While many businesses are tight on funds right now, those that can, and need to, might want to consider upgrading their business properties in 2020.
When the Tax Cuts and Jobs Act was passed in 2017, Congress made an inadvertent drafting error making any qualified improvement property (QIP) placed in service after December 31, 2017, ineligible for 100% bonus depreciation. This typically includes upgrades to retail, restaurant and leasehold property.
As a result, businesses that owned eligible property couldn’t take the additional 100% tax deduction 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 (CARES Act), Congress fixed the issue. Most businesses can now claim 100% bonus depreciation for QIP, assuming all applicable requirements are met. 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 take on 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. And if you have any questions about this deduction, don’t hesitate to call or email us.