I blogged in the recent past regarding an issue with the new Tax Cuts and Jobs Act (TCJA) tax bill in which Qualified Improvement Property (QIP) was erroneously categorized as 39-year property, whereas the intention was to keep these assets as 15-year property with the added benefit of being 100% bonus eligible. Thus, not only were companies surprised that the QIP is not bonus eligible, but the double hit is that the TCJA actually put companies in a more disadvantageous position given that QIP previously was depreciable over 15 years.
We recently learned that over 100 retailers and restaurant companies wrote to Congress to request a fix to the QIP provision, which indicates that there is activity pushing for a correction. While there is no guarantee that a fix will be implemented, at A&M, we recommend two steps: 1) continue to separately identify QIP in case there is a retroactive fix, and 2) conduct a cost segregation study given this can accelerate depreciation (which can provide a benefit whether or not QIP is bonus eligible).
More than 100 retailers, restaurant companies, and their industry groups recently wrote to leaders of the House Ways and Means and Senate Finance committees to ask them to correct the expensing provision. Because of the drafting error, certain taxpayers can only write off 2.5 percent of their improvement costs in the year the expenditures are made and 97.5 percent over the remaining 38 years, as opposed to writing off 100 percent of the cost in the year the expenditures are made, the groups said in a June 5 letter. “This very large difference in the after-tax cost of making improvements is causing a delay in some store and restaurant remodeling projects, as well as causing some retailers to decline opportunities to purchase or lease new store locations that would require substantial improvements.”