2A — May 11 - 24, 2018 — M id A tlantic
Real Estate Journal
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Mid Atlantic Real Estate Journal
Mid Atlantic R eal E state J ournal Publisher, Conference Producer ......................................Linda Christman AVP, Conference Producer . .................................................Lea Christman Associate Publisher ................................................................Steve Kelley Associate Publisher .................................................................. Kim Brunet Associate Publisher ............................................................ Miriam Buttrick Senior Editor/Graphic Artist ................................................ Karen Vachon Contributing Columnists ........ Keith Bawolek, Vermillion Realty Advisors; Beverly Jenkins, EA, MST, Ellin & Tucker; Travis Klein, CPA, MBA, Ellin & Tucker Mid Atlantic R eal E state J ournal — Published Semi-Monthly Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, 350 Lincoln St., Suite 1105 Hingham, MA 02043 USPS #22-358 | Vol. 30, Issue 9 Subscription rates: $99 - one year, $148 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion 781-740-2900 | Fax: 781-740-2929 www.marejournal.com The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
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The Questionable Status of Qualified Improvement Property Under the Tax Cuts and Jobs Act T Terri S. Johnson he Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017. his is the first comprehensive tax law reform since 1986, and it brings new opportunities, as well as some challenges, to the commercial real estate community. One of the most common issues we’re hearing about these days has to do with the status of Qualified Improvement Property (QIP) under the TCJA. Established by the PATH Act in 2015, the original QIP quickly became a fan-favorite, expanding the scope of Bonus-eligible assets by removing the restrictions associ- ated with other categories of quali- fied improvements. In fact, the only requirements necessary to meet the original definition of QIP were that the improvement be made to an in- terior portion of a building which is non-residential real property, and that the improvement be placed-in- service after the date the building was placed-in-service. And with a few small exceptions — building enlargements, escalators, etc. — voila, you’ve got Bonus-eligible as- sets with a 39-year life after Bonus. It is noteworthy that QIP was classified as 39-year after Bonus, as QLI (Qualified Leasehold
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Improvements), QRI (Qualified Restaurant Improvements), and QRIP (Qualified Retail Improve- ments) were all depreciated as 15-year SL. These various quali- fied improvements were, for the most part, not eligible for Bonus. The TCJA rules intended to cre- ate a new balance, establishing a new QIP that would encompass and replace all the old qualified improvement categories. Fur- thermore, this new QIP would be assigned a 15-year MACRS class life. However, there was a bit of a hiccup in the execution. The TCJA amended Section 168 to eliminate any reference to QLI, QRI, and QRIP. And it specifically repealed QLI, QRI, and QRIP from Section 168(e)(3)(E), the subpara- graph that lists assets eligible for a 15-year class life. As of 1/1/18, QLI, QRI, and QRIP no longer exist. So far so good. Unfortunately, the new of QIP was never actually put into
Section 168(e)(3)(E). So technically, the class life of the new QIP in the post-TCJA era is questionable. This could become crucial. Remember that Bonus-eligible assets must have depreciable lives of 20 years or less. If we don’t know the class life of QIP assets, how do we even know that they are eligible for the new 100% Bonus depreciation at all? Take a deep breath. This is probably just a small oversight, and in fact many tax professionals are referring to this colloquially as a “whoops.” It’s pretty clear that Congress intended to establish post-TCJA QIP as 15-year (P.L. 115-97), and odds are good that a technical correction will be issued to straighten this out. For the mo- ment, we’re advising our clients to proceed with caution, but we antici- pate that this will be resolved soon. Terri S. Johnson, CRE is a co-founder and partner at Capstan Tax Strategies.
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