rp-17-33.pdf

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26 CFR 1.168(k)-1: Additional first year depreciation.
(Also Part 1, § 179.)

Rev. Proc. 2017-33

SECTION 1. PURPOSE
This revenue procedure provides guidance under §§ 124(c)(2), 124(d), 124(e),
143(b), and 167(b) of the Protecting Americans From Tax Hikes Act of 2015 (PATH
Act), enacted as Division Q of the Consolidated Appropriations Act, 2016, Pub. L. No.
114-113, 129 Stat. 2242 (Dec. 18, 2015). Sections 124(c)(2), (d), and (e) of the PATH
Act amend § 179 of the Internal Revenue Code by (i) making permanent the treatment
of qualified real property as § 179 property under § 179(f), (ii) making permanent the
permission granted under § 179(c)(2) to revoke without the consent of the
Commissioner of Internal Revenue (Commissioner) any election made under § 179 and
any specification contained in that election, and (iii) allowing certain air conditioning or
heating units to be eligible as § 179 property under § 179(d)(1). Section 143(b) of the
PATH Act amends § 168(k) by (i) extending the placed-in-service date for property to
qualify for the additional first year depreciation deduction, (ii) modifying the definition of
qualified property under § 168(k)(2), (iii) extending and modifying the election under
§ 168(k)(4) to increase the alternative minimum tax (AMT) credit limitation in lieu of the
additional first year depreciation deduction, (iv) adding § 168(k)(5), which allows a
taxpayer to elect to deduct the additional first year depreciation for certain plants

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bearing fruits and nuts before such plants are placed in service, (v) adding § 168(k)(6),
which provides a phase down of the additional first year depreciation deduction
percentage for future taxable years, and (vi) adding § 168(k)(7), which allows a taxpayer
to elect not to deduct additional first year depreciation for any class of property. Section
167(b) of the PATH Act amends § 168(j) by adding new § 168(j)(8), which allows a
taxpayer to elect not to apply § 168(j) for any class of property. This revenue procedure
does not reflect any proposed technical corrections to the PATH Act. This revenue
procedure also does not provide guidance relating to the extension and modification of
the election under § 168(k)(4) to increase the AMT credit limitation in lieu of the
additional first year depreciation deduction. The Department of the Treasury (Treasury
Department) and the Internal Revenue Service (IRS) anticipate issuing guidance
regarding the extension and modification of the election under § 168(k)(4) in a separate
revenue procedure.
SECTION 2. BACKGROUND
.01 Modifications to § 179.
(1) Section 179(a) allows a taxpayer to elect to treat the cost (or a portion of the
cost) of any § 179 property as an expense for the taxable year in which the taxpayer
places the property in service. Section 179(b)(1) and (2) prescribe a dollar limitation on
the aggregate cost of § 179 property that can be treated as an expense under § 179(a).
The dollar limitation is the amount under § 179(b)(1) (the § 179(b)(1) limitation), reduced
(but not below zero) by the amount by which the cost of § 179 property placed in service
during the taxable year exceeds the amount under § 179(b)(2) (the § 179(b)(2)
limitation). For taxable years beginning after 2014, the § 179(b)(1) limitation is

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$500,000 and the § 179(b)(2) limitation is $2,000,000. Pursuant to § 179(b)(6), these
limitation amounts are adjusted for inflation for taxable years beginning after 2015. For
taxable years beginning in 2016, section 3.03 of Rev. Proc. 2016-14, 2016-9 I.R.B. 365,
provides that the § 179(b)(1) limitation and the § 179(b)(2) limitation, adjusted for
inflation, are $500,000 and $2,010,000, respectively. For taxable years beginning in
2017, section 3.25 of Rev. Proc. 2016-55, 2016-45 I.R.B. 707, provides that the
§ 179(b)(1) limitation and the § 179(b)(2) limitation, adjusted for inflation, are $510,000
and $2,030,000, respectively.
(2) Section 179(b)(3)(A) provides that a taxpayer’s § 179 deduction for any
taxable year, after application of the § 179(b)(1) and (2) limitations, is limited to the
taxpayer’s taxable income for that taxable year that is derived from the taxpayer’s active
conduct of any trade or business during that taxable year (taxable income limitation).
Section 179(b)(3)(B) provides that the amount of any cost of § 179 property elected to
be expensed in a taxable year that is disallowed as a § 179 deduction under the taxable
income limitation may be carried forward for an unlimited number of years and may be
deducted under § 179(a) in a future year, subject to the same limitations.
(3) If a taxpayer elects to apply § 179(f), § 179(f)(1) provides that § 179
property includes qualified real property, as defined in § 179(f)(2). Prior to amendment
by the PATH Act, § 179(f) applied to qualified real property placed in service in any
taxable year beginning in 2010, 2011, 2012, 2013, or 2014. Section 124(c)(1) of the
PATH Act extended the application of § 179(f) to qualified real property placed in
service in any taxable year beginning after 2009 and before 2016. As a result of the
amendment by § 124(c)(1) of the PATH Act, § 179(f)(3) provided that the maximum

