Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, changes were made to legislation surrounding bonus depreciation on Qualified Improvement Property (QIP), originally established by the 2017 Tax Cuts and Jobs Act (TCJA). This is great news all around but especially for the restaurant industry.
The CARES Act fixed the long-awaited technical correction allowing QIP to be depreciated over 15 years and making it eligible for 100% bonus depreciation. The CARES Act also expanded upon the definition of QIP, saying that the improvement has to be made by the taxpayer (i.e., purchased leasehold improvements (LHI) do not qualify). As a result of this change in definition, purchased LHI are depreciated over 39 years and do not qualify for bonus or section 179 of the IRS code.
One motive behind this change was to encourage taxpayers to invest in their properties. QIP includes improvements made to existing real property (nonresidential) and examples include interior doors, ceilings, drywall, electrical, plumbing, etc. Items specifically not included are improvements made to the structural framework, external improvements, expansions/additions, installation of elevators or escalators, to name a few.
In case you were wondering, tenant improvement (TI) allowances may qualify if the taxpayer is the owner at the time of the improvement (vs. purchased) and other QIP requirements are met.
A brief history of QIP: between January 1, 2016, and September 27, 2017, QIP had a 39-year recovery period with a 50% bonus. Between September 28, 2017, and December 30, 2017, QIP had a 39-year recovery period and was eligible for a 100% bonus. With the CARES Act, QIP placed in service in 2018 now has a 15-year recovery period and is eligible for 100% bonus.
Have questions? Please reach out to HORNE Tax Partner Dustin Taylor.