February 14, 2020
Senator Pat Toomey (R-PA) has introduced a new bill, the “Accelerate Long-Term Investment Growth Now Act” or the “ALIGN Act” that includes a provision which would retroactively correct the “retail glitch” that accidentally left qualified improvement property, or QIP, out of bonus depreciation eligibility upon the enactment of the Tax Cuts & Jobs Act in 2017. This was a costly clerical error that caused many businesses to pause or stall on making big improvements to the interior of their commercial buildings.
Long story short: even though Congress intended for QIP to have a 15-year life, which would make it eligible for 100% bonus depreciation, the changes made to the related provisions failed to assign QIP as such, leaving qualified improvement property to depreciate much slower over a 39 year life, with no available bonus depreciation write-off. This was a change from prior treatment and simply a drafting error in the rush to get tax reform finalized.
Many tax pros have been waiting for this fix, looking in every new piece of guidance for its correction. The last round of bonus depreciation regulations that were released did not address this issue either, for a reason: Treasury and the IRS have to follow the statute when creating regulations and only Congress can change the intent behind the law. There was hope that this technical correction would have been tacked onto the spending bills that passed at the end of last year, but again, nothing.
The Act would correct the glitch, all the way back to the enactment of the TCJA. Will it pass is the real question. Toomey introduced a similar bill in May of 2019 that didn’t gain any traction; perhaps this one will. There is optimism that the “retail glitch” will be addressed this year. It’s believed Democratic leadership understands the need for this correction to be made and may be willing to accept it if Republicans will agree to something Democrats would like to see passed as well. This does not mean it’s likely to be addressed soon, as there are no reports that the two sides are close to an agreement, but many observers believe it will eventually be enacted.
The ALIGN Act would also make 100% bonus depreciation permanent for eligible assets rather than reducing the percentage eligible to be expensed beginning 2023, as is the current law. There is no indication that Democrats would go along with that piece of the bill this year, and extension of 100% bonus beyond 2022 will likely not be considered until closer to that time.
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