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amount of qualified real property that may be expensed under § 179(a) for any taxable
year beginning after 2009 and before 2016 was $250,000. Further, § 179(f)(4) provided
that, notwithstanding § 179(b)(3)(B), a taxpayer that elected to apply § 179(f) and
elected to expense under § 179(a) the cost (or a portion of the cost) of qualified real
property placed in service during any taxable year beginning after 2009 and before
2016 could not carry over to any taxable year beginning after 2015 the amount of any
cost of such property that was disallowed as a § 179 deduction under the taxable
income limitation of § 179(b)(3)(A). To the extent that any § 179 deduction attributable
to qualified real property was not allowed to be carried over to a taxable year beginning
after 2015, that amount was required to be treated as an amount for which an election
under § 179 was not made and as property placed in service on the first day of the
taxpayer’s last taxable year beginning in 2015 for purposes of computing depreciation.
Rev. Proc. 2016-48, 2016-37 I.R.B. 348, provides guidance under § 124(c)(1) of the
PATH Act.
Section 124(c)(2) of the PATH Act further amends § 179(f) by making permanent
the treatment of qualified real property as § 179 property if the taxpayer elects to apply
§ 179(f). Section 124(c)(2) of the PATH Act also amends § 179(f) by striking
paragraphs (3) and (4). Section 124(g)(2) of the PATH Act provides that the
amendments made by § 124(c)(2) of the PATH Act apply to taxable years beginning
after December 31, 2015. Section 3.01 of this revenue procedure addresses the
application of these revised rules.
(4) Section 179(c) provides the rules for making and revoking elections under
§ 179 (§ 179 election). Pursuant to § 179(c)(1), a § 179 election is made in the manner

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prescribed by regulations. Prior to amendment by § 124(d) of the PATH Act,
§ 179(c)(2) provided that a § 179 election for taxable years beginning after 2002 and
before 2015 may be revoked by the taxpayer with respect to any § 179 property.
Section 1.179-5(c)(1) of the Income Tax Regulations provides that for any taxable year
beginning after 2002 and before 2008, a taxpayer is permitted to make or revoke a
§ 179 election without the consent of the Commissioner on an amended Federal tax
return for that taxable year. Section 1.179-5(c) was promulgated in 2005 and has not
been amended to reflect the extensions of § 179(c)(2) to taxable years beginning before
2015. However, in 2008, the Treasury Department and the IRS issued Rev. Proc.
2008-54, 2008-2 C.B. 722. Section 7 of Rev. Proc. 2008-54 provides that for a taxable
year beginning after 2007 and before the last year provided in § 179(c)(2) for revoking a
§ 179 election by a taxpayer for any § 179 property, the taxpayer will be permitted to
make a § 179 election on an amended return for that taxable year without the
Commissioner’s consent. Section 7 of Rev. Proc. 2008-54 further provides that until
§ 1.179-5(c) is amended to incorporate this guidance, taxpayers may rely on such
guidance.
Section 124(d) of the PATH Act amends § 179(c)(2) to make permanent the
permission granted to a taxpayer to revoke a § 179 election for any § 179 property
without the Commissioner’s consent. This amendment applies to taxable years
beginning after 2014. As a result, some taxpayers are uncertain about whether a § 179
election for taxable years beginning after 2014 may be made on an amended Federal
tax return without the Commissioner’s consent. Section 3.02 of this revenue procedure
provides the rules for making such a § 179 election.

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(5) Section 179(d)(1) defines the term “§ 179 property.” Prior to amendment by
the PATH Act, § 179(d)(1) defined § 179 property as property that is: (A)(i) tangible
property to which § 168 applies, or (ii) computer software, as defined in § 197(e)(3)(B),
that is described in § 197(e)(3)(A)(i), to which § 167 applies, and that is placed in
service in a taxable year beginning after 2002 and before 2015; (B) § 1245 property, as
defined in § 1245(a)(3); and (C) acquired by purchase for use in the active conduct of a
trade or business. Prior to amendment by the PATH Act, § 179(d)(1) further provided
that § 179 property does not include any property described in § 50(b) and does not
include air conditioning or heating units.
Section 124(b) of the PATH Act amends § 179(d)(1)(A)(ii) to make permanent
the treatment of computer software, as defined in § 197(e)(3)(B), that is described in
§ 197(e)(3)(A)(i), to which § 167 applies, as § 179 property. This amendment applies to
taxable years beginning after 2014. Section 124(e) of the PATH Act also amends
§ 179(d)(1) to allow air conditioning or heating units to be § 179 property. This
amendment applies to taxable years beginning after 2015.
Some taxpayers have inquired about what types of air conditioning or heating
units qualify as § 179 property. Section 3.03 of this revenue procedure addresses this
issue.
.02 Modifications to § 168(k).
(1) Prior to amendment by the PATH Act, § 168(k)(1) allowed a 50-percent
additional first year depreciation deduction for qualified property that, as provided by
§ 168(k)(2)(A), was acquired by a taxpayer after 2007 and placed in service by the
taxpayer before 2015 (before 2016 in the case of property described in § 168(k)(2)(B) or

