Would Help Retail, Restaurant Renovation Projects

On March 25, a bipartisan group of members of the House of Representatives – led by Reps. Jimmy Panetta (D-Calif.) and Jackie Walorski (R-Ind.)— introduced AGC-supported legislation to correct a drafting error from the Tax Cuts and Jobs Act (TCJA, the 2017 tax reform law), that inadvertently extended the depreciation schedule for interior improvements to commercial properties from 15 years to 39 years. This legislation mirrors legislation already introduced by Senators Pat Toomey (R-PA) and Doug Jones (D-AL).  AGC has heard from many contractors and service providers that this error is materially impacting construction projects across the country, forcing building owners to delay or reconsider projects.
Prior to passage of TCJA, any interior improvements to commercial properties (designated in the tax code as “restaurant, retail and leasehold improvements”) could be depreciated over 15 years.  The TCJA included a provision that sought to simplify this section of the code by consolidating multiple classes of infrastructure eligible for the 15-year depreciation schedule into a new definition, called “qualified improvement property” or QIP.

Additionally, under this section of the Internal Revenue Code, QIP was intended to be eligible for temporary 100 percent bonus depreciation, thus allowing these commercial improvements to be expensed in one year until the temporary full expensing expires in 2023.  However, due to a drafting error, the TCJA inadvertently changed QIP’s depreciation schedule from 15 years to 39 years.  This is a substantial change, and significantly affects cost-recovery and must be addressed to help many of these construction improvement projects get back on track.
With bipartisan legislation introduced to “fix the glitch” in both the House and Senate, AGC is hopeful that this error can be corrected this year.

For more information, contact Matt Turkstra at [email protected].