Technical Error in TCJA Makes Renovations for Retailers Even More Onerous Than Before

Chris Gaetano
Published Date:
Jul 10, 2018

A measure in the new tax law meant to make it easier for retailers to renovate their stores has, paradoxically, made things even more difficult than before due to a technical error that will require legislation to fix, according to the Wall Street Journal.

As a way to provide incentives for construction work, the bill contained a provision that was supposed to provide immediate 100 percent expensing for businesses doing interior renovations. Under prior law, businesses would depreciate the costs over the course of 15 years. Under the new law, rather than being able to expense the entire cost immediately, businesses must instead depreciate the deduction out over 39 years, severely reducing its value over time. This is because of the absence of four words: "any qualified improvement property." The phrase was a way to bring many different types of improvement into one category that encompassed internal renovations that did not expand a building. It was meant to be in the bill but was accidentally left out of the final product, much to the chagrin of Republican lawmakers who now are working to address the issue as anxious businesses hold off on improvements. The Journal said no one seems to know why or how the vital four words went missing when the bill was signed into law. As things stand now, though, because of those missing four words, many businesses do not qualify for the 100 percent immediate expensing they had been promised. 

This is not the first technical error in the Tax Cuts and Jobs Act that went on to have perverse effects. Previously it was found that the wording of one provision inadvertently means that sports teams will have a much more difficult time making trades. Under the previous tax code, certain business owners were able to trade assets like vehicles, equipment or the contracts of professional athletes tax-free. The new law, however, changed things so that only real estate qualifies for this special treatment. On the one hand, this means that an additional $31 billion will be raised over the next decade. On the other, though, it means that professional sports teams could have to pay capital gains taxes every time they trade away their highly paid players.

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