The National Association of Realtors has commended U.S. Rep. Bill Thomas (R-Calif.) for his proposal to permanently reduce the depreciation period for leasehold improvements from 39 years to 20 years. Leasehold improvements are permanent enhancements made to commercial buildings on behalf of tenants.
The American Jobs Creation Act of 2003, introduced by House Ways and Means Chairman Thomas, will also enhance the current bonus depreciation rules by shortening the recovery period for tenant improvements.
That provision allows businesses to take a one-year 50 percent bonus tax deduction on the cost of new leasehold improvement projects. A broad coalition of industry groups, including NAR, sent a letter in support of the bill earlier this week.
NAR also applauded Sen. Orrin Hatch (R-Utah) for his commitment to reducing the leasehold depreciation period.
The association has long supported a significantly reduced depreciation period for leasehold improvements and strongly backed bonus depreciation rules that were enacted as part of last year’s economic stimulus package and expanded under the tax bill President Bush signed earlier this year.
“The nation’s Realtors commend Senator Hatch and Chairman Thomas for their proposals to substantially reduce the depreciation period for tenant improvements and enhance bonus depreciation,” said NAR President Cathy Whatley of Jacksonville. “Improved tax treatment for leasehold improvements will help spur capital investment in commercial real estate and create jobs.”
Approximately $15 billion of the $250 billion invested annually in commercial real estate goes into leasehold improvements such as carpeting, fixture or wiring upgrades that typically need to be replaced when the lease turns over.
The impact of this figure doubles as it filters through the economy in the form of increased productivity and jobs for construction and remodeling companies, building material suppliers and related industries.