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KBKG Tax Insight: New Qualified Improvement Property Category in 2016



Gian Piazza

Most tax professionals know by now that under the Protecting Americans from Tax Hikes (PATH) Act of 2015, the rules for eligibility as Qualified Leasehold Improvements (QLI), Qualified Restaurant Property, and Qualified Retail Property with a 15 year recovery period are now permanent. Additionally, the PATH Act has extended, modified, and will eventually phase out bonus depreciation. However, one of the least discussed provisions that will have a broad impact on all real estate owners is a brand new category of building improvements that significantly increases the likelihood that real property capital expenditures are eligible for bonus depreciation.

Qualified Improvement Property (QIP) is defined as any improvement to an interior portion of a building that is nonresidential real property, as long as that improvement is placed in service after the building was first placed in service by any taxpayer (see Section 168(k)(3)). QIP provisions are effective for property placed in service after December 31, 2015. Similar to Qualified Leasehold Improvements, QIP specifically excludes expenditures for (1) the enlargement of a building; (2) elevators or escalators; or (3) the internal structural framework of a building. Qualified Improvement Property is not eligible for Section 179 unless it also meets the definition of a Qualified Leasehold Improvement, Qualified Retail Improvement, or Qualified Restaurant Property.

Differences with Qualified Leasehold Improvements

 

The QIP definition is similar to that of Qualified Leasehold Improvements; however, there are subtle but distinct differences to note. For one, Qualified Improvement Property does not have the Qualified Leasehold Improvements requirement that a building must have been placed in service at least three years prior to the expenditure. Further, QIP is not restricted to expenditures pursuant to a lease between non-related parties.

The differences are subtle, the changes to code new. To learn more about the implications for tax professionals, read more on the KBKG blog.

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Gian Pazzia, CCSP, is a principal with KBKG and their National Practice Leader for Cost Segregation services. He currently serves as the President of the American Society of Cost Segregation Professionals and has held a seat on their board of directors since 2007 (www.ascsp.com). He has served as an expert witness for cost segregation matters before the IRS and has been provided feedback to the IRS on amendments to the Cost Segregation Audit Techniques Guide before public release.

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