For more than 10 years, a temporary provision in the depreciation rules has allowed a 15 year recovery period for the cost of making improvements to leased property. This rule expired as of January 1, 2010, however. Thus, unless Congress acts to renew and extend the provision, the cost recovery period is now 39 years, with the improvements being treated as part of the cost of the underlying real property.

The House and Senate have now agreed to legislation (HR 4213) that would renew and extend the 15-year recovery period. The provision would be retroactive to January 1, 2010, and would remain in effect through December 31, 2010. The two versions are very similar in content, but the "pay-fors" in each bill are completely different from one another. The House version uses the "carried interest" proposal that would tax carried interests of real estate general partners as ordinary income, rather than capital gains. The Senate version looks to several provisions that affect multi-national corporations and off-shore tax avoidance. Ways and Means Chairman Levin (D-MI) has called for a conference on the two bills.