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Qualified Improvement Property

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Taxpayers who own commercial real estate often perform renovations or improvements to the interior portion of their buildings. These expenditures may create an opportunity for significant tax savings. The Tax Cuts and Jobs Act along with a technical correction under the Coronavirus Aid Relief and Economic Security Act (CARES), created a special category of property called qualified improvement property (QIP). If certain conditions are met, the improvements can be depreciated over a 15-year life for tax purposes as opposed to the typical 39-year depreciable life for non-residential real property. The requirements for qualified improvement property are discussed below.

Qualified Improvement Property

Qualified improvement property requirements:

  • The improvements must be to the interior portion of nonresidential real property;
  • The improvements must be placed in service after the in service date the building was first placed in service by the taxpayer;
  • The improvements must be made by the taxpayer; and
  • The improvements must be placed in service after December 31, 2017.

Qualified improvement property does not include:

  • Escalators and elevators.
  • The internal structural framework of a building. Internal structural framework is defined to include load-bearing internal walls and any other internal structural supports, including the columns, girders, beams, trusses, and all other items essential to the stability of the building.
  • Improvements that create an enlargement to the building. Enlargement is defined as increasing the total volume of the building.
  • Improvements made to residential rental property. Condos, family homes, apartments, and townhomes are examples of residential rental property.

Qualified improvement property retains its status as Section 1250 real property and depreciation is computed over a 15-year life on the straight-line method. QIP placed in service after 2017 qualifies for both bonus depreciation and immediate expensing under Section 179 of the Tax Code. 

Qualified improvement property provides a unique tax planning opportunity. The professionals at Teuscher Walpole are eager to help review your building and improvements to maximize the tax benefits of your expenditures!

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Robyn Fujikawa

Robyn is a distinguished professional in the field of accounting, equipped with a Masters in Accounting from Weber State University. Her academic achievements have laid the foundation for her successful career, particularly in the specialization of cost segregation.
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