Lindquist, von Husen & Joyce LLP.

  • About
    • Mission & Values
    • Leadership
    • BKR International
    • Our History
  • Services
    • Audit & Attestation
    • Tax
    • Business Advisory & Other Services
  • Expertise
    • Affordable Housing & Real Estate
      • CAS+ for Affordable Housing
    • Not-For-Profits
    • Individuals & Families
    • Closely Held Businesses
    • Client Success Stories
  • Resources
    • Blog
    • Tax Guide
  • News & Events
    • Firm News
    • Events
    • Industry News
  • Careers
    • Benefits
    • Professional Development
    • Life at LvHJ
    • Meet Our People
    • Open Positions
  • Contact
  • Client Portal

Client Portal

Forgot password?

Consolidated Appropriations Act Changes the ADS Depreciable Life

January 28, 2021   |   Posted in: Tax Laws

The Consolidated Appropriations Act, 2021 (CAA), signed into law on December 27, 2020 by President Trump, included provisions that shorten the depreciable life under the Alternative Depreciation System (ADS) for pre-2018 residential real estate for an IRC Sec. 163(j)(7)(A)(ii) electing real property trade or business.  For residential real estate placed in service prior to January 1, 2018, the ADS depreciable life was 40 years. CAA changes the ADS depreciable life, under certain circumstances, from 40 years to 30 years for pre-2018 residential real estate. Before we delve further into the change brought by CAA, let’s look at some background information.
 

ADS Background Information

  • Under the General Depreciation System (GDS), the depreciable life for residential real property is 27.5 years.
  • Prior to the 2017 Tax Cuts and Jobs Act (TCJA), under the Alternative Depreciation System (ADS), the depreciable life for residential real property was 40 years.
  • TCJA changed the ADS depreciable life to 30 years for residential real property placed in service after December 31, 2017.
  • TCJA introduced a rule limiting the amount of interest deduction for certain taxpayers.
  • TCJA allowed certain taxpayers to elect out of the interest deduction limitation by making a real property trade or business (RPTOB) election under IRC Sec. 163(j)(7)(A)(ii).
  • As a condition for making the RPTOB election, if the taxpayer was using the GDS-27.5 year depreciation method for residential real property, the taxpayer is required to convert the depreciation method from GDS to ADS. Prior to enactment of CAA, it would be ADS-40 year for residential real property placed in service before January 1, 2018 and ADS-30 year for properties placed in service on or after January 1, 2018. The conversion from GDS to ADS results in a longer depreciable life and hence, a lesser amount of annual depreciation expense.

Changes to the ADS Life Pursuant to CAA

The CAA is providing relief for taxpayers that made the RPTOB election and had converted the depreciation method from GDS-27.5 year to ADS-40 year. CAA is now allowing taxpayers that are making the RPTOB election to use ADS-30 year, rather than ADS-40 year, for all residential real properties that had been using GDS including those properties that were placed in service prior to January 1, 2018. The change introduced by CAA, resulting in a higher amount of annual depreciation expense, is retroactive to tax years beginning after December 31, 2017. Please note that properties which were already subject to ADS prior to the RPTOB election are not impacted by the change.  
 
At this time, there is still uncertainty on how a taxpayer should effectuate a retroactive change in depreciation. We believe a taxpayer can file an amended return or an administrative adjustment request to make depreciation changes on a prior tax return, or a taxpayer may request a change in accounting method on the 2020 tax return and pick up the “catch-up” depreciation adjustments all in the current tax year. One last option may be for the taxpayer to do nothing on the previously filed return and continue to claim depreciation using ADS-40 year on those pre-2018 properties. Hopefully, additional guidance from the Internal Revenue Service will be forthcoming soon.  
 
For changes to the RPTOB election under the CARES Act, please refer to our earlier blog, Changes to Sec. 163(j) that Impacts LIHTC Partnerships Under CARES ACT. 
 
If you have any questions about ADS or depreciation in general, please contact us at info@lvhj.com or connect with your engagement lead member directly.
 


Recent Posts

  • After the Audit: How to Assess Improvements
  • Can Total Compensation Really Make a Difference in Tax Accountant Jobs and CPA Jobs?
  • IRS Updates Tax Relief Again for California Storm Victims
  • Beware the five-year rule for Roth IRA withdrawals
  • Why You Should Get a Nonprofit Loan Right Now

Categories

  • Affordable Housing
  • Business Advisory Services
  • Case Studies
  • Charitable Giving
  • Individual Tax
  • Not For Profit
  • Professional Development
  • Tax Laws
  • Timely News
  • Uncategorized

Archives

  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • June 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017

Tags

179 accounting careers Affordable Housing affordable housing CPA alternate valuation date audit audit planning Blog Blog Post California California storm update Careers charitable donations CPA careers employees estate estate tax executor extension IRS isolation LIHTC major gifts May 2023 mental health nonprofit Not for Profit Professional Development San Francisco succession tax Tax Credit Compliance taxes tax expert california tax jobs tax planning tax reform tax relief tax services California transfer of assets valuation date wellness will workplace year 15 buyouts

Connect with us on

  • About
  • Services
  • Expertise
  • Resources
  • News & Events
  • Careers
  • Contact
  • Client Portal
©2023 Lindquist, von Husen & Joyce LLP. All Rights Reserved.