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Congress Should Fix Property Deduction Flaw (opinion editorial)

NAIOP Chairman Opinion Editorial in the Cincinnati Enquirer

In an opinion editorial in the Cincinnati Enquirer, NAIOP Chairman Jim Neyer outlines corrections needed to recent legislation that changed the nation's tax code. The piece, in part, reads:

It’s still true that nothing is sure in life except death and taxes. However, there’s a lot more surety surrounding taxes after last year’s successful tax reform law. Rates are coming down and businesses have more reasons than ever to invest, hire and grow the economy. Meanwhile, commercial real estate professionals had even more reasons to cheer, as lawmakers retained several tax provisions that are helping encourage sustainable development.


But despite the overwhelmingly positive reforms it made to our national tax code, the new law actually introduced a bit of uncertainty for American businesses. On one issue in particular, commercial real estate is on the front lines.

[...]

When they were writing the reform bill last year, lawmakers intended to allow real estate businesses to depreciate QIP – typically expenditures associated with a build-out, or other tenant improvements – over a relatively short time span of 20 years. In fact, some developers would even be allowed to fully expense the cost of these improvements, and receive the deduction in its entirety at the end of the year.   

These policies would make it easier for owners to improve their buildings. Restaurants could update their dining rooms or renovate their kitchens. Property owners could make their building more attractive to tenants by adding a gym or showers.

But the drafters inadvertently left these improvements out of the list of property classes afforded the 20-year depreciation schedule. So the law, as written, requires taxpayers to recover these costs over a period of 40 years, rather than the 20 years that were intended.

That’s a big difference. Should the law be left unchanged, a real estate firm investing $5 million to renovate its property would lose out on more than $100,000 each year in deductions, money that could be spent on hiring new staff, or reinvesting in the business. Worse yet, companies might decide to hold off on these projects, which create jobs in communities across the country.

This isn’t a controversial issue. Lawmakers on both sides of the aisle have long supported depreciation schedules that reflect economic reality. It’s also evident that this was a true "drafting error," rather than a loophole or flawed policy.

Read the full piece online in the Cincinnati Enquirer.