The Benefits of Qualified Improvement Property

December 9, 2021

At a glance

  • The main takeaway: Real estate developers who are renovating or improving existing buildings may be eligible to reap tax benefits through the qualified improvement property (QIP) provision.
  • Impact on your business: What’s more, QIP is now available for bonus depreciation, due to corrections in the original legislation made by the CARES Act.
  • Next steps: Aprio’s Real Estate & Construction Practice professionals can help you review your existing building improvements to determine if you’re eligible for tax benefits.

Schedule a consultation with Aprio today

The full story:

Are you a real estate developer working on renovating one of your existing buildings? You may be eligible to receive a tax benefit due to the qualified improvement property (QIP) provision. Here are a few basic facts you should know about QIP, and whether or not you are eligible to reap tax benefits.

What is 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 in 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), which consolidated qualified leasehold improvements and qualified restaurant and retail improvement property into a single designation defined as QIP. Due to a drafting error in the TCJA, QIP was assigned a 39-year recovery period instead of the 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, QIP is now eligible for bonus depreciation.

Tax-saving opportunities with qualified improvement properties

QIP that is placed in service in the tax years 2021 and 2022 is eligible for 100% 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 placed in service, and thus are eligible for an immediate write-off as bonus depreciation.

The bottom line

Aprio’s Real Estate & Construction Practice professionals are here to help you review your existing building improvements to determine if you’re eligible for tax benefits via QIP. Schedule a consultation with us today.