On Dec. 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law. While many provisions of the new law are beneficial to NFA members, including lowered corporate tax rates, deduction benefits for pass-through entities and increased Section 179 expensing, a technical error is causing many in the industry to question their investments.
Prior to TCJA’s passage, there were several sub-categories of real property improvements defined under Qualified Income Property (QIP); some improvements qualified for a 15-year depreciation schedule and some qualified for bonus depreciation. NFA fought for many years – and eventually succeeded – in amending the law to place qualified leasehold improvements, qualified restaurant property and qualified retail improvement property on a permanent 15-year depreciation schedule (decreased from 39.5 years).
Under TCJA, all subcategories of QIP were merged and intended to be set on a 15-year schedule while also qualifying for bonus depreciation. Unfortunately, the bill language was accidentally changed back to require a 39-year depreciation schedule for all QIP. As a result of this error, QIP placed in service in 2018 or later currently has a recovery period of 39 years and is not eligible for 100-percent bonus depreciation.
Conference committee staff has admitted to the mistake and points both to the legislative intent and the scoring of the provision – both which reference a 15-year schedule. While a simple “technical corrections” bill is needed, Speaker Ryan has stated the issue will not be addressed until later in the year. Further, even a simple “fixes” bill must pass by a 60-vote threshold in the Senate, and party politics are currently preventing immediate action. The 15-year schedule was passed as part of the Protecting Americans from Tax Hikes (“PATH”) Act, signed into law by President Obama in 2015 and is a non-controversial provision of the law. However, many believe Senate Democrats will use its passage as a tool to promote their legislative agenda.
NFA is working with other affected businesses to seek either a legislative or regulatory fix to this problem.
THE ASK:
Senate and House: Pass legislation which will fix this technical error in the tax law AS SOON AS POSSIBLE
TALKING POINTS
- A 15-year depreciation schedule helps small-business owners like me reinvest in my business, spur growth in construction, energy and related industries and create jobs.
- This unintended error should not be used as a political pawn; please correct this mistake and provide certainty for me and my business.
- The congressional intent and scoring reveal the true intent was to place QIP on a 15-year schedule.
- This bi-partisan provision was initially passed as part of the PATH Act, signed into law by President Obama in 2015.
- Please pass a technical corrections bill to amend this error in the law and provide small businesses with incentives to improve their property and reinvest in their community.
1175