The Building Owners and Managers Association (BOMA) International urges Congress to pass legislation that would permanently reduce the timeline for depreciating leasehold improvements to 15 years. The legislation was recently introduced in both chambers: In the House, H.R. 1265 is sponsored by Reps. Jim Gerlach (R-Pa.) and Richard Neal (D-Mass.), and in the Senate, S. 687 is sponsored by Sens. Kent Conrad (D-N.D.) and John Cornyn (R-Texas). Absent congressional action before year’s end, the 15-year depreciation schedule that is currently in place will revert to 39 years on January 1, 2012.
“We believe that a 15-year timeline more accurately reflects the reality of the marketplace as leasehold improvements typically do not last longer than 15 years before they are replaced,” remarked BOMA International Chair Ray H. Mackey, Jr., RPA, CPM, CCIM, partner and chief operating officer, Stream Realty Partners, L.P.
“Depreciating improvements for 39 years reduces investment in improvements that help foster productive economic growth. We urge Congress to pass this critical legislation that will help push our industry and the economy toward recovery.”
Leasehold improvements, also known as tenant improvements, include changes to walls, floors, ceilings, lighting and plumbing to meet the needs of a new or existing tenant. Limiting leasehold improvements to be depreciated at a rate of 1/39th per year until the improvement goes “out of service” runs counter both to common sense and the reality of the marketplace, serving as a hidden and inequitable tax on the commercial real estate industry.
For the past several years, Congress has extended the 15-year depreciation period for one or two years at a time; however, making the 15-year timeline permanent will remove uncertainty surrounding the issue and stimulate investment in tenant improvements.
BOMA members recently met with lawmakers around the country to gain support for leasehold depreciation and other issues important to the commercial real estate industry as part of BOMA’s annual National Issues Conference. As a result of a meeting with BOMA Dallas members, Senator Kay Bailey Hutchison (R-Texas) agreed to sign on as an original cosponsor of the leasehold depreciation legislation in the Senate.
BOMA International is asking its members to contact their Senators and Representatives to voice their support for leasehold depreciation legislation.
For more information, visit BOMA’s Legislative Action Center at boma.org/Advocacy/LegislativeInitiatives/Pages/vocus.aspx