What is qualified improvement property QIP?

Qualified Improvement Property (QIP) is certain interior, non-structural improvements made to nonresidential (commercial) real property after the building is first placed in service.

For tax year 2025, QIP is 15-year property for depreciation purposes and is eligible for bonus depreciation (subject to the post-2022 phase-down).

What Qualifies as QIP

To be QIP, the improvement must meet all of the following:

1. Interior improvement to a building
2. The building is nonresidential real property
3. The improvement is placed in service after the building’s initial placed-in-service date
4. The improvement is made by the taxpayer (or a lessee) to the interior

Common qualifying examples

• Interior drywall, ceilings, flooring
• Interior electrical and plumbing
• Interior lighting and fire protection systems
• Interior HVAC components serving interior space
• Build-outs for tenants (non-structural)

What Does Not Qualify as QIP

The statute specifically excludes:

• Structural framework (e.g., load-bearing walls, columns, beams)
• Elevators or escalators
• Internal structural components related to building expansion

Exterior improvements (roof, façade, windows, parking lots) do not qualify as QIP.

Bonus Depreciation

• Recovery period: 15 years (MACRS)
• Depreciation system: Generally MACRS (GDS)
• Bonus depreciation: Eligible, but phased down after 2022
  
  • 2025 bonus rate (absent new legislation): 40%

QIP’s 15-year life (and bonus eligibility) was permanently restored by the CARES Act retroactively to 2018, correcting the original TCJA drafting error.

Expensing

QIP may qualify for §179 expensing (subject to annual limits and business income limitations), which can allow immediate expensing even when bonus depreciation is limited, a key planning lever for retail, restaurant, and office build-outs.

Key Takeaways

• QIP applies only to interior improvements of commercial buildings
• It excludes structural framework, elevators, and escalators
• QIP is 15-year property and bonus-eligible
• Strong planning tool for businesses improving leased or owned space

2026 Updates:

1. The 100% Bonus Depreciation Return

OBBBA permanently restored 100% bonus depreciation for property acquired and placed in service after January 19, 2025.

• For 2026: Any QIP you place in service this year is eligible for 100% immediate expensing via bonus depreciation.
• The "Binding Contract" Trap: If you signed a written binding contract for the improvements before January 20, 2025, but only finished the work in 2026, you may be stuck with the old phase-down rate (20% for 2026) instead of the new 100% rate.

2. Massive Expansion of Section 179

The OBBBA also significantly raised the "ceiling" for Section 179, which is often used as an alternative to bonus depreciation to avoid creating a Net Operating Loss (NOL).

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Sources:

• IRC §168(e)(6) - Qualified Improvement Property
• IRC §168(k) - Bonus Depreciation
• CARES Act, Pub. L. 116-136, §2307 (QIP Technical Correction)
• IRS Publication 946 - How To Depreciate Property
• Treasury Regulation §1.168(k)-2