QUALIFIED IMPROVEMENT PROPERTY CHANGES
January 7, 2021 - Douglas Myser
Qualified improvement property changes. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided a technical correction to the Tax Cuts and Jobs Act regarding the depreciation schedule for qualified improvements property to nonresidential property the CARES Act assigns a 15 year recovery period to qualified improvement property. The CARES Act assigns a 15 year recovery period to qualified improvement property placed in service after 2017. Absent this technical correction the TCIA language called for a 39 year recovery period(the same as the nonresidential property). The CARES Act also provided that most 2017 QIP retroactively qualified for bonus depreciation deduction. Any MCRS property with a recovery period of 20 years or less is considered bonus depreciation property. Qualified improvement property changes.
The Protecting Americans from Tax Hikes Act of 2015 originally added the definition of QIP and allowed taxpayers to treat QIP as 39 year property eligible for bonus depreciation. The Tax Cuts and Jobs Act eliminated three nonresidential real property categories (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property and replaced these categories with a broader category, QIP. The drafters of Tax Cuts and Jobs Act removed QIP from the listing of assets included in the definition of qualified property eligible for bonus depreciation. The legislative history for the Tax cuts and Jobs Act indicates that Congress intended for QIP to have a 15 year recovery period and thus, continue to meet the requirements for qualified property eligible, however, did not reflect this intent and QIP as 39 year property became ineligible for home depreciation after December 31, 2017. Despite the legislative history, the IRS and Treasury concluded that a technical correction needed to occur to allow the QIP to become bonus eligible and issued final regulations forbidding the application of bonus depreciation in QIP once again qualifies for bonus depreciation.