Section 168(e)(6)
Qualified improvement property
A 15-year life, full bonus eligibility, and a retroactive correction that a great many 2018 and 2019 depreciation schedules never received.
The definition, and the three exclusions
QIP is 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.
Excluded by statute: any enlargement of the building, any elevator or escalator, and the internal structural framework. Everything else on the interior is in scope.
| Typically QIP | Typically not QIP |
|---|---|
| Interior partitions, doors and hardware | Building additions and expansions |
| Ceilings, interior finishes and painting | Elevators and escalators |
| Interior lighting and branch electrical | Roof replacements and exterior work |
| Interior plumbing serving the improved area | Structural columns, beams and load-bearing walls |
| Interior HVAC distribution within the improved space | Site work and land improvements (15-year, but not QIP) |
| Fire protection within the improved area | Improvements to residential rental buildings |
How QIP and cost segregation work together
They are not alternatives. A tenant build-out contains both: the genuinely personal property items — cabling, dedicated power, millwork, decorative lighting, floor coverings — belong at 5 years, and what remains of the interior improvement lands in QIP at 15 years.
Both are bonus eligible, so in a 100% bonus year the immediate deduction is similar either way. The distinction still matters for recapture on exit, for state conformity where a state decouples from bonus, and for years where you elect out of bonus.
The detail, if you want it
Because of the 2017 drafting error and the retroactive CARES Act fix, a large amount of 2018–2019 improvement spend still sits on 39-year schedules. Correcting it doesn't require amended returns — it's a method change on Form 3115, with the whole catch-up landing this year.
On a $1.2M tenant improvement placed in service in 2019 and depreciated over 39 years, the cumulative correction is well into six figures. How the look-back works.
When a space is stripped and rebuilt for a new tenant, the old improvements are gone but usually still sit on the depreciation schedule. The tangible property regulations let you elect to write off their remaining basis — but only if you can establish what they cost, which is the study's job.
Common questions
What exactly is qualified improvement property?
Any improvement made by the taxpayer to an interior portion of an existing nonresidential building, placed in service after the date the building was first placed in service. Three things are carved out by statute: enlargement of the building, elevators and escalators, and the internal structural framework.
Does QIP apply to apartment buildings?
No. QIP is a nonresidential concept only. Interior improvements to residential rental property follow the normal rules — components that are genuinely personal property go to 5 years, land improvements to 15, and the rest follows the building at 27.5.
What was the retail glitch?
The 2017 legislation intended to give QIP a 15-year life but the statutory text omitted the assignment, leaving it at 39 years and therefore ineligible for bonus depreciation. The 2020 CARES Act fixed it retroactively to property placed in service after 2017. Taxpayers who had already filed with 39-year QIP could correct it — and many never did.
Can I still fix a 39-year QIP schedule from 2018?
Yes, if you still own the property. Using an incorrect recovery period for two or more consecutive years is a method of accounting, corrected by filing Form 3115 with a section 481(a) catch-up on the current return. It is one of the most common findings on a look-back review.
No-cost feasibility review
Find out what your building is hiding.
A feasibility review is free and takes about twenty minutes. Bring the closing statement and the depreciation schedule; we will tell you plainly whether a study pays for itself.