assets acquired and placed in service before 2020. For tax purposes, placing your asset in service by 12/31/17 will generate the greatest depreciation deduction of 50% of the qualified property’s depreciable basis. The percentages allowed will decrease from 50% to 40% in 2018 and to 30% in 2019. Bonus depreciation is not available for most assets placed in service in 2020.

Determining Placed in Service Dates

The phase-out of accelerated depreciation may tempt many to take a position that the new asset is placed in service, when in reality, it isn’t. Be careful, as the most recent IRS Action on Decision 2017-02 describes one must be able to support the asset is placed in service when it is in a state of readiness and available to function as the intended use for which it was built or constructed. A certificate of occupancy does not always mean a building is ready and available for the specifically assigned function. In particular, buildings that are placed in service near year end in the next few years may be subject to IRS scrutiny and could possibly be disallowed accelerated deductions.

Contact an Anders Advisor to learn how your business can take advantage of these accelerated saving opportunities.