The Tax Cuts and Jobs Act of 2017 contained an error. It did not allow for new tenant or interior improvements to be classed as 15-year property. Rather, these costs were removed from the 15-year depreciation category and included with other real property (Section 1250).
Every tax advisor knew this was a mistake. Yet, most felt compelled to follow the tax code and exclude these improvements from personal property. The recent technical corrections from the Treasury/IRS specifically added Qualified Improvement Property (QIP) as a 15-year class. These are non-residential items added after the date the property was first placed in service. QIP includes improvements made to an interior portion of a building. Improvements which do not qualify as QIP are those attributable to the internal structural framework of the building, or any elevator or escalator. Also, the QIP cannot be part of a building enlargement.
The taxpayer has an option to treat QIP costs as depreciable over 15 years or expense them as personal property (with certain limitations). We recommend that taxpayers consult with their tax counsel and advisors as to the property treatment of QIP. Our job as cost segregation experts is to analyze, designate, and support the dollars we attribute to QIP.