Tax Reform Session One

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

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

3. 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.

4. 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.

5. 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

6. 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

7. 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)

8. 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

9. Like-Kind Exchanges 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.

10. Questions?? Thank you