Restaurants, Retailers, and Other Lessees Can Now Rapidly Expense Improvements for Tax Purposes

Wolters Kluwer Tax & Accounting reviews CARES Act correction to treatment of Qualified Improvement Property

A known error in the legislative language of the Tax Cuts and Jobs Act (TCJA) for Qualified Improvement Property (QIP) was recently amended. The QIP, which includes leasehold improvements, retail improvements, and restaurant property, had previously qualified for 15-year depreciation but the TCJA had accidently recategorized QIP as requiring 39-year depreciation. More than two years after the error was made in TCJA, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) finally corrected it, restoring the 15-year depreciation and making QIP eligible for bonus depreciation retroactive to January 1, 2018.

Correction addresses 15-year depreciation & first-year bonus depreciation

Taxpayers who made qualifying improvements in 2018 can now go back and claim 15-year depreciation or 100 percent first-year bonus depreciation in 2018. Taxpayers who had already filed 2019 tax returns prior to enactment of the CARES Act can do the same for 2019. Taxpayers who had not yet filed 2019 tax returns can claim 15-year depreciation or 100 percent first-year bonus depreciation on 2019 qualifying improvements.

  • QIP includes any improvement made by the taxpayer to an interior portion of a nonresidential building placed in service after the building was placed in service, excluding expenditures for enlargement of the building, elevators and escalators, or the building’s internal structural framework
  • QIP can include roofs, heating and air conditioning equipment, and fire protection and security equipment
  • QIP under the Alternative Depreciation System has a 20-year recovery period
  • QIP property qualifies for 100 percent first-year bonus depreciation if it was acquired after September 27, 2017 and placed in service after December 31, 2017
  • 100 percent bonus depreciation starts to phase-down in 2023
  • An amended return for 2018 or 2019 may be filed no later than October 15, 2021, but in no event later than the end of the statute of limitations for assessment of tax for the tax year for which the amended return is being filed
  • Partnerships subject to the partnership audit rules are given special permission to file amended Form 1065s and K-1s
  • A taxpayer may alternatively file a Form 3115 Change of Accounting Method with a timely filed federal tax return
  • Changing to 100 percent bonus depreciation may help generate net operating losses for 2018, 2019 or 2020 which may enable a taxpayer to utilize the five-year net operating loss carryback provisions of the CARES Act, potentially producing rapid tax refunds
  • A real property trade or business that elected out of restrictions on business interest deductions may not be able to utilize 100 percent bonus depreciation
  • Increasing first-year bonus depreciation may also have an adverse effect on other deductions available under the Tax Code

To read the full press release, please click here.

Experts are available to explain new QIP options

Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help explain the new options available for Qualified Improvement Property.

Media Contact

To arrange interviews with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact:

BART LIPINSKI
847-267-2225
Bart.Lipinski@wolterskluwer.com

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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