QTP fix benefits commercial property owners

Tim Whitney

The Coronavirus Aid, Relief and Economic Security Act includes a provision that benefits commercial property owners.

Legislation makes qualified improvement property (QIP) once again eligible for bonus depreciation. QIP involves any improvement to an interior portion of a nonresidential building if that improvement was made after the building first was placed in service. This generally includes qualified leasehold improvement, restaurant and retail improvement property. Be aware QIP doesn’t include any improvement for which the expenditure is attributable to the enlargement of the building, any elevator or escalator or the internal structural framework of the building.

Previously under the tax code, interior property improvements for nonresidential property — including improvements for tenants, with some limitations — were treated as 39-year property and not eligible for bonus depreciation.

The CARES Act treats QIP as 15-year property and therefore allows for 100 percent bonus depreciation. Commercial property owners may be allowed to take an immediate deduction of 100 percent of the cost of improvements to the interior of their properties
instead of spreading it out over a number of years. That’s potentially a lot of tax savings.

There’s more good news. Since the change is retroactive, commercial property owners may be able to amend their prior-year tax returns to take advantage of this fix. This applies to QIP placed in service after 2017 and after the date the building was first placed in service. I recommend you consult with your accountant and other professionals to confirm eligibility for this deduction.

In the meantime, stay safe. Hopefully, we’ll soon return to business as normal.