Policy Issues

Business Coalition Urges Treasury Secretary Mnuchin to Issue Guidance on Cost Recovery Period for Real Estate Improvements

August 22, 2018

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A broad-based business coalition that includes The Real Estate Roundtable urged Treasury Secretary Steven Mnuchin on to issue guidance clarifying certain provisions included in tax overhaul legislation enacted last year — including the cost recovery period for qualified improvement property (QIP). 
An unintentional drafting mistake in the tax law has resulted in a significantly longer 39-year cost recovery period for new, qualified nonresidential interior improvements.  Congress intended to allow the immediate expensing of qualified improvements, or provide a 20-year recovery period in the case of taxpayers electing out of new limitations on the deductibility of business interest.  The drafting error affects leasehold improvements, expenditures made to improve common spaces in shopping centers and office buildings, and other interior improvements to nonresidential structures. 

The August 22 letter includes 283 signatories, who state the delay in correcting the  QIP provision is delaying some store and restaurant remodeling projects, and causing some retailers to decline opportunities to purchase or lease new store locations that would require substantial improvements.  

The coalition urges Secretary Mnuchin "to issue guidance that will facilitate the intent of the law and eliminate the imposition of large additional tax compliance and accounting burdens on taxpayers, as well as associated tax enforcement burdens on the Internal Revenue Service."