On September 13, the U.S. House Ways and Means Committee approved, on a party-line vote, a package of three bills collectively being called “Tax Reform 2.0.” Even if the package is voted on by the full House, it is not expected to be considered by the Senate where it would need 60 votes to overcome a filibuster.
One of the bills, the Protecting Family and Small Business Tax Cuts Act of 2018 (H.R. 6760), would make permanent the individual and small business provisions in last year’s tax reform law that sunset at the end of 2025. The other bills would allow business to write off more of their start-up costs and expand access to new and existing retirement savings vehicles.
A full description of the legislation and related documents can be found here. Provisions made permanent by Tax Reform 2.0 include:
- Lower rates for individuals
- 20% pass-through deduction
- AMT relief
- Higher estate tax exemption
- Limitation on the state and local income and property tax deduction
- Limitation of excess business losses
Unfortunately, Tax Reform 2.0 fails to correct the depreciation of qualified improvement property. Last year’s tax reform law combined several separate categories of property improvements – leasehold, restaurant, and retail – under a new definition called “qualified improvement property” (QIP). QIPs were intended to be depreciated over 15 years, making them eligible to qualify for bonus depreciation. Due to a drafting mistake, however, these improvements must be depreciated over 39 years, much longer than their economic life.
ICSC continues to lobby aggressively for a fix to the QIP drafting error. Last month, at the urging of ICSC and other organizations, Republican Senators sent a letter to the U.S. Treasury Department and IRS that QIP be treated as 15-year property. ICSC and nearly 300 other organizations and companies sent a similar request calling for the Department to issue favorable guidance. While we are disappointed this issue was not addressed in Tax Reform 2.0, Republican Leaders have said they intend to move legislation to fix QIP and make other technical corrections before the end of the year.
Phillips Hinch
Vice President, Tax Policy