What Is Rev Proc 2020-25 for Bonus Depreciation?
Learn how Rev. Proc. 2020-25 provides a formal path to change bonus depreciation elections for property placed in service after 2017, per CARES Act updates.
Revenue Procedure 2020-25 is guidance from the Internal Revenue Service (IRS) that addressed legislative changes from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act included a technical correction related to the depreciation of certain property, and this revenue procedure explained how taxpayers could apply these changes retroactively.
The primary function of Rev. Proc. 2020-25 was to allow taxpayers to make or revoke specific elections concerning bonus depreciation for property placed in service in prior tax years. This was necessary because the CARES Act altered the tax treatment of Qualified Improvement Property (QIP). The guidance detailed the methods for either claiming deductions that were previously unavailable or forgoing them, but the deadlines for using this specific relief have passed.
The CARES Act Correction and its Impact
The guidance gave particular attention to Qualified Improvement Property (QIP), which includes any improvement made by a taxpayer to the interior of a nonresidential building after the building was first placed in service. The CARES Act retroactively corrected a drafting error in the Tax Cuts and Jobs Act of 2017. This error had incorrectly assigned QIP a 39-year recovery period, making it ineligible for bonus depreciation, but the correction reduced the recovery period to 15 years, allowing it to qualify.
The bonus depreciation rate is subject to a phase-out schedule. While it was 100% for property placed in service from September 28, 2017, through the end of 2022, the rate has since decreased. For property placed in service in 2025, the bonus depreciation rate is 40%.
Past Elections Under the Revenue Procedure
The relief applied to property a taxpayer placed in service in their 2018, 2019, or 2020 taxable years. Rev. Proc. 2020-25 gave taxpayers several options.
One option was to make a late election to claim the bonus depreciation that the CARES Act correction made available. This allowed a business to go back and claim a much larger deduction for QIP in the year it was placed in service.
Conversely, a taxpayer could have used the procedure to make a late election to opt out of bonus depreciation for a particular class of property. A business might have chosen this path if taking a large upfront deduction was not beneficial, preferring instead to spread depreciation deductions over several years to offset future income.
The third option was to revoke a prior election to opt out of bonus depreciation. This was particularly relevant for taxpayers who opted out for the asset class containing QIP before the CARES Act clarified its eligibility for bonus depreciation.
The special procedures outlined in Rev. Proc. 2020-25, including the deadlines for filing amended returns under its guidance, have expired. Taxpayers who need to amend returns for prior years must now follow the general rules for amending returns.