Bonus Depreciation foreign property

[loboacounting]

if you buy Computer machinery in 2018 and place it in service in the united states and then in 2019 you decide to move it to Canada can you still take a bonus depreciation since it was not a foreign property in 2018? 

[itonewbie]

What kind of domestic entity transfer to what kind of foreign entity on what terms?  Both entities under common ownership?

[loboacounting]

No transfer the domestic entity open a facility in Canada due to cheaper electricity cost.

[itonewbie]

If there is no transfer and the computer will remain in the US, it will still be used predominantly in the US, how is your question relevant?

[loboacounting]

My question was now that property is being used in Canada for  2019 does that affect me using bonus depreciation in 2018

[itonewbie]

But you question says the computer was placed in service in the US and is to be moved to Canada in 2019.  If there is no transfer, how is that possible?

[loboacounting]

The LLC taxed as a sole proprietor has New York and Canada facility. Computer equipment was originally placed into service in the New York facility in 2018 and moved into the Canadian facility in 2019. It's not transferring between different entities. This is all done within the LLC.

[itonewbie]

That's the part you were not clear about.  I asked that in the first question.  In order for the facility to operate in Canada, it has to exist as an entity of some shape or form.  Are you saying there is a Canadian LLC?  If so, US LLC and Canadian LLC are separate legal entities for tax purposes by default.  CTB election, however, is possible to treat the foreign non-per se corporation as a disregarded entity for US tax purposes.  Please clarify the relationship between the US LLC and the facility in Canada.

[loboacounting]

I'm sorry that is so confusing. The computer equipment is basically a server that is set up in the facility. Based off my consulting with a Canadian accountant the use of the machinery in Canada doesn't qualify the business as operating in Canada. So it's the US LLC only. There is no Canadian LLC

[itonewbie · Accepted solution]

Since the computer equipment is a "server that is set up in the facility" in Canada, it was used predominantly outside the US as defined under §1.48-1(g)(1)(i) for purposes of §168 from the get-go.  Why was it treated otherwise to start with?

If the server was located in the US and was subsequently relocated to Canada (assuming it does not trigger PE in Canada), it would constitute a change in use and require an adjustment to how the asset should be depreciated.  You may refer to §1.168(i)-4(d) for the details and Example 3, in particular, which clearly lays out the exact treatment.

[TaxGuyBill]

But if it was "placed in service" in the US in 2018 and continued to be in the US for all of 2018, it should still qualify for Bonus in 2018.  The change in 2019 would not affect that, and if there isn't any Basis left in 2019, there wouldn't really be anything to do for 2019, right?

[sjrcpa]

Bill I think you are correct..

[itonewbie]

Actually, so long as the property qualified for bonus depreciation in the year placed in service and the use changes in the hand of the same taxpayer in a subsequent year, the bonus depreciation would not have to be redetermined pursuant to §1.168(k)-1.

In the event bonus depreciation was taken at 100% in 2018, there would no longer be any adjusted basis on which 2019 depreciation would be determined in accordance with ADS.

[legalmind]

Can a business claim Bonus Depreciation on equipment (say worth $6 Millions) which is bought by a company in USA and then leased out to a company outside the USA - bought and placed on lease in 2020?

If yes, then up to what amount can the Bonus Deduction be claimed?

Also, the provisions of S.168 pertaining to equipment predominantly used outside USA would not apply for Bonus Depreciation, isn't it?