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(C)). Section 143(a)(1) of the PATH Act amends § 168(k)(2)(A) by extending the
placed-in-service date to before 2016 (before 2017 in the case of property described in
§ 168(k)(2)(B) or (C)), and extending other dates in § 168(k)(2) by changing “January 1,
2015” each place it appears to “January 1, 2016.” Rev. Proc. 2016-48 provides
guidance under § 143(a)(1) of the PATH Act.
(2) Section 143(b)(1) of the PATH Act further amends § 168(k)(2) by extending
the placed-in-service date to before 2020 (before 2021 in the case of property described
in § 168(k)(2)(B) or (C)), and by modifying the definition of qualified property. As
amended by § 143(b)(1) of the PATH Act, qualified property under § 168(k)(2)(A)
includes property that is qualified improvement property instead of qualified leasehold
improvement property. The term “qualified improvement property” is defined in
§ 168(k)(3), as amended by § 143(b)(2) of the PATH Act. Further, qualified property no
longer has to meet the acquisition date requirements in § 168(k)(2)(A)(iii) as in effect
before the enactment of the PATH Act. Section 143(b)(1) of the PATH Act also
modifies the property described in § 168(k)(2)(B) and (C), including by imposing a new
acquisition date requirement, and modifies the special rules under § 168(k)(2)(E) by
deleting the related party rules in § 168(k)(2)(E)(iv) that were in effect before the
enactment of the PATH Act.
Section 143(b)(5) of the PATH Act amends § 168(k) by adding § 168(k)(6) to the
Code. It provides that the additional first year depreciation deduction percentage of 50
percent is phased down beginning for qualified property placed in service after
December 31, 2017 (after December 31, 2018, for property described in § 168(k)(2)(B)
or (C)). The percentage is 40 percent for qualified property placed in service in 2018 (in

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2019 for property described in § 168(k)(2)(B) or (C), determined by substituting “2019”
for “2020” in § 168(k)(2)(B)(i)(III) and (ii), and § 168(k)(2)(E)(i)), and is 30 percent for
qualified property placed in service in 2019 (in 2020 for property described in
§ 168(k)(2)(B) or (C)).
Section 143(b)(6)(D) of the PATH Act further amends § 168(k) by adding
§ 168(k)(7) to the Code. It allows a taxpayer to elect not to deduct additional first year
depreciation for any class of property placed in service by the taxpayer in the same
taxable year. This election is similar to the election provided under § 168(k)(2)(D)(iii) as
in effect before the enactment of the PATH Act.
Pursuant to § 143(b)(7)(A) of the PATH Act, these amendments apply to property
placed in service after December 31, 2015. Sections 4.01 through 4.04 of this revenue
procedure address the application of these revised rules.
(3) Section 143(b)(4) of the PATH Act also amends § 168(k) by adding
§ 168(k)(5) to the Code. It allows a taxpayer to elect to deduct additional first year
depreciation for any specified plant that is planted before January 1, 2020, or grafted
before that date to a plant that has already been planted, by the taxpayer in the ordinary
course of its farming business, as defined in § 263A(e)(4). If the taxpayer makes this
election, the additional first year depreciation deduction is allowable for any specified
plant for the taxable year in which that specified plant is planted or grafted and that
specified plant is not treated as qualified property under § 168(k) in the plant’s placed-
in-service year. The percentage of the additional first year depreciation deduction is
(i) 50 percent for any specified plant planted or grafted after 2015 and before 2018,

