How Qualified Improvement Property Boosts Bonus Depreciation for Property Owners

When it comes to maximizing tax savings from real estate, few terms are as critical and as misunderstood as Qualified Improvement Property or QIP. Whether you’re a seasoned commercial investor or a newly property owner, understanding QIP can unlock accelerated depreciation benefits and thousands in tax savings.

Key Takeaways

• Qualified Improvement Property (QIP) includes most interior improvements to non-residential buildings and may qualify for accelerated depreciation and 100% bonus depreciation (through 2022, phasing down through 2026).
• Cost segregation studies help identify and reclassify QIP assets, allowing commercial property owners to unlock massive upfront tax deductions.
• Recent legislative changes, particularly through the CARES Act, have made QIP a vital tax-saving tool for commercial real estate investors, especially for those who have completed tenant improvements or interior renovations

Table of Content

• Key Takeaways
• What is Qualified Improvement Property?
• A Brief History of QIP and the CARES Act Fix
• How Cost Segregation Supercharges QIP Benefits
• Important Considerations
• Why QIP Matters More Than Ever
• Conclusion
• How CostSegRx Helps You Capture QIP Savings

What is Qualified Improvement Property?

Qualified Improvement Property (QIP) refers to any interior improvement to a non-residential building that is placed in service after the building was originally placed in service.

However, there are three key exclusions:

• Improvements to elevators or escalators
• Internal structural framework
• Building enlargements

Think of QIP as drywall, lighting or flooring upgrades inside your commercial property but not structural changes or additions.

A Brief History of QIP and the CARES Act Fix

QIP came into the spotlight due to a drafting error in the 2017 Tax Cuts and Jobs Act (TCJA), which failed to assign QIP a 15-year recovery period—making it ineligible for bonus depreciation.

That changed in 2020 with the CARES Act, which retroactively corrected the TCJA mistake:

✅QIP now has a 15-year recovery period under MACRS (Modified Accelerated Cost Recovery System)
✅ It qualifies for 100% bonus depreciation for assets placed in service between September 27, 2017 and December 31, 2022

For properties placed in service after 2022, bonus depreciation begins to phase out:

• 80% in 2023
• 60% in 2024
• 40% in 2025
• 20% in 2026
• 0% in 2027 (unless it’s extended)

How Cost Segregation Supercharges QIP Benefits

Cost segregation is the process of identifying and reclassifying assets within a building to accelerate depreciation. When done properly, it separates a building into components that depreciate over 5, 7, 15, or 39 years.

Here’s how QIP fits into that:

• If your business made tenant improvements or renovations to a commercial building’s interior, those improvements may qualify as QIP.
• Once identified as QIP, these improvements can immediately qualify for bonus depreciation.
• This means potentially writing off 100% of the cost in Year 1, even if the rest of the building is depreciated over 39 years.

Example:
If you spent $500,000 renovating a medical office's interior (new flooring, lighting, interior walls), you could potentially write off the full $500,000 in the year those improvements were placed in service.

Important Considerations

• Original Use Rule: QIP applies only to improvements made after the building was first placed in service.
• Property Type: QIP only applies to non-residential (commercial) real estate.
• Placed-in-Service Timing: Pay close attention to service dates to determine bonus depreciation eligibility.

Why QIP Matters More Than Ever

As bonus depreciation phases out, maximizing what you can claim becomes more important. Identifying QIP through a cost segregation study not only accelerates your depreciation but also puts real cash back into your business through tax savings

Conclusion

Qualified Improvement Property is one of the most powerful and often underutilized tax strategies available to commercial property owners. By properly identifying QIP through a professional cost segregation study, you can accelerate depreciation, reduce your tax liability, and reinvest those savings back into your business or portfolio.

With bonus depreciation continuing to phase down each year, now is the time to act. Whether you’ve recently renovated a property or are planning tenant improvements, ensuring those upgrades are classified correctly could mean tens of thousands in tax savings.

How CostSegRx Helps You Capture QIP Savings

At CostSegRx, our engineering-based studies identify QIP opportunities across office buildings, restaurants, retail centers, and more. We analyze renovations and tenant improvements to separate eligible QIP from longer-life assets ensuring you receive the maximum deduction possible.

If you’ve renovated a commercial building or are planning to, don’t leave money on the table. Contact CostSegRx for a free feasibility analysis and see how much your Qualified Improvement Property could be worth.