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8C —April 26 - May 9, 2019 — Spring Preview — M id A tlantic
Real Estate Journal
Q ualified I mprovement P roperty
By Terri S. Johnson, CRE, Capstan Tax Strategies Momentum Builds Towards Congressional Technical Correction of QIP Class Life
T
he status of Qualified Improvement Prop- erty (QIP) under the
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 retroac- tive extension through 2019. This bipartisan legislation is supported by a number of national organizations, in- cluding the Building Owners and Managers Association, the International Council of Shopping Centers, the Na- tional Retail Federation, and many more.
Shortly after, on 3/26/19, Congressman Jimmy Panetta (D-CA) and Congresswoman Jackie Walorski (R-IN) intro- duced the Restoring Invest- ment in Improvements Act (H.R. 1869) in the House of Representatives. In a strong showing of bipartisan sup- port, this legislation was cosponsored by fourteen law- makers on both sides of the aisle. The architects of the TCJA intended the recovery period of QIP to be 15-year from the get-go. However, there was an error 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, curtail- ing economic growth nation- wide and limiting associated employment opportunities. Jim Fris, Pennsylvania Res- taurant & Lodging Associa- tion Chairman of the Board and President & CEO of PJW Restaurant Group, expanded on the implications. “Restau- rants 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 ren- ovations to their businesses. It’s a deterrent, limiting the degree to which restaurants can invest, which ultimately impacts the customer experi- ence. This proposed legisla- tion will not only benefit res- taurant owners and workers in Pennsylvania, but around the country.” Small businesses are also feeling the pinch of what many have begun to call the “retail glitch.” The inability to fully expense building im- provements is causing busi- nesses to delay or even turn down growth opportunities. In many cases retailers are unable to make improve- ments required to keep their businesses competitive, re- sulting a loss of market share. Safety is another concern, as currently fire sprinkler systems are qualified as 39- year QIP. The International Association of Fire Chiefs has come out strongly in favor of the technical correction, to incentivize the installation of fire sprinkler systems and lower the risk of fire death in the United States. Please consider adding your voice to the thousands who support this important legislation. Contact your lo- cal representative (you can find them at https://www. house.gov/representatives/ find-your-representative). Let’s keep this momentum going, together. Terri S. Johnson, CRE, is a co-founder and partner at Capstan Tax Strategies. Terri works closely with commercial real estate owners and accounting firms to provide practical, creative, and customized engineering-based tax solutions.
T a x C u t s a n d J o b s Act (TCJA) has been an unresolved issue since t h e TCJA was passed, and taxpay- e r s h a v e
Terri S. Johnson
long been hoping for an up- date. Momentum is begin- ning to build towards the long-awaited Congressional technical correction. On 3/14/19, U.S. Senators
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