Tax Reform Session One Cathy Harris Malik Javed Peter Caputo John Hoffman

Tax Reform Session One Bonus Depreciation and Proposed Rules Placed in Service Date requirements Qualified Improvement Property 1031 Like-Kind Exchanges

Bonus Depreciation Prior law: 50% Bonus on first use (new) assets with 20-year tax recovery period or less in 2017. 40% in 2018. 30% in 2019. Includes Qualified Leasehold Improvement Property (QLI), Qualified Retail Improvement Property (QRI) and Qualified Restaurant Property (QRP) with a 15-year recovery period. Qualified Improvement Property (QIP) had a 39-year recovery period but was eligible for bonus.

Bonus Depreciation New law: 100% Bonus on all assets with a tax recovery period of 20-years or less. Effective for assets placed in service on or after September 28, 2017 and before January 1, 2023. Property acquired before September 28, 2017 follows the old rules. If a written binding contract is in effect prior to that date, it is subject to the old rules. May elect out of bonus or elect 50% instead of 100% for September 28-December 31, 2017. May elect out of bonus by class.

Used Property New law: 100% Bonus on all assets with a tax recovery period of 20-years or less. Effective for assets placed in service on or after September 28, 2017. Taxpayer did not use the property at any time before acquiring it. Taxpayer acquired the property by “purchase” Must be from an unrelated party Must not have used the property before purchase Not in a carryover basis transaction (like-kind exchange) No sale/leasebacks

Placed into Service Requirements To be eligible for 100% bonus depreciation, the property must be placed into service after 9/27/2017 and before 1/1/2023 (except for LPPP, which is 1/1/2024). New regulations are generally the same as existing placed into service rules outlined in 1.168(k)-1(b)(5) For new construction buildings, we generally look to the date the certificate of occupancy was issued For acquired property, we look to the “ready and available for use” standard

Acquisition Date Requirement 3 types of acquired property (historically only 2) Acquired property Property is treated as acquired on the date that a written binding contract (“WBC”) is entered. Proposed regulations retain prior binding contract definition and further clarify that a “letter of intent” is not a binding contract. Regulations provide detailed guidance on the definition of a binding contract in Reg. 1.168(k)-1(b)(4)(ii) Self constructed property using 3rd party (new) Property that is manufactured, constructed, or produced for the taxpayer by a 3rd party under a “WBC” is treated as acquired pursuant to a written binding contract. (this is a significant change!) Taxpayer-self constructed Property is acquired when the taxpayer begins manufacturing, construction or producing the property (safe harbor rules apply to determine the acquisition date)

Qualified Improvement Property Interior improvements to nonresidential real property. After the building was initially placed in service No enlargements No escalators or elevators No internal structural framework Replaces QLI, QRI, and QRP under new law

Like-Kind Exchanges Restricted solely to real property New law: Restricted solely to real property Same rules for real property exchanges apply Some debate on personal property within a real property exchange. Any property purchased in addition to the replacement property (with carryover basis) is eligible for 179 expensing (nonresidential only) and bonus depreciation, if otherwise qualified.

Questions?? Thank you