Update for Qualified Improvement Property

Update for Qualified Improvement Property

As discussed in our March 21, 2019 post, qualified improvement property was affected by a technical glitch in the Tax Cut and Jobs Act, which was enacted on December 22, 2017.  As a result of this technical glitch, such property is ineligible for bonus depreciation or the 15-year recovery period.

As of now, Congress has not acted to correct this technical glitch.  Therefore, as the September 15 extended due date for entity tax returns approaches, affected clients must prepare their tax returns without being able to take bonus depreciation or use the 15-year recovery period for such property that was placed in service during the 2018 tax year. 

If Congress acts to retroactively correct this issue with new legislation, affected clients would need to consider amending their 2018 returns to obtain any benefit that might result if the rules for qualified improvement property were changed by such technical correction legislation. 

As a reminder, 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.

However, 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.