[Congressional Record Volume 151, Number 31 (Tuesday, March 15, 2005)]
[Senate]
[Pages S2735-S2736]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CONRAD (for himself and Mr. Kyl):
  S. 621. A bill to amend the Internal Revenue Code of 1986 to 
permanently extend the 15-year recovery period for the depreciation of 
certain leasehold improvements; to the Committee on Finance.
  Mr. CONRAD. Mr. President, I rise today to introduce legislation to 
make permanent the 15-year depreciation period for leasehold 
improvements that was enacted on a temporary basis as part of the 
American Jobs Creation Act of 2004. I am pleased to be joined in this 
effort by my Finance Committee colleague, Senator Kyl.
  Leasehold improvements are the alterations to leased space made by a 
building owner as part of the lease agreement with a tenant. In actual 
commercial use, leasehold improvements typically last as long as the 
lease--an average of less than 10 years.

[[Page S2736]]

However, until last year, the Internal Revenue Code required leasehold 
improvements to be depreciated over 39 years--the life of the building 
itself.
  Economically, this made no sense. The owner received taxable income 
over the life of the lease, yet could only recover the costs of the 
improvements associated with that lease over 39 years. This mismatch of 
income and expenses was alleviated somewhat by our action last year in 
reducing the recovery period to 15 years.
  A shorter recovery period more closely aligns the expenses incurred 
to construct improvements with the income they generate over the term 
of the lease. By reducing the cost recovery period, the expense of 
making these improvements has fallen more into line with the economics 
of a commercial lease transaction. One of the most important goals of 
this change is to encourage building owners to adapt their buildings to 
fit the needs of today's business tenant.
  It is good for the economy to keep existing buildings commercially 
viable. When older buildings can serve tenants who need modern, 
efficient commercial space, there is less pressure for developing 
greenfields in outlying areas. Americans are concerned about preserving 
open space, natural resources, and a sense of neighborhood.
  Unfortunately, the recovery period reduction enacted last year is 
effective only through the end of 2005. If Congress fails to act before 
the end of this year, the recovery period for leasehold improvements 
placed in service beginning in 2006 would again be 39 years.
  I urge all Senators to join us in supporting this legislation to 
provide rational depreciation treatment for leasehold improvements for 
the long term.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 621

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. PERMANENT EXTENSION OF 15-YEAR RECOVERY PERIOD FOR 
                   DEPRECIATION OF CERTAIN LEASEHOLD IMPROVEMENTS.

       Section 168(e)(3)(E)(iv) of the Internal Revenue Code of 
     1986 (defining 15-year property) is amended by striking 
     ``before January 1, 2006''.
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