Year End Tax Planning: QIP and CARES Act

[Nathan H.]

Hi all,

I was working with a client yesterday in analyzing how the CARES act may effect his year end planning. As a result, I want to share this powerful deduction incase it applies to anyone here. It could have a major impact on year end tax planning. It could also be an effective way to free up/generate some cash!

QIP (qualified improvement property) defined by IRS code section168(e)(6) as “any improvement made by the taxpayer to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service.”

The intent of the TCJA was to treat QIP as 15 year property. Due to administrative error more or less, this didn’t happen. The CARES act restored it to the original intent of the TCJA. 

To put it in basic terms: If you spent money on QIP, after 9/27/2017 and placed it in service after 2017, as a owner or lessee of commercial real estate, you can likely take 100% bonus depreciation on it. If it was done in 2018 or 2019, you can amend those returns and potentially get a refund. If taking bonus doesn’t make sense, keep in mind that the recovery period will be 15 years for most tax payers, adding a big tax advantage compared to previous rules, where QIP was 39 year property, not eligible for bonus.

Like anything else with the IRS there is nuance and this can get technical, so keep in mind that I did simplify things. Although, for the majority of tax payers, with QIP expenditures, this is materially how it would apply. As always, before you rely on this information, consult your tax professional!