April 9, 2020, via Dees Stribling, Bisnow National
Tucked away in the $2 trillion stimulus bill passed by Congress a week ago is a tax law change that will benefit commercial property owners and some tenants well after the coronavirus pandemic runs its course.
The change, on page 211 of the 883-page Coronavirus Aid, Relief and Economic Security Act, expands the tax deduction for many kinds of property improvements to 100% of the cost, with the deduction applicable right away, not over many years. Under the tax code as it stood, most interior property improvements, including tenant improvements — which the government calls qualified improvement property, or QIP — could be written off only over a period of 39 years. That wasn’t the intention of Congress, but that is how it was for more than two years, according to tax experts.
But fixing even the smallest error in a law can be a herculean task. Efforts were made in Congress, with both Republican and Democratic sponsors, to correct the mistake. In early 2019, the Restoring Investment in Improvements Act was introduced in the House and Senate, with a goal of fixing the mistake, but it never wound up advancing. It took the pandemic emergency, as the retail and restaurant industries cratered, to move the correction forward. The change is found in Section 2307 of the sprawling CARES Act, “Technical Amendments Regarding Qualified Improvement Property,” and is only eight lines long. A technical amendment is generally regarded as one made to correct grammar, style, punctuation or other small matters in the text of a law.
Property owners will benefit, but so will tenants that typically invest heavily in their space, such as retail outlets and restaurants, Christ added. The change also will incentivize businesses to invest in future interior improvements, Christ said, as the 2017 tax law intended — resulting in a win for real estate when retail and restaurants, especially, badly need it.
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