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(ii) 40 percent for any specified plant planted or grafted during 2018, and (iii) 30 percent
for any specified plant planted or grafted during 2019.
A specified plant is defined in § 168(k)(5)(B) as (i) any tree or vine that bears
fruits or nuts, and (ii) any other plant that will have more than one yield of fruits or nuts
and that generally has a pre-productive period of more than two years from the time of
planting or grafting to the time at which such plant begins bearing fruits or nuts. The
term “specified plant” does not include any property that is planted or grafted outside of
the United States.
Section 143(b)(7)(C) of the PATH Act provides that § 168(k)(5) applies to
specified plants, as defined in § 168(k)(5)(B), planted or grafted after December 31,
2015.
Section 4.05 of this revenue procedure provides procedures for making the
election to apply § 168(k)(5) (§ 168(k)(5) election). The Treasury Department and IRS
understand that some taxpayers are uncertain as to whether, if such election is made
for a specified plant, a § 179 election for the specified plant in its placed-in-service year
is based on the adjusted basis of the specified plant, or on the original cost of the
specified plant by recapturing the additional first year depreciation deduction. To
address this uncertainty, section 4.05 of this revenue procedure also clarifies how the
§ 168(k)(5) election interacts with the § 179 election.
.03 Modification to § 168(j).
(1) Section 168(j) provides that for purposes of § 168(a), the applicable
recovery period for qualified Indian reservation property is determined in accordance
with the table contained in § 168(j)(2) instead of the table contained in § 168(c). The

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term “qualified Indian reservation property” is defined in § 168(j)(4). Section 168(j) does
not apply to property placed in service after December 31, 2016.
(2) Section 167(b) of the PATH Act amends § 168(j) by redesignating
paragraph (8), as amended by § 167(a) of the PATH Act, as paragraph (9), and by
adding new paragraph (8). New § 168(j)(8) allows a taxpayer to elect not to apply
§ 168(j) for all property that is in the same class of property and placed in service in the
same taxable year (the § 168(j)(8) election). Once made, this election is irrevocable.
Section 167(c)(2) of the PATH Act provides that the amendments made by § 167(b) of
the PATH Act apply to taxable years beginning after December 31, 2015. Section 5 of
this revenue procedure provides the procedures for making the § 168(j)(8) election.
.04 Subsequent References. Unless otherwise specifically stated, all references
in the subsequent sections of this revenue procedure to § 168(k), § 168(j), and § 179
are to § 168(k), § 168(j), and § 179 as in effect after the enactment of the PATH Act.
SECTION 3. SECTION 179 EXPENSING
.01 Qualified Real Property. For any taxable year beginning after December 31,
2015, the § 179(b)(1) and (2) limitation amounts, and the carryover rules in
§ 179(b)(3)(B) and § 1.179-3(a), apply to qualified real property placed in service by the
taxpayer during that taxable year, if the taxpayer elects to apply § 179(f).
.02 Making § 179 Elections by Amended Returns. For any taxable year
beginning after 2014, a taxpayer may make a § 179 election with respect to any § 179
property without the Commissioner’s consent on an amended Federal tax return for the
taxable year in which the taxpayer places in service the § 179 property. The Treasury
Department and the IRS intend to amend § 1.179-5(c) to incorporate the guidance set

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forth under this section 3.02. Until § 1.179-5(c) is amended, taxpayers may rely on the
guidance set forth in this section 3.02.
.03 Air Conditioning or Heating Units Qualifying as § 179 Property.
(1) In general. Except as provided in section 3.03(2) of this revenue procedure,
an air conditioning or heating unit qualifies as § 179 property if such unit is § 1245
property, depreciated under § 168, acquired by purchase for use in the active conduct
of the taxpayer’s trade or business, and placed in service by the taxpayer in a taxable
year beginning after 2015. For example, portable air conditioners, such as window air
conditioning units, and portable heaters, such as portable plug-in unit heaters, that are
placed in service by the taxpayer in a taxable year beginning after 2015 may qualify as
§ 179 property under § 179(d)(1) and § 1.179-4(a). Except as provided in section
3.03(2) of this revenue procedure, an example of an air conditioning or heating unit that
will not qualify as § 179 property is any component of a central air conditioning or
heating system of a building, including motors, compressors, pipes, and ducts, whether
the component is in, on, or adjacent to a building. See § 1.48-1(e)(2).
(2) Qualified real property. If a component of a central air conditioning or
heating system of a building meets the definition of qualified real property, as defined in
§ 179(f)(2), and the component is placed in service by the taxpayer in a taxable year
beginning after 2015, the component may qualify as § 179 property if the taxpayer
elects to apply § 179(f).
SECTION 4. ADDITIONAL FIRST YEAR DEPRECIATION (§ 168(k))
.01 Qualified Property.

