Qualified Improvement Property Deduction Technical Correction

COVID-19 Update

The Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017, was intended to accelerate the depreciation of “qualified improvement property” (QIP), which is generally defined as any improvement made to the interior portion of a nonresidential building any time after the building was placed in service. As a result of a drafting error in the TCJA, however, the depreciable life of QIP remained at the pre-TCJA term of 39 years, instead of the intended term of 15 years.

The Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) provides a technical amendment to correct the foregoing drafting error by reducing the depreciable life of QIP from 39 years to 15 years, making QIP also eligible for 100% bonus depreciation applicable to assets with a recovery period of 20 years or less. The change is retroactive to January 1, 2018, and thus, taxpayers should be entitled to file amended tax returns to receive the benefits of accelerated depreciation for QIP.

How Manatt Can Help: Manatt’s tax practice regularly advises its clients on income tax matters arising from a variety of real estate transactions, including applicable depreciation periods for real and personal property.

For More Information: Contact Jeffrey A. Mannisto, partner and leader, Manatt Tax, at 310.312.4212 or jmannisto@manatt.com; Robert Duran, partner, Manatt Tax, at rduran@manatt.com or 310.312.4274; or Scott Johnson, counsel, Manatt Tax, at sbjohnson@manatt.com or 415.291.7428.

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