What is a Qualified Improvement Property?
In 2015, Congress put legislation into place that extends the use of bonus depreciation in regards to leasehold, retail and restaurant properties, as well as creating a category known now as “Qualified Improvement Property.” (QIP) These extensions were created in the Protecting Americans from Tax Hikes (PATH) Act.
What is Qualified Improvement Property?
From the PATH act “In General – The term QIP means any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service.”
“Certain improvements not included – Such term shall not include any improvement for which the expenditure is attributable to – ‘(i) the enlargement of the building, (ii) any elevator or escalator, or (iii) the internal structural framework of the building.’”
How is this different from Leasehold Improvement Property?
Though there are some similarities, qualified improvement property does not require that the improvements be made 3 years after the placed in service date, which is different than what is required in the leasehold improvement property. Also, with QIP, the parties involved in the improvements of the property do not have to be unrelated.
What is there to know about Bonus Depreciation?
It is important to note that while there has been an extension of bonus depreciation because of the PATH act, bonus depreciation may not be available after the year 2019. That is because the PATH act phases out bonus depreciation. You can take 50% bonus for expenditures in 2017, 40% bonus in 2018 and a 30% bonus in 2019. There is currently no bonus depreciation available for the year 2020 and thereafter.
How can I know if my property Qualifies for Bonus Depreciation or Other Tax Savings?
McGuire Sponsel, with the experts at Ernst & Morris, have been exceeding our client’s expectations since 1993, and value our exceptional service. Send us a message or call us directly at 1-800-COST-SEG (267-8734) to discuss your commercial property. We will educate you on what your options are, and will always let you know if we don’t think you need our service. The last thing we want to do is sell you something you don’t need.
QIP examples
# 1 – A building owner is spending $1,000,000 to improve or renovate their commercial property. If some of these expenditures are inside of your building, you will at the very least qualify for Qualified Improvement Property. It is possible that you may also qualify for Retail Improvement Property, Restaurant Improvement Property or Leasehold Improvement Property.
# 2 – A building owner is spending $2,000,000 to construct an addition to their building and also improve the older components of the building. It is possible that parts of your expenditures will qualify for Qualified Improvement Property while other parts may not. A cost segregation study would be highly advantageous for you to have a breakdown of which costs you can get bonus depreciation versus which costs don’t qualify.