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August 29, 2019

Update to the Qualified Improvement Property (QIP) Recovery Period

Since the Tax Cuts and Jobs Act combined leasehold categories into one definition of Qualified Improvement Property (QIP), there has been anticipation for further updates. In the spring of 2019, a bill was introduced into Congress called the Restoring Investment and Improvements Act (RIIA). This bill marks the first step of the Congressional technical correction to revise the depreciation period of QIP from 39 to 15 years. Unfortunately, since the introduction of this bill, there has not been any further action by Congress.

Background on QIP

Beginning 1/1/2018 the Tax Cuts and Jobs Act simplified and consolidated the various leasehold categories to one “Qualified Improvement Property” (QIP). Since then, QIP has been further simplified to apply to interior common areas of nonresidential buildings if the improvement is placed in service after the building was first placed in service. It can also be owner-occupied and will not be subject to the three-year rule.

Due to a legislative omission, QIP was not added to the list of property with a 15-year depreciation period and is not eligible for bonus depreciation.

What’s Next for QIP?

For the RIIA bill to become law it still must be passed by the Senate, House and then signed by the President. The corrective legislation would correct treatment of QIP property with a 15-year depreciation period rather than a 39-year depreciation period and be eligible for bonus depreciation. Lessees and building owners who improve qualifying business property will reap federal tax benefits of shorter depreciable lives and increase bonus depreciation deductions. If approved, the provisions would be retroactive as intended by the Tax Cuts and Jobs Act.

Contact an Anders advisor to discuss questions about your specific situation, or learn more about the Anders Real Estate and Construction Groups.

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