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(1) In general. The rules for determining whether depreciable property is
eligible for the additional first year depreciation deduction under § 168(k) are similar to
the rules in § 168(k) as in effect before the enactment of the PATH Act. However,
qualified property under § 168(k)(2)(A) includes property that is qualified improvement
property instead of qualified leasehold improvement property. Further, the acquisition
date requirement in § 168(k)(2)(A)(iii) and the related party rules in § 168(k)(2)(E)(iv),
both as in effect before the enactment of the PATH Act, do not apply. However, a new
acquisition date requirement applies for property described in § 168(k)(2)(B) or (C).
(2) Property described in § 168(k)(2)(B) or (C).
(a) Acquisition date requirement. Qualified property includes any property
described in § 168(k)(2)(B) or (C). Pursuant to § 168(k)(2)(B)(i)(III) and (C)(i), property
is described in § 168(k)(2)(B) or (C) if the property is acquired by the taxpayer before
January 1, 2020, or is acquired pursuant to a written contract entered into before
January 1, 2020, assuming all other requirements in § 168(k)(2)(B) or (C), as
applicable, are met. To determine if the acquisition date requirement is met, rules
similar to the rules in § 1.168(k)-1(b)(4) for “qualified property” or for “30-percent
additional first year depreciation deduction” apply. However, in applying § 1.168(k)-
1(b)(4), § 1.168(k)-1(b)(4)(ii)(A)-(D) and (iv) do not apply.
(b) Certain aircraft. For aircraft described in § 168(k)(2)(C), the
nonrefundable deposit requirement in § 168(k)(2)(C)(iii) is satisfied if the purchaser, at
the time of the purchase contract, has made a nonrefundable deposit of at least the
lesser of 10 percent of the cost of the aircraft or $100,000. See section 5.02 of Rev.
Proc. 2008-54.

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(3) Application of § 1.168(k)-1. For purposes of the additional first year
depreciation deduction, rules similar to the rules in § 1.168(k)-1 for “qualified property”
or for “30-percent additional first year depreciation deduction” apply to § 168(k)(2) and
(3). However, in applying § 1.168(k)-1(d)(1)(i), the computation of the allowable
50-percent additional first year depreciation deduction is made in accordance with the
rules for 50-percent bonus depreciation property and, in applying
§ 1.168(k)-1(f)(5)(iii)(A), the rules for 50-percent additional first year depreciation
deduction apply. In applying § 1.168(k)-1(c) to qualified improvement property, see
section 4.02(3) of this revenue procedure.
.02 Qualified Improvement Property.
(1) In general. Section 168(k)(3) defines the term “qualified improvement
property” as any improvement to an interior portion of a building that is nonresidential
real property if the improvement is placed in service after the date the building was first
placed in service. However, qualified improvement property does not include any
improvement attributable to the enlargement of the building, any elevator or escalator,
or the internal structural framework of the building.
(2) Building was first placed in service. For purposes of § 168(k)(3), the term
“first placed in service” means the first time the building is placed in service by any
person. See § 1.168(k)-1(c)(1)(iii). A building is first placed in service when first placed
in a condition or state of readiness and availability for a specifically assigned function,
whether in a trade or business, in the production of income, in a tax-exempt activity, or
in a personal activity. See § 1.46-3(d)(1)(ii) and (d)(2).

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(3) Application of § 1.168(k)-1(c). Rules similar to the rules in § 1.168(k)-1(c)
apply to depreciable property that is qualified improvement property. However, in
applying § 1.168(k)-1(c), § 1.168(k)-1(c)(2)(iii), (3)(ii), and (3)(vi) do not apply.
(4) Qualified restaurant property. Qualified property that is placed in service by
the taxpayer after December 31, 2015, and that meets the definition of both qualified
improvement property and qualified restaurant property, as defined in § 168(e)(7), is
eligible for the additional first year depreciation deduction under § 168(k), assuming all
other requirements in § 168(k) are met.
(5) Examples. The following examples illustrate the provisions concerning
qualified improvement property. Assume that all of the improvements in the examples
are required to be capitalized under § 263(a) and/or § 263A.
(a) Example 1 – Qualified improvement property. In 2010, A places in
service a new office building. In February 2016, A sells this office building to B at fair
market value. B uses the office building in its trade or business. In March 2016, B
begins to construct improvements to the interior portion of the office building and places
the improvements in service in December 2016. Because the office building was first
placed in service in 2010 and the improvements made by B to the interior portion of the
office building are placed in service after that date, the improvements that are § 1250
property are qualified improvement property, assuming all other requirements in
§ 168(k)(3) and § 1.168(k)-1(c), taking into account section 4.02(3) of this revenue
procedure, are met.
(b) Example 2 – Qualified improvement property. In 2015, C, a corporation
and manufacturer, enters into a written contract with X for X to construct a new building

