Bonus Depreciation is Still Available

Written by Steven D. Beaucaire, MST
Vice President, Tax - Bedford Capital Consulting

When it comes to taxes, sometimes it pays to be a "Monday morning quarterback". While it is well known that bonus depreciation expired for assets placed in service after December 31, 2004, there is good news. It is it is not too late to consider getting bonus depreciation on those assets by moving them into 5-year, 7-year and 15-year property. That means anyone can have a "look-back" cost segregation study done on their real property, such as office buildings, manufacturing facilities, apartment complexes, health care facilities, or hotels, to see if there are savings to be found.

For the "look back" study to be effective, there are a few factors to consider. It must be assumed that the taxpayer did not make any "election out" regarding bonus depreciation in the year the property was acquired. It must also be assumed the property otherwise qualifies for bonus depreciation. For example, it must meet the "original use" test and been placed in service within the dates specified in §168(k) for 30% or 50% bonus depreciation.

A property that is reclassified in a cost segregation study can be depreciated by selecting the appropriate bonus depreciation calculation. It can be claimed by either filing an amended return for the correct year or by taking it in the current year by filing with the return a Form 3115, Application for Change in Accounting Method. If the later is chosen, depreciation is "caught-up" by use of a §481(a) adjustment.

Whether you are looking at assets in the past or in the present, it is never too late to consider the benefits of a cost segregation study. When the game is riding on your shoulders, this is one more option to have in your playbook.