28 Aug WITH GLITCH FIXED, CONSIDER BUSINESS PROPERTY UPGRADES
When the Tax Cuts and Jobs Act was passed in 2017, it contained an inadvertent drafting error by Congress. The error made it so that any qualified improvement property (QIP) placed in service after December 31, 2017, wasn’t considered eligible for 100% bonus depreciation. This typically includes upgrades to retail, restaurant and leasehold property.
As a result, businesses that owned the eligible property couldn’t take advantage of the additional tax deduction of 100% of the cost of qualifying upgrades. The problem became commonly known as the “retail glitch.”
Fortunately, when drafting the Coronavirus Aid, Relief and Economic Security Act, Congress fixed the glitch. Most businesses can now claim 100% bonus depreciation for QIP, assuming all applicable rules are followed. Better yet, the correction is retroactive to any QIP placed in service after December 31, 2017. (Improvements related to a building’s enlargement, elevator or escalator, or internal structural framework don’t qualify.)
Because of the slowdown in the U.S. economy, your business (like so many others) may not be in a financial position to undertake a QIP project right away. However, you may have made eligible improvements earlier this year or in earlier tax years after December 31, 2017. As economic conditions improve, factor this tax break into your considerations for making future property improvements.
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If any topics covered in this newsletter raise questions or if there are other accounting or tax matters on your mind, Gates Kirby & Company is always happy to provide guidance tailored to your unique situation. Our team genuinely enjoys helping clients navigate these topics with confidence. We look forward to connecting with you soon.
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Tax laws, regulations, and interpretations can change without notice. Due to changing tax laws the content may be considered historical. Newsletter articles provide no guarantee information are complete, accurate, or current. Readers should verify applicable rules by consulting official sources (e.g., IRS, Colorado Department of Revenue) and/or consult with Gates Kirby to review how the content in the article content may be applicable to your tax situation.