The IRS has issued a revenue procedure which provides guidance under the Consolidated Appropriations Act, 2021, that retroactively provides a recovery period of 30 years under the alternative depreciation system (ADS) for certain residential rental property placed in service before January 1, 2018, held by an electing real property trade or business that has not previously been subject to the ADS. The revenue procedure explains how a taxpayer changes its method of computing depreciation for certain residential rental property and provides automatic consent procedures for changing the accounting method, and in certain cases simplified procedures, for taxpayers adopting the depreciation method changes.

Background

The Tax Cuts and Jobs Act reduced the modified accelerated cost recovery system (MACRS) alternative depreciation system (ADS) recovery period for residential rental property from 40 years to 30 years, effective for property placed in service after December 31, 2017. The 40-ADS recovery period for residential rental property placed in service before January 1, 2018, remains unchanged.

Accounting method change. A taxpayer must obtain consent before changing the depreciation method, convention, or recovery period for any asset for federal income tax purposes, whether or not the taxpayer’s present method of accounting is proper.

Please call our office to discuss your situation related to a change in the accounting method for depreciation for certain residential rental property. We are here to assist you.