Qualified Improvement Property (QIP) refers to certain interior improvements to non-residential (commercial) buildings that occur after the building is placed in service; and yes, QIP is a prime candidate for a Cost Segregation because it generally enjoys a highly favorable 15-year recovery period instead of 39 years, making it eligible for accelerated deductions.
By using Cost Segregation to specifically identify QIP items, you can pull a significant portion of your improvement costs into the faster 15-year life class. QIP is also eligible for Bonus Depreciation (when applicable), acting as a powerful tool to accelerate deductions, improve cash flow, and enhance overall tax efficiency. For large and complex improvements, an engineering-based Cost Segregation study is recommended to ensure every eligible component is properly identified and classified.
Qualified Improvement Property (QIP) & Cost Segregation
- QIP Definition: Certain interior improvements made to non-residential (commercial) buildings after the building was originally placed in service.
- Favorable Life: QIP generally enjoys a 15-year recovery period instead of the standard 39-year life for the commercial building shell.
- Bonus Eligibility: QIP is eligible for Bonus Depreciation (when available), which can maximize the upfront deduction.
- Cost Segregation Role: Cost Segregation is used to separately identify and classify QIP items from other long-life property components to unlock the accelerated 15-year deduction.
Project Complexity:
- For large and complex improvements, an engineering-based Cost Segregation study is recommended for proper identification.
- For simpler, clearly defined interior upgrades, your CPA may be able to classify them with standard documentation.
