718 / What is bonus depreciation? How has tax reform legislation impacted the bonus depreciation rules?

The OBBB created an additional elective 100% depreciation deduction for certain “qualified production property”, or (QPP).  This elective additional deduction is temporary and allowed only through 2030. “QPP” is defined to include newly constructed (and some existing) non-residential real estate that is used as an “integral part” of a qualified production activity—namely, manufacturing, production, or refining of defined tangible personal property within in the United Staes.

Additional requirements include:

• The original use must begin with the taxpayer


• The property’s construction must begin after January 19, 2025 and before January 1, 2029


• The property must be placed in service before January 1, 2031

If the taxpayer has leased the property to someone else, the use by a lessee is not considered to be used by the taxpayer (as lessor) as part of a qualified production activity.  For purposes of the elective 100% deduction for QPP, the adjusted basis of the QPP will be reduced by the amount of the elective deduction before calculating the otherwise available depreciation deduction (both for the current tax year and any later tax years).  Recapture rules apply if the taxpayer ceases to use the QPP for qualified production activities during the ten-year period after the QPP is placed in service.  Qualified production activities include manufacturing, production, or refining of defined tangible personal property within in the U.S.

For certain property with longer production periods, the modified schedule that applies under the 2017 tax reform legislation was as follows: