The definition
An improvement made by the taxpayer to an interior portion of a building that is nonresidential real property, placed in service after the date the building was first placed in service.
Three statutory exclusions: enlargement of the building, elevators and escalators, and the internal structural framework.
The retail glitch
The 2017 legislation intended to assign QIP a 15-year recovery period but the statutory text omitted the assignment. QIP therefore defaulted to 39 years and, exceeding the 20-year ceiling, was ineligible for bonus depreciation.
The 2020 CARES Act corrected it retroactively to property placed in service after 2017. Taxpayers who had already filed with 39-year QIP could fix it — and a great many never did.
Fixing it now
Using an incorrect recovery period for two or more consecutive years establishes a method of accounting. Correcting it is a change in method on Form 3115, with the entire cumulative difference taken as a section 481(a) adjustment on the current return.
On $1.2 million of tenant improvements placed in service in 2019 and depreciated over 39 years, the correction is well into six figures.
QIP and cost segregation together
Not alternatives. A tenant build-out contains both: genuinely personal property items — cabling, dedicated power, millwork, decorative lighting, floor coverings — belong at 5 years, and the remaining interior improvement lands in QIP at 15.
In a 100% bonus year the immediate deduction is similar either way, but the split still matters for recapture on exit, for state conformity where a state decouples, and in any year bonus is elected out.
Residential does not qualify
QIP is nonresidential only. Interior improvements to apartment buildings follow the normal analysis: genuinely personal property at 5 years, land improvements at 15, the rest with the building at 27.5.
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