This week U.S. Senators Pat Toomey (R-PA) and Doug Jones (D-AL) introduced bipartisan legislation, the Restoring Investment in Improvements Act (S. 803), to correct a mistake in the Tax Cuts and Jobs Act that lengthened the cost recovery period for qualified improvement property (QIP).  

U.S. Senators Pat Toomey (R-PA) and Doug Jones (D-AL) introduced bipartisan legislation, the Restoring Investment in Improvements Act (  S. 803  ), to correct a mistake in the Tax Cuts and Jobs Act that lengthened the cost recovery period for qualified improvement property (QIP).

• The unintended drafting error has resulted in a significantly longer 39- or 40-year cost recovery period for most improvements to the interior of nonresidential real estate.  The intent of Congress 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.

• Prior to the law's enactment, commercial building tenants, retail store owners and restaurant owners could write off the costs of their renovations over a span of 15 years.  The legislation drafted by Sens. Toomey and Jones would allow many businesses to immediately deduct the full cost of interior renovations, and would apply retroactively to January 1, 2018. (The Hill, Mar. 14)

• The Tax Cuts and Jobs Act included a strict new limitation on the deductibility of business interest expense, but also provided an exception for an “electing real property trade or business.”  In general, taxpayers that develop, rent, manage, or operate real estate are not subject to the interest limits, but are subject to longer cost recovery periods for their real estate and real estate improvements.  The Toomey-Jones bill would ensure that the QIP of an electing real property trade or business is depreciated over 20 years, rather than 40 years.   

• Roundtable President and CEO Jeffrey D. DeBoer applauded the Senators bipartisan legislation introduced this week. “The Restoring Investment in Improvements Act ( S. 803 ) introduced by Senators Toomey and Jones is a simple and straightforward technical correction to the Tax Cuts and Jobs Act," he said.

  “The Restoring Investment in Improvements Act (S. 803) introduced by Senators Toomey and Jones is a simple and straightforward technical correction to the Tax Cuts and Jobs Act.  An acknowledged drafting error significantly lengthened the depreciation period for building improvements.  This has caused a large increase in the after-tax costs of modernizing and altering buildings of all types and uses, from shopping centers to office buildings to industrial properties and restaurants.  The result is an immediate and unnecessary drag on building investment, construction activity, and job creation, said Roundtable President and CEO Jeffrey D. DeBoer.  “Congress should act quickly to pass this legislation and reinstate a much shorter cost recovery period for building improvements.”

• In October 2018, the Roundtable along with 239 businesses and trade groups, wrote to Secretary Mnuchin urging the Treasury Department to provide taxpayers with administrative relief from the drafting error. (Roundtable Weekly, Oct. 12, 2018) 

On Thursday, Treasury Secretary Steven Mnuchin told reporters that he has discussed fixing technical errors in the 2017 tax law with congressional leaders on both sides. “This is something we’re very interested in doing. There’s a lot of demand,” he said following his testimony before the Senate Finance Committee. (Bloomberg, Mar. 14)