TAX REFORM TECHNICAL CORRECTIONS
In the rush to pass tax reform, one unintentional drafting mistake has resulted in a longer cost recovery period for improvements to the interior of nonresidential real property (a category that previously covered leasehold improvements, retail improvements, and new restaurant construction).
During the drafting of TCJA, an unintended error resulted in a 39- or 40-year cost recovery period for most improvements to the interior of nonresidential real estate (a new and expanded category that previously covered leasehold improvements, retail improvements, and new restaurant construction). Congress’s intent was to allow the immediate expensing of QIP, or provide a 20-year recovery period in the case of taxpayers electing out of new limitations on the deductibility of business interest. The error means that the after-tax costs of modernizing and altering buildings of all types and uses have increased.
Bipartisan legislation introduced in both the House and Senate, the Restoring Investment in Improvements Act (H.R. 1869, S. 803), would correct the drafting mistake and ensure that the QIP of an electing real property trade or business is depreciated over 20 years, rather than 40 years. Congress should move quickly to pass the measure.
Other technical corrections supported by The Roundtable would ensure that residential rental property owned by an electing real property trade or business and placed in service before 2018 is subject to a 30-year recovery period. The law is clear that the 30-year period applies to newly acquired residential rental property, and we believe Congress intended the same 30-year period (rather than 40 years) to apply to existing holdings.
The Roundtable will continue to advocate for legislation addressing the QIP error and other technical corrections, which will lead to relief for businesses all over the country.
April 26, 2019
Business Coalition Urges Congress to Correct Cost Recovery Period for Nonresidential Real Estate Improvements
March 15, 2019
Senators Introduce Bipartisan Legislation to Correct Cost Recovery Period for Nonresidential Real Estate Improvements
October 5, 2018
Senate Democrats and House Republicans Urge Tax Policy Correction for Real Estate Improvements’ Cost Recovery Period
September 4, 2019
Cost Recovery Period for Residential Rental Property under Section 163(j)
February 26, 2019
Roundtable Asks Treasury to Clarify Real Estate Exception to New Limit on Business Interest Deductibility
October 9, 2018
Roundtable and Business Coalition Seek Administrative Relief, Shorter Cost Recovery Period for Nonresidential Real Estate Improvements
Senior Vice President & Counsel