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for use by C in its trade or business. The building will house a manufacturing operation
and office space. The initial construction plans did not include a private restroom for the
owner of C. During the construction of the building, C enters into a written contract with
Y to construct a private restroom in the new building for the owner of C. On May 27,
2016, C places in service the building, except for the private restroom. On May 28,
2016, the private restroom in the building for the owner of C is placed in service.
Because the building is first placed in service on May 27, 2016, and the private
restroom is placed in service on May 28, 2016, the assets in the private restroom that
are § 1250 property are qualified improvement property, assuming all other
requirements in § 168(k)(3) and § 1.168(k)-1(c), taking into account section 4.02(3) of
this revenue procedure, are met.
(c) Example 3 – Qualified improvement property. The facts are the same as
in Example 2, except C enters into an amendment to the existing written contract with X,
the contractor of the building, for X to construct a private restroom in the building for the
owner of C. Because the building is first placed in service on May 27, 2016, and the
private restroom is placed in service on May 28, 2016, the result is the same as in
Example 2.
(d) Example 4 – Qualified improvement property. D is engaged in the
commercial building rental business. In March 2015, D enters into a written contract
with Z to construct a multi-story building. Pursuant to this contract, Z constructs a
completely finished exterior of the building and a minimally finished interior of the
building with only elevators, heating, ventilation, and air conditioning systems, plumbing,
restrooms, and concrete floors. In December 2015, D and E entered into a lease

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agreement providing that E will lease one floor of the new building and E will install on
that floor drop ceilings, lighting, interior walls, electrical outlets, carpeting, and trade
fixtures necessary for the operation of E’s trade or business (collectively referred to as a
build-out). On February 8, 2016, D places in service the new building. On June 4,
2016, E places in service the build-out. Because the building is first placed in service
on February 8, 2016, and the build-out is placed in service after that date, the assets of
the build-out that are § 1250 property are qualified improvement property, assuming all
other requirements in § 168(k)(3) and § 1.168(k)-1(c), taking into account section
4.02(3) of this revenue procedure, are met.
(e) Example 5 – Qualified restaurant property that is qualified improvement
property. In 2016, F constructs and places in service an improvement to a restaurant
building and that improvement meets the definitions of both qualified restaurant property
under § 168(e)(7) and qualified improvement property under § 168(k)(3). Accordingly,
the improvement is eligible for the additional first year depreciation deduction provided
by § 168(k), assuming all other requirements in § 168(k) are met.
(f) Example 6 – Qualified restaurant property that is not qualified
improvement property. In 2016, G constructs and places in service a new restaurant
building and that building meets the definition of qualified restaurant property under
§ 168(e)(7). However, that building is not qualified improvement property under
§ 168(k)(3). Accordingly, the building is not eligible for the additional first year
depreciation deduction provided by § 168(k).
.03 Phase Down of Additional First Year Depreciation Deduction Percentage.
(1) In general. Pursuant to § 168(k)(6), the additional first year depreciation

17

deduction percentage of 50 percent is phased down beginning for qualified property
placed in service after December 31, 2017 (after December 31, 2018, for property
described in § 168(k)(2)(B) or (C)). The tables below provide the additional first year
depreciation deduction percentages for qualified property placed in service by the
taxpayer after 2015.
(2) Additional first year depreciation deduction percentages.
(a) The table below provides the additional first year depreciation deduction
percentages for qualified property that is not described in § 168(k)(2)(B) or (C):
Placed-in-Service Year Additional First Year Depreciation Deduction Percentage
2016 50%
2017 50%
2018 40%
2019 30%
After 2019 0%

(b) The table below provides the additional first year depreciation deduction
percentages for qualified property that is described in § 168(k)(2)(B) or (C):
Placed-in-
Service Year
Acquired, or Acquired Pursuant to
a Written Contract Entered Into:
Additional First Year
Depreciation Deduction
Percentage
2016 Before 2020 50%
2017 Before 2020 50%
2018 Before 2020 50%

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2019 Before 2019 40% *
2019 During 2019 30% *
2020 Before 2020 30% **
2020 After 2019 0%
After 2020 Before 2020 or After 2019 0%

* For qualified property described in § 168(k)(2)(B) and placed in service in 2019 but
acquired, or acquired pursuant to a written contract entered into, before 2019, the 40%
applies only to the property’s unadjusted depreciable basis attributable to the property’s
manufacture, construction, or production before January 1, 2019. See § 168(k)(2)(B)(ii)
and (6)(A) and § 1.168(k)-1(d)(1)(ii), taking into account section 4.01(3) of this revenue
procedure. For qualified property described in § 168(k)(2)(B), placed in service in 2019,
and acquired, or acquired pursuant to a written contract entered into, in 2019, the 30%
applies only to the property’s unadjusted depreciable basis attributable to the property’s
manufacture, construction, or production before January 1, 2020. For qualified property
described in § 168(k)(2)(C) and placed in service in 2019, the 30% and 40% apply to
the property’s unadjusted depreciable basis.
** For qualified property described in § 168(k)(2)(B) and placed in service in 2020 but
acquired, or acquired pursuant to a written contract entered into, before 2020, the 30%
applies only to the property’s unadjusted depreciable basis attributable to the property’s
manufacture, construction, or production before January 1, 2020. See § 168(k)(2)(B)(ii)
and (6)(B) and § 1.168(k)-1(d)(1)(ii), taking into account section 4.01(3) of this revenue
procedure. For qualified property described in § 168(k)(2)(C) and placed in service in

