DEPRECIATION OF REAL PROPERTY
Prior to the new legislation, qualified improvement property was only eligible for the 15-year recovery period and bonus depreciation as long as it also met the definition of a qualified leasehold improvement, a qualified retail improvement, or a qualified restaurant improvement. If the 15-year recovery period did not apply, then the qualified improvement property was depreciated over 39 years, the recovery period for a non-residential building.
For property placed in service after December 31, 2017, these different property classes have been eliminated and, according to the committee report, Congress intended to assign a 15-year recovery period for all assets considered to be qualified improvement property (defined as any improvement to an interior portion of a building which is non-residential real property, if the improvement is placed in service after the date the building was first placed into service by the taxpayer). It does not include expenditures incurred from the enlargement of a building, elevators or escalators, or any internal structural framework.
*Note: The final version of the reform bill inadvertently omits the provision which would have given a 15-year recovery period for qualified improvement property, and a technical correction will be needed to create this recovery period. Without a technical correction, all property in this category will be treated as 39-year non-residential real property, effective for property placed in service after December 31, 2017, and will not be eligible for bonus depreciation.
The ADS recovery period for residential rental property has also been reduced from 40 years to 30. The ADS recovery period for non-residential property remains at 40 years.
The limit placed on depreciation write offs for business vehicles has been increased as follows:
Year 1 — $10,000 (up from $3,160) ($18,000 if bonus depreciation is claimed)
Year 2 — $16,000 (up from $5,100)
Year 3 — $9,600 (up from $3,050)
Each subsequent year — $5,760 (up from $1,875) until the cost is fully recovered
These new limits become effective for property placed in service after December 31, 2017 and will be indexed for inflation after 2018.
The Act increases the holding period to three years for long term capital gains relating to certain partnership interests transferred in connection with the performance of services. The interest receives long-term capital gain treatment if held for at least three years and is treated as short-term gain and taxed at ordinary rates if held for fewer than three years.
DOMESTIC PRODUCTION ACTIVITIES DEDUCTION (DPAD)
This deduction has been entirely repealed as of January 1, 2018.