Strategies for Qualified Improvement Property

As discussed in our seminars, qualified improvement property was affected by a technical glitch in the Tax Cut and Jobs Act, which was enacted on December 22, 2017.  Qualified improvement property is any improvement to an interior portion of a building which is nonresidential real property that meets certain other restrictions and requirements.  (See pages 59 to 60 of the M+O=CPE Individual Tax Year-End Workshop Reference Book Tax Year 2018.)

Qualified improvement property is eligible for §179 for the 2018 tax year, as long as the taxpayer otherwise meets the requirements for the §179 deduction.

For clients that are ineligible for the §179 deduction (e.g., they do not have sufficient taxable income for the §179 election), the Tax Cut and Jobs Act inadvertently omitted provisions that would have made qualified improvement property eligible for bonus depreciation and/or the 15-year recovery period.  As a result, under current law, if a taxpayer does not claim the §179 deduction for qualified improvement property, such property must be depreciated over 39 years.

Congress might pass a technical corrections law that fixes this issue, but unless/until that occurs, taxpayers who might benefit from bonus depreciation and/or the 15-year recover period for qualified improvement property must decide whether to file their 2018 returns without using these provisions or extend their returns in the hope that Congress will act before the extended due date.

There is no clear timeframe for when/if Congress will act on this issue; however, practitioners should discuss this issue with their affected clients and consider filing extensions for any client that might benefit from a technical correction, if one should occur.