CARES Act & the “Retail Glitch”

April 20, 2020

The IRS on Friday released Rev. Proc. 2020-25 to provide guidance for taxpayers who may benefit from the recent correction by the CARES Act of the so-called “retail glitch” (a drafting error in the 2017 Tax Cuts and Jobs Act) as a result of which many taxpayers were denied the ability to claim additional first year depreciation deductions (“bonus depreciation”) for “qualified improvement property” placed in service after December 31, 2017. This included many interior improvements to buildings.

Section 2307 of the CARES Act amended the bonus depreciation provisions retroactively, as if such changes had been included in the TCJA. Consequently, taxpayers who placed qualified improvement property into service after December 31, 2017, but were unable to claim the additional first year depreciation deduction, may now be able to do so, and thereby claim the resulting tax savings as a refund.

Rev. Proc. 2020-25 provides taxpayers with specific instructions for taking advantage of the correction, including details on how to change their depreciation for the qualifying property.

The text of the Rev. Proc. may be found here: https://www.irs.gov/downloads/irs-drop

See also: https://www.taxlawforchb.com/2020/04/real-estate-cares-taxes-the-response-to-covid-19/