Congress has yet to tackle several outstanding uncertainties frustrating both businesses and individual taxpayers. The Tax Cuts and Jobs Act (TCJA), for example, contains several “glitches” requiring legislative fixes. Congress also has neglected to pass the traditional “extenders” legislation that retroactively extend certain tax relief provisions that expired at the end of an earlier year, in this case 2017.
The sprawling TCJA signed into law in late 2017 contains some inadvertent glitches that range from a lack of clarity to significant drafting errors. In some cases the glitches may produce unintended and costly consequences. Here are examples of two glitches that still need to be addressed and one that has been addressed recently:
The “retail” glitch. This prevents retailers, restaurants and other businesses from enjoying 100% bonus depreciation on certain assets. Before the TCJA’s enactment, qualified retail improvement property, qualified restaurant property and qualified leasehold improvement property were depreciated over 15 years under the modified accelerated cost recovery system (MACRS) and over 39 years under the alternative depreciation system (ADS).
The TCJA classifies all of these property types as qualified improvement property (QIP). QIP generally is defined as any improvement to the interior of a nonresidential real property that’s placed in service after the building was placed in service.
Congress intended QIP that is placed in service after 2017 to have a 15-year MACRS recovery period and a 20-year recovery under the ADS. Because 15-year property is eligible for bonus depreciation, Congress also intended QIP to be eligible for that break.