We have blogged frequently about an oversight in the new tax law (TCJA) that inadvertently created a disincentive for companies to invest in improvements to properties e.g. interior renovations. A recent Wall Street Journal article highlights the practical effect that is encouraging some companies e.g. restaurant chains to delay previously planned renovations. Companies therefore should be aware of the requirement to depreciate Qualified Improvement Property (QIP) over 39 years rather than the expected immediate expensing. We note that a cost segregation study is one approach to somewhat mitigate this negative effect, given a cost segregation study can reallocate some QIP costs from 39 years to shorter-lived categories and thus be eligible for immediate expensing.

Furthermore, values are affected by this oversight and most commonly impact companies including retailers, restaurants and real estate entities.  These companies could be affected by a combination of a less favorable (and unexpected) tax position and delay in capital spending that would otherwise drive revenue growth.