Qualified Improvement Property (QIP) Restaurant Depreciation: Overview

15-year restaurant depreciation (the tax recovery period for restaurant construction and restaurant building improvements) was enacted into law in 2015 as part of that year’s “tax extenders” bill (PATH Act), with strong support from both Republicans and Democrats and both the House and Senate.

When tax reform passed at the end of 2017, Congress combined restaurant and retail depreciation into one category called “qualified improvement property.”

Congress intended to assign the new category a 15-year depreciation period, which was current law for restaurant and retail depreciation before tax reform passed.

However, due to a drafting error in the final tax reform bill, Congress never assigned 15-year depreciation for this new category. Thus, depreciation for restaurants defaults to a 39-year recovery period.

This error is already having a detrimental impact on restaurant investment, and it also blocks restaurants from taking advantage of bonus depreciation – the temporary 100 percent expensing for certain tangible business assets such as kitchen equipment, furnishings and other improvements.

Our Position

We urge Congress to pass a technical correction to the tax reform law of 2017 to restore 15-year restaurant depreciation.