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Drafting Error in Tax Law Now Hurting Retail
Provisions included in tax overhaul legislation enacted last year are having an unintended, negative impact on the retail sector. A broad-based business coalition, that includes The Real Estate Roundtable, is urging Treasury Secretary Steven Mnuchin to correct the qualified property improvements (QIP) provision because it is causing delays in some store and restaurant remodeling projects. The group says it is also keeping some retailers from buying or leasing new store locations that would require substantial improvements.
The Real Estate Roundtable President and CEO Jeffrey D. DeBoer
Roundtable President and CEO Jeffrey DeBoer says, “In 2015, Congress voted overwhelmingly to permanently extend the 15-year recovery period for certain property improvements. By passing tax reform, Congress intended to consolidate those changes. Treasury should now use its authority to provide taxpayers with relief until a technical corrections bill is enacted. Treasury guidance will remove taxpayer uncertainty, unlock investment, and spur job-creating property upgrades and renovations.”
The situation emerged as a result of an unintentional drafting mistake in the new tax law. Congress intended to allow the immediate expensing of QIP’s, or provide a 20-year recovery period in the case of taxpayers electing out of new limitations on the deductibility of business interest. Instead, a significantly longer 39-year cost recovery period for qualified property improvements was included.
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 longer cost recovery period effectively increases the after-tax cost of upgrading and improving commercial real estate, points out The Tax Foundation.
For comments, questions or concerns, please contact Dennis Kaiser
