Nareit Urges Congress to Co-Sponsor Legislation Restoring Depreciation Recovery Period for QIP

Nareit joined a letter signed by over 850 industry groups and businesses on April 29 to request all members of Congress to cosponsor the “Restoring Investment in Improvements Act” (H.R. 1869 / S. 803). This bipartisan, bicameral legislation will promote job creation, investment in local businesses, and other important economic and community benefits by restoring a 15-year depreciation recovery period for qualified improvement property (QIP), generally considered improvements to the interior of existing nonresidential buildings.

These bills would resolve an inadvertent error in the 2017 tax reform bill (known as the Tax Cuts and Jobs Act, or TCJA, Pub.L. 115-97) relating to the depreciation of tenant improvements. Prior to enactment of the TCJA, tenant improvements were depreciated over a 15-year recovery period and were assigned a 40-year recovery period under the so-called “alternative depreciation system” (ADS) for REIT earnings and profits purposes.

Inadvertently, the final TCJA bill excluded the intended 15-year life for taxable income purposes and an intended 20-year ADS life for QIP expenses. As a result, QIP was not eligible for bonus depreciation. This new legislation would restore both the 15-year recovery period for taxable income purposes (and make QIP eligible for bonus depreciation) as well as the intended 20-year period for ADS purposes. The Joint Committee on Taxation has estimated that this change would be revenue neutral.

(Contact Dara Bernstein: dbernstein@nareit.com)

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