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2020 but acquired, or acquired pursuant to a written contract entered into, before 2020,
the 30% applies to the property’s unadjusted depreciable basis.
.04 Election Not to Deduct the Additional First Year Depreciation.
(1) In general. The rules for making the election under § 168(k)(7) not to
deduct the additional first year depreciation (the § 168(k)(7) election) are similar to the
rules for making such election under § 168(k)(2)(D)(iii) as in effect before the enactment
of the PATH Act. As a result, the § 168(k)(7) election applies to all qualified property
that is in the same class of property and placed in service in the same taxable year. If
the § 168(k)(7) election is made for a class of property that is qualified property placed
in service during the taxable year, no additional first year depreciation deduction is
allowable for that property and § 168(k)(2)(F) does not apply to that property. However,
that property is still qualified property for purposes of § 168(k), assuming all the
requirements of § 168(k)(2) are met. For example, if a calendar-year taxpayer makes
the § 168(k)(7) election for a class of property that is qualified property placed in service
during 2016, the depreciation adjustments under § 56 and the regulations under § 56 do
not apply to the property to which the election applies for purposes of computing the
taxpayer’s alternative minimum taxable income. See § 168(k)(2)(G). However, see
section 4.04(3) of this revenue procedure for how the election not to deduct the
additional first year depreciation applies to a taxpayer with a taxable year beginning in
2015 and ending in 2016.
(2) Application of § 1.168(k)-1(e). Except as provided in section 4.04(3) of this
revenue procedure, rules similar to the rules in § 1.168(k)-1(e)(2), (3), (5), and (7) apply
for purposes of § 168(k)(7).

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(3) Special rules for certain taxpayers. This section 4.04(3) applies to a
taxpayer with a taxable year beginning in 2015 and ending in 2016. If such taxpayer
makes an election not to deduct the additional first year depreciation for a class of
property that is qualified property placed in service during such taxable year, no
additional first year depreciation deduction is allowable for that property and
§ 168(k)(2)(F), as in effect before and after the enactment of the PATH Act, does not
apply to that property. The election is made under § 168(k)(2)(D)(iii) as in effect before
the enactment of the PATH Act for property placed in service in 2015 and under
§ 168(k)(7) for property placed in service in 2016. For property placed in service in
2015 to which the election applies, the depreciation adjustments under § 56 and the
regulations under § 56 apply to such property for purposes of computing the taxpayer’s
alternative minimum taxable income. See § 1.168(k)-1(e)(6). For qualified property
placed in service in 2016 to which the election applies, the depreciation adjustments
under § 56 and the regulations under § 56 do not apply to such property for purposes of
computing the taxpayer’s alternative minimum taxable income. See § 168(k)(2)(G).
.05 Special Rules for Certain Plants Bearing Fruits and Nuts.
(1) Section 168(k)(5) election.
(a) In general. The § 168(k)(5) election applies to one or more specified
plants, as defined in § 168(k)(5)(B), planted or grafted by the taxpayer during the
taxable year for which the § 168(k)(5) election is made. If a taxpayer makes the
§ 168(k)(5) election for a specified plant, (i) the additional first year depreciation
deduction provided by § 168(k) is allowed for that specified plant for regular tax and
alternative minimum tax purposes for the taxable year in which the specified plant is

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planted or grafted by the taxpayer, (ii) that specified plant is not treated as qualified
property under § 168(k) in its placed-in-service year, and (iii) the depreciation
deductions under § 168 for that specified plant, after deducting the additional first year
depreciation, are allowed for its placed-in-service year and subsequent taxable years.
Further, pursuant to § 263A(c)(7) (as added to the Code by § 143(b)(6)(H) of the PATH
Act), § 263A does not apply to any amount deducted under the § 168(k)(5) election.
(b) Time and manner for making the § 168(k)(5) election.
(i) In general. Except as provided in section 4.05(1)(b)(ii) of this revenue
procedure, the § 168(k)(5) election must be made by the due date, including extensions,
of the Federal tax return for the taxable year in which the taxpayer plants or grafts the
specified plant to which the election applies. Except as provided in section 4.05(1)(b)(ii)
of this revenue procedure, the § 168(k)(5) election must be made in the manner
prescribed on Form 4562, Depreciation and Amortization, and its instructions.
(ii) Deemed election. This section 4.05(1)(b)(ii) applies to a taxpayer that
did not make the § 168(k)(5) election for a specified plant planted or grafted by the
taxpayer after December 31, 2015, on its timely filed Federal tax return for its taxable
year beginning in 2015 and ending in 2016 or its taxable year of less than 12 months
beginning and ending in 2016. If this section 4.05(1)(b)(ii) applies, the taxpayer will be
treated as making the § 168(k)(5) election for that specified plant if the taxpayer:
(A) On that return, deducted the 50-percent additional first year
depreciation for that specified plant; and

