Ray Evans, CPA / Tax Stockholder / Tax Department Head in Walnut Creek
Ray EvansCPA / Tax Partnerview bio

The Benefits of Qualified Improvement Property


What is Qualified Improvement Property?

Qualified improvement property (QIP) is any improvement, other than personal property, made by the taxpayer to the interior portion of a nonresidential building if such improvement is placed is service after the date the building was first placed in service.  QIP does not include any expenditure to enlarge the building, elevators or escalators, or the internal structural framework of the building. 

The requirement that the improvement be made by the taxpayer prohibits a taxpayer from assigning QIP status to a newly acquired building. 

QIP was an outcome of the 2017 Tax Cuts and Jobs Act (TCJA) in which TCJA consolidated qualified leasehold improvements, qualified restaurant, and qualified retail improvement property into a single designation defined as QIP.  Due to a drafting error in TCJA QIP property was assigned a 39-year recovery period instead of a 15-year recovery period that Congress had intended.   The Coronavirus Aid, Relief and Economic Security (CARES) Act. provided a fix to the drafting error and assigned a 15-year recovery period for QIP.  As a result of this assignment of a shorter recovery period, QIP is now eligible for bonus depreciation.

Tax Saving Opportunities

QIP that is placed-in-service in the tax year 2021 and 2022 is eligible for 100 percent bonus depreciation.  Starting in 2023, bonus depreciation phases out 20% per year until it is completely phased out for property placed in service in 2027.

Now is the time to review the improvements you have made to your commercial real estate and determine either through a cost segregation study or your own documentation that you have QIP property placed in service and eligible for an immediate write-off as bonus depreciation. 

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