Tax Cuts and Jobs Acts Drafting Error Slows Business Remodeling Plans

The effects of the sweeping changes enacted by 2017's Tax Cuts and Jobs Act (TCJA) were only recently illuminated during the 2018 tax season. And while many individual and corporate taxpayers were pleasantly surprised by a reduction in their total tax liability, others—especially those in the restaurant and grocery industries—are concerned about the impact of a potential drafting error.

One of the TCJA's biggest changes was its amendment to the way property improvements are depreciated or written off. Instead of requiring these expenses to be slowly depreciated over a period of years, the TCJA allows businesses to write off the full costs immediately. This can be a boon for businesses that might otherwise have a large tax bill; by performing much-needed renovations and writing off these costs, they can reduce their total tax liability. 

But a drafting error exempted grocers and restaurants from this immediate write-off; instead, these businesses must depreciate their renovations over 39 years. Such a lengthy depreciation period, many business owners argue, is tantamount to not permitting improvements to be depreciated at all.

Although legislation has been introduced to amend this glitch, it has stalled amid more pressing congressional matters. As a result, many retailers and restaurant lobbyists have begun to increase the pressure on their senators and representatives, pointing out that they have been discouraged from making much-needed improvements to their buildings as a result of what everyone seems to agree was a drafting oversight.

In May 2019, a group of more than 800 retailers affected by this glitch wrote a letter to Congress, again urging them to take action before December 31, 2019. Because of the sheer number of businesses impacted and the increasing frequency of their pleas for assistance, it seems likely that corrective action will come soon.