Qualified improvement property is a 15-year, straight-line, bonus-eligible class that exists for one narrow situation: interior improvements made to a nonresidential building after that building was first placed in service. Classify a $900,000 tenant buildout correctly and it is fully deductible in year one. Miss it and the same dollars recover over 39 years. That gap is why QIP deserves more attention than it usually gets.
Key takeaways
- QIP is any improvement to the interior portion of a nonresidential building, placed in service after the building was first placed in service.
- Three statutory exclusions apply: enlargement, elevators and escalators, and the internal structural framework.
- QIP is 15-year property recovered straight-line, and it is bonus-eligible — the combination that makes it one of the most valuable classifications in the code.
- Residential rental property gets no QIP. Apartment owners are consistently surprised by this.
- Every renovation dollar sorts into one of three buckets: §1245 personal property, QIP, or a deductible repair.
What Actually Counts as Qualified Improvement Property
Read the definition literally, because each clause does work.
"Improvement to an interior portion." Exterior work is out. Roofs, façade, windows, parking, and site improvements are never QIP.
"Of a building which is nonresidential real property." A 39-year asset only. This is the clause that excludes apartments.
"Placed in service after the date such building was first placed in service." The improvement must follow the building's original placement in service by anyone, not your acquisition. A buildout done as part of original construction is part of the building.
Then the exclusions. Costs attributable to enlargement, to elevators or escalators, and to the internal structural framework are not QIP even if they are interior. In a renovation that pushes out a wall and adds structural steel, those costs go to 39 years while the balance of the interior work runs 15.
Why 15-Year Straight-Line Plus Bonus Is So Valuable
A 15-year straight-line life is unremarkable on its own. It becomes valuable because QIP is expressly bonus-eligible.
Bonus depreciation under §168(k) reaches property with a recovery period of 20 years or less, plus QIP. The One Big Beautiful Bill Act, signed July 4, 2025, restored 100% bonus depreciation permanently for qualified property acquired and placed in service after January 19, 2025. A QIP dollar is therefore fully deductible in year one, inside a 39-year building where every other dollar recovers at roughly 2.5% a year. For the current mechanics, including the transition and component elections under IRS Notice 2026-11, see the 2026 bonus depreciation guide.
The Retail Glitch, Briefly, Because Clients Still Ask
The Tax Cuts and Jobs Act meant to fold the old leasehold, restaurant, and retail improvement categories into a single 15-year QIP class. The text never assigned the 15-year life, so QIP defaulted to 39 years and, because bonus requires a 20-year-or-less recovery period, lost bonus eligibility too. The CARES Act fixed it retroactively for property placed in service after 2017.
The practical residue: QIP sitting on a 39-year life on a 2018 or 2019 fixed asset schedule is a common and correctable finding, usually through a method change rather than amended returns.
Personal Property, QIP, or Repair: A Decision Tree
Work each renovation dollar through these questions in order.
1. Is it a repair rather than an improvement? Apply the RABI test under the tangible property regulations, §1.263(a)-3: is the work a Betterment, an Adaptation to a new use, or a Restoration? If not, deduct it. The Routine Maintenance, Small Taxpayer, and De Minimis safe harbors ($2,500 without an applicable financial statement, $5,000 with one) clear many smaller items. See repair versus improvement.
2. Is it §1245 tangible personal property? Carpet, decorative lighting, dedicated equipment power, millwork, window treatments, and specialty plumbing are 5-year property, not QIP. Skipping this step costs money: 5-year property recovers on 200% declining balance, which beats QIP's straight-line schedule whenever bonus is unavailable. The 5-, 7-, and 15-year catalog lists the candidates.
3. Is it interior, nonresidential, post-placed-in-service, and outside the three exclusions? Then it is QIP.
4. Everything else is 39-year building.
| Repair deduction | §1245 personal property | QIP | |
|---|---|---|---|
| Recovery | Immediate expense | 5 or 7 years | 15 years |
| Method | Not applicable | 200% declining balance | Straight-line |
| Bonus-eligible | Not applicable | Yes | Yes |
| §179-eligible | Not applicable | Yes | Yes |
| Applies to residential rental | Yes | Yes | No |
| Governing test | RABI and safe harbors | Whiteco permanence, HCA function | Statutory definition |
Worked Example: A $1,400,000 Office Renovation
Example: a $1.4M interior renovation of a leased office floor Nonresidential building placed in service in 2009. Renovation placed in service March 2026. Total cost $1,400,000, including a 900-square-foot expansion and new structural steel at the atrium.
| Classification | Cost | Treatment | Year-one deduction |
|---|---|---|---|
| §1245 personal property | $310,000 | 5-year, 100% bonus | $310,000 |
| QIP | $840,000 | 15-year SL, 100% bonus | $840,000 |
| Enlargement and structural framework | $190,000 | 39-year, no bonus | $3,863 |
| Repairs | $60,000 | Current expense | $60,000 |
| Total | $1,400,000 | $1,213,863 |
Capitalize the whole $1,400,000 on 39 years and year one produces about $28,500. With the analysis, $1,213,863, a difference worth roughly $415,000 of deferred tax at 35%. Your result depends on your tax rate and whether you can use passive losses.
Where the QIP Bucket Simply Is Not There
Residential rental property gets nothing here. QIP is defined by reference to nonresidential real property, so a $2,000,000 unit-interior renovation across an apartment complex generates no QIP at all. The owner's path is §1245 personal property from a study, plus repair deductions, plus 27.5-year building. A real strategy, but the 15-year bucket is simply unavailable.
Mixed-use buildings require care. Whether a structure is residential rental or nonresidential real property is one determination for the whole building, and it decides whether any QIP exists. Resolve it before scoping the analysis.
QIP is not a substitute for a study. It is a residual category, so skipping the §1245 step strands 5-year assets in a 15-year class. On renovations and tenant improvements the two analyses run together.
If bonus is elected out of, or your state decouples, QIP's straight-line life is materially worse than 5-year 200% declining balance. Compare against §179 and bonus depreciation before filing.
Frequently Asked Questions
Does QIP have to be made under a lease?
No. The pre-2018 qualified leasehold improvement category required a lease between unrelated parties and a three-year waiting period. QIP dropped all of that. An owner-occupant improving its own nonresidential building qualifies on the same terms as a landlord.
Can I take §179 on QIP instead of bonus?
Yes. QIP is §179-eligible, and the choice matters when §179's asset-by-asset flexibility or a state's nonconformity to bonus makes it the better tool. Remember that §179 cannot create a loss and is capped by business taxable income.
What if QIP was placed on a 39-year life in a prior year?
Once used on two consecutively filed returns, that is an impermissible method of accounting, correctable by filing Form 3115 with a §481(a) adjustment. A taxpayer-favorable negative adjustment is taken entirely in the year of change. If only one return has been filed, amend instead.
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This article is provided by Precision Cost Segregation for general educational purposes and does not constitute tax, legal, or accounting advice. Tax outcomes depend on your specific facts, your tax rate, your passive activity position, and your entity structure. Figures shown are illustrative. Consult your CPA or tax advisor before acting, and engage a qualified professional to perform any cost segregation study. Information is current as of publication.
This article is general information, not tax or legal advice. Depreciation outcomes depend on your facts, elections, and current law — consult your CPA before acting. © 2026 Precision Cost Segregation.