The status of Qualified Improvement Property (QIP) under the Tax Cuts and Jobs Act (TCJA) has been a topic of contention for some time, and taxpayers have long been hoping for an update.   Last Thursday we saw the first step in a journey towards the long-awaited Congressional technical correction.

On 3/14/19, U.S. Senators Pat Toomey (R-Pa.) and Doug Jones (D-Ala.) introduced the Restoring Investments in Improvements Act (RIIA), which would firmly establish the recovery period of QIP as 15-year MACRS class life.   As currently written, this bill would enact a retroactive extension through 2019.

 As regular readers remember, the architects of the TCJA intended this to be the case from the get-go.  However, there was a slight hiccup in the execution. The TCJA amended Section 168 of the tax code to establish a “new” QIP that would replace other pre-existing property categories.   Unfortunately, in a drafting error, the new QIP was never actually put into Section 168(e)(3)(E), the subparagraph that lists assets eligible for a 15-year class life.  As such, under the TCJA, QIP had to be treated as 39-year class life, unless or until Congress issued a technical correction.   

The TCJA also established 100% Bonus depreciation rate through 2022, but only assets with a MACRS class life of 20-years or fewer are eligible for Bonus. Clearly, 39-year QIP is not eligible for Bonus. 

The ramifications of this seemingly small mistake have been significant, curtailing economic growth nationwide and limiting associated employment opportunities.  Jim Fris, Pennsylvania Restaurant & Lodging Association Chairman of the Board and President & CEO of PJW Restaurant Group, expanded on the implications.  “Restaurants operate on razor thin margins and in Pennsylvania we’ve seen first-hand the impact of restaurant owners’ inability to expense safety improvements and other renovations to their businesses. It’s a deterrent, limiting the degree to which restaurants can invest, which ultimately impacts the customer experience. This proposed legislation will not only benefit restaurant owners and workers in Pennsylvania, but around the country.”

The RIIA appears to be the first step in getting the actual technical corrections bill up for a vote on the House floor. The general consensus on the Hill is that not much more will happen prior to the April tax deadline.

This bipartisan legislation is supported by a number of national organizations, including the Building Owners and Managers Association, the International Council of Shopping Centers, the National Retail Federation, and many more.  Please consider adding your voice to the thousands who support this important bill by contacting your local representatives.  (You can find them here.)

Capstan will continue to provide updates on this through our monthly Blog.

Photo by Louis Velazquez on Unsplash