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(B) Did not revoke the deemed election provided under this section
4.05(1)(b)(ii) within the time and in the manner provided in section 4.05(2)(b) of this
revenue procedure.
(2) Revocation of the § 168(k)(5) election.
(a) In general. Except as provided in section 4.05(2)(b) of this revenue
procedure, the § 168(k)(5) election, once made, may be revoked only with the written
consent of the Commissioner. To seek the Commissioner’s consent, the taxpayer must
submit a request for a letter ruling pursuant to Rev. Proc. 2017-1, 2017-1 I.R.B. 1 (or
successor).
(b) Automatic 6-month extension. If a taxpayer made, or would be treated
under section 4.05(1)(ii) of this revenue procedure as having made, the § 168(k)(5)
election for a specified plant, an automatic extension of 6 months from the due date,
excluding extensions, of the taxpayer’s Federal tax return for the taxable year in which
such specified plant is planted or grafted is granted to revoke that election, provided the
taxpayer timely filed the taxpayer’s Federal tax return for that taxable year and, within
this 6-month extension period, the taxpayer, and all taxpayers whose tax liability would
be affected by the § 168(k)(5) election, files an amended Federal tax return for that
taxable year in a manner that is consistent with the revocation of the election.
(3) Interaction with § 179. If a taxpayer makes the § 168(k)(5) election for a
specified plant, the adjusted basis of that specified plant is reduced by the amount of
the additional first year depreciation deduction allowed or allowable under § 168(k),
whichever is greater. This remaining adjusted basis is the cost of the specified plant for
purposes of § 179, before the application of § 179(d)(3) and § 1.179-4(d).

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SECTION 5. ELECTION NOT TO APPLY § 168(j)
.01 In General. The § 168(j)(8) election applies to all qualified Indian reservation
property, as defined in § 168(j)(4), that is in the same class of property and placed in
service in the same taxable year. If the § 168(j)(8) election is made for a class of
property that is qualified Indian reservation property placed in service during the taxable
year, the applicable recovery period for that property for purposes of § 168(a) is
determined in accordance with the table contained in § 168(c), and the depreciation
adjustments under § 56 and the regulations under § 56 apply to that property for
purposes of computing the taxpayer’s alternative minimum taxable income. Once
made, the § 168(j)(8) election is irrevocable.
.02 Definition of Class of Property. For purposes of § 168(j)(8) and this section 5,
the term “class of property” means each class of property described in the table
contained in § 168(j)(2) (for example, 3-year property).
.03 Time and Manner for Making the § 168(j)(8) Election.
(1) In general. Except as provided in section 5.03(2) of this revenue procedure,
the § 168(j)(8) election must be made by the due date, including extensions, of the
Federal tax return for the taxable year in which the taxpayer places in service the
qualified Indian reservation property. Except as provided in section 5.03(2) of this
revenue procedure, the § 168(j)(8) election must be made in the manner prescribed on
Form 4562, Depreciation and Amortization, and its instructions.
(2) Deemed election. This section 5.03(2) applies to a taxpayer that did not
make the § 168(j)(8) election within the time and in the manner provided in section
5.03(1) of this revenue procedure for a class of property that is qualified Indian

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reservation property placed in service by the taxpayer in its taxable year of less than 12
months beginning and ending in 2016. If this section 5.03(2) applies, the taxpayer will
be treated as making the § 168(j)(8) election for a class of property that is qualified
Indian reservation property if the taxpayer, on its timely filed Federal tax return for that
taxable year, determined depreciation for that class of property under the general
depreciation system of § 168(a) by using the applicable recovery period for that class of
property in accordance with the table contained in § 168(c).
SECTION 6. EFFECT ON OTHER DOCUMENTS
Section 7 of Rev. Proc. 2008-54 is obsoleted for taxable years beginning after
2014.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective April 20, 2017.
SECTION 8. DRAFTING INFORMATION
The principal author of this revenue procedure is Elizabeth Binder of the Office of
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
this revenue procedure, contact Ms. Binder at (202) 317-7005 (not a toll-free call).