Qualified Improvement Property

Last Updated: January 13, 2021

The Issue

The Tax Cuts and Jobs Act signed into law at the end of 2017 included a drafting error that will impact any convenience retailer who does not sell fuel at a store they are renovating. Tax writers attempted to combine three expensing categories (qualified leasehold improvement, qualified restaurant, and qualified retail improvement property) into one new one called Qualified Improvement Property. They intended to give this new category 15-year depreciation and eligibility for bonus depreciation and the full expensing for 5-years created by the law. Unfortunately, they failed to write the new category into the proper section of tax law and as result all 3 categories have been forced into 39-year depreciation starting in 2018 and are thus ineligible for bonus depreciation. Congress ultimately fixed the issue as part of the omnibus appropriations legislation passed in December 2020.

Retail Impact

The sudden loss of 15-year depreciation and bonus depreciation for these stores had a significant impact on businesses cash flow and delay other physical improvements or employee benefits.

NACS Position

NACS Supported efforts to fix the drafting error and restore the eligibility of these non-fuel stores for 15-year depreciation and bonus depreciation.