Before the TCJA, capitalized expenditures for qualified improvement property—i.e., certain improvements to the interior of a non-residential building that occurred after the building was placed in service—generally had a 39-year recovery period, except that three categories of property (qualified leasehold improvements, retail improvements, and restaurant property) had a more beneficial, 15-year recovery period. The TCJA included a provision removing the alternative 15-year recovery period for the three favored categories while omitting a companion provision that would have afforded a 15-year recovery period for all qualified improvement property (thereby making all such property eligible for bonus depreciation). This became known as the “retail glitch” and left the recovery period of all qualified improvement properties at 39 years, preventing taxpayers from claiming bonus depreciation for any such property and more than doubling the recovery period for the three categories.
The CARES Act made this technical correction permanent by allowing a 15-year recovery period for all eligible improvement property, thereby making all such property eligible for bonus depreciation. This change would be treated as if had been included in the TCJA, and would thus be retroactive to January 1, 2018.
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