How the CARES Act Impacts Qualified Improvement Property

The Coronavirus Aid, Relief, and Economic Security (CARES) Act contains a beneficial change in the tax rules for many improvements to interior parts of nonresidential buildings, known as qualified improvement property (QIP). Under the Tax Cuts and Jobs Act (TCJA), any QIP placed in service after December 31, 2017 wasn’t considered to be eligible for 100% bonus depreciation. Due to an inadvertent drafting mistake made by Congress, the cost of QIP had to be deducted over a 39-year period rather than entirely in the year the QIP was placed in service.

QIP Bonus Depreciation

qualified improvement propertyThe CARES Act fixes the error and allows most businesses to claim 100% bonus depreciation for QIP, when certain other requirements are met. The correction is also retroactive and it goes back to apply to any QIP placed in service after December 31, 2017. Improvements related to the enlargement of a building, any elevator or escalator, or the internal structural framework continue to not qualify under the definition of QIP.

In the current business environment, you may not be able to undertake new capital expenditures, even if they’re needed as a practical matter or the substitution of 100% bonus depreciation for a 39-year depreciation period significantly lowers the true cost of QIP. But it’s good to know that 100% bonus depreciation will be available when you’re ready to undertake qualifying improvements.

The retroactive nature of the CARES Act provision presents favorable opportunities for qualifying expenditures you’ve already made. For not-yet-filed tax returns, you can simply reflect the favorable treatment for QIP on the return. If you’ve already filed returns that didn’t claim 100% bonus depreciation, you can investigate to identify possible QIP expenditures.

Questions?

If you have any questions about how you can take advantage of the QIP provision, please contact us to discuss with our team.

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