SECTION 4. ALTERNATIVE

DEPRECIATION SYSTEM UNDER § 168(g)

.01 Recovery period of residential rental property.

(1) In general. The recovery period under the table in § 168(g)(2)(C) is 30 years for residential rental property placed in service by the taxpayer after December 31, 2017, and is 40 years for residential rental property placed in service by the taxpayer before January 1, 2018.

(2) Optional depreciation table. Below is the optional depreciation table for residential rental property placed in service by the taxpayer after December 31, 2017, and depreciated by the taxpayer under the alternative depreciation system of § 168(g) using the straight-line method, a 30-year recovery period, and the mid-month convention.

Method: Straight line

Convention: Mid-month

Recovery period: 30 years Month in the 1 ^st recovery year the property is placed in service

1 2 3 4 5 6 7 8 9 10 11 12

Year

1 3.204% 2.926% 2.649% 2.371% 2.093% 1.815% 1.528% 1.250% 0.972% 0.694% 0.417% 0.139%

2–30 3.333% 3.333% 3.333% 3.333% 3.333% 3.333% 3.333% 3.333% 3.333% 3.333% 3.333% 3.333%

31 0.139% 0.417% 0.694% 0.972% 1.250% 1.528% 1.815% 2.093% 2.371% 2.649% 2.926% 3.204%

.02 Electing real property trade or business or electing farming business.

(1) In general. Section 168(g)(1)(F) and (G) provide that the depreciation deduction provided by § 167(a) must be determined in accordance with the alternative depreciation system in § 168(g) for the following types of MACRS property (as defined in § 1.168(b)–1(a)(2)):

(a) Any nonresidential real property (as defined in § 168(e)(2)(B)), residential rental property (as defined in § 168(e)(2)(A)), and qualified improvement property (as defined in § 168(e)(6)) held by an electing real property trade or business (as defined in § 163(j)(7)(B) and the regulations thereunder); and

(b) Any property with a recovery period of 10 years or more that is held by an electing farming business (as defined in

§ 163(j)(7)(C) and the regulations thereunder). For determining what MACRS property has a recovery period of 10 years or more, the recovery period is determined in accordance with § 168(c).

(2) Changing depreciation of property to the alternative depreciation system.

(a) In general. For the first taxable year for which an electing real property trade or business or an electing farming business makes an election under § 163(j)(7)(B) or (C), respectively, and the regulations thereunder (the “election year”), that trade or business must begin depreciating the properties described in section 4.02(1) of this revenue procedure, as applicable, in accordance with the alternative depreciation system in § 168(g). The preceding sentence applies to such property placed in service by the trade or business in taxable years begin

ning before the election year (“existing property”) and such property placed in service by the trade or business in the election year and subsequent taxable years (“newlyacquired property”).

(b) Existing property. For existing property described in section 4.02(1) of this revenue procedure, as applicable, a change in use occurs under § 168(i)(5) and § 1.168(i)–4(d) for the election year as a result of the election under § 163(j)(7)(B) or (C), as applicable. Accordingly, depreciation for such property beginning for the election year is determined in accordance with § 1.168(i)–4(d). Pursuant to § 1.168(i)–4(f), a change in computing depreciation for the election year for such existing property is not a change in method of accounting under § 446(e). If any such existing property

Bulletin No. 2019–03 349 January 14, 2019

was qualified property under § 168(k) in the taxable year in which the trade or business placed the property in service, the additional first year depreciation deduction allowable for that property is not redetermined. See § 1.168(k)– 1(f)(6)(iv)(A). (c) Newly-acquired property. For newly-acquired property described in section 4.02(1) of this revenue procedure, as applicable, the taxpayer determines the depreciation in accordance with the alternative depreciation system for such property for its placed-in-service year and the subsequent taxable years. Because such newly-acquired property is required to be depreciated under the alternative depreciation system, the property is not qualified property for purposes of the additional first year depreciation deduction under § 168(k). See § 168(k)(2)(D).

(3) Failure to change to alternative depreciation system.

(a) Existing property. If an electing real property trade or business or an electing farming business does not depreciate any existing property that is described in section 4.02(1) of this revenue procedure, as applicable, under the alternative depreciation system for the election year and the subsequent taxable year then that trade or business has adopted an impermissible method of accounting for that item of MACRS property. As a result, a change from that impermissible method of accounting to the straight-line method, the applicable recovery period, and/or the applicable convention under the alternative depreciation system for the item of MACRS property is a change in method of accounting under § 446(e). See § 1.446–1(e)(2)(ii) ( d )( 2 )( i ). The taxpayer requests to make such a method change by filing Form 3115, Application for Change in Accounting Method, in accordance with the automatic change procedures or non-automatic change procedures, as applicable, in Rev. Proc. 2015–13, 2015–5 I.R.B. 419 (or any successor). If the taxpayer is eligible to make this method change under the automatic change procedures, the method change is described in section 6.05 of Rev. Proc. 2018–31 (or any successor). The § 481(a) adjustment as of the first day of the year of change is calculated as though the change in use occurred for the item of MACRS property in the election year.

(b) Newly-acquired property. If an electing real property trade or business or an electing farming business does not determine its depreciation under the alternative depreciation system for any newlyacquired property that is described in section 4.02(1) of this revenue procedure, as applicable, for its placed-in-service year and the subsequent taxable year then that trade or business has adopted an impermissible method of accounting for that item of MACRS property. As a result, a change from that impermissible method of accounting to the straight-line method, the applicable recovery period, and/or the applicable convention under the alternative depreciation system for the item of MACRS property is a change in method of accounting under § 446(e). See § 1.446–1(e)(2)(ii)( d )( 2 )( i ). The taxpayer requests to make such a method change by filing Form 3115 in accordance with the automatic change procedures or non-automatic change procedures, as applicable, in Rev. Proc. 2015–13 (or any successor). If the taxpayer is eligible to make this method change under the automatic change procedures, the method change is described in section 6.01 of Rev. Proc. 2018–31 (or any successor), provided none of the inapplicability provisions in section 6.01(1)(c) of Rev. Proc. 2018–31 (or any successor) apply. The § 481(a) adjustment as of the first day of the year of change is calculated as though the taxpayer determined depreciation under the alternative depreciation system for the item of MACRS property beginning for its placed-in-service year.