Qualified Improvement Property (QIP): 15-Year Depreciation

Qualified improvement property (QIP) is an improvement to the interior of an existing nonresidential building, placed in service after the building was first placed in service. It is depreciated over 15 years instead of the building's 39 years, and because 15-year property qualifies for bonus depreciation, QIP acquired after January 19, 2025 can generally be deducted in full in year one.

That single classification is why a renovation that looks like one $500,000 invoice can behave very differently on a tax return. Get it right, and most of the cost can come back in year one. Treat the whole renovation as part of the building, and the same dollars trickle back at roughly one-thirty-ninth per year. This is general education, not tax advice — have your CPA confirm how QIP applies to your project before you file.

What counts as qualified improvement property?

QIP is defined in IRC Section 168(e)(6). An improvement qualifies only if it meets all of these tests:

• Interior. The work is to an interior portion of the building. Exterior work — a facade, a parking lot, landscaping — is not QIP, even in the same renovation contract.
• Nonresidential. The building is nonresidential real property: an office, retail store, warehouse, restaurant, or medical building. Interior improvements to residential rental property do not qualify as QIP.
• After the building was first placed in service. QIP covers improvements to a building that already exists. Work done during the building's original construction does not qualify. A later renovation can.
• Made by the taxpayer. The improvement must be made by the taxpayer claiming it — you cannot treat improvements a seller made before you bought the building as your QIP.
• An improvement, not a repair. QIP is capitalized and depreciated. A genuine repair is governed by the repair regulations and is not QIP at all.

Common examples include reconfiguring office space, new non-structural interior walls, flooring, interior lighting, and built-in cabinetry.

What QIP excludes

Three exclusions remove a surprising amount of renovation work from QIP:

A new roof is a useful trap to avoid. A roof is exterior work, so it is not QIP — but it is separately listed as qualified real property for Section 179 purposes (see below). The two categories overlap heavily but are not identical.

Why 15 years changes everything

Nonresidential real property is depreciated straight-line over 39 years. QIP is depreciated straight-line over 15 years under the general depreciation system (20 years under the alternative depreciation system, or ADS). Even without bonus depreciation, QIP returns its cost more than twice as fast: in a full year, $380,000 of QIP deducts $25,333 over 15 years, against $9,744 if the same $380,000 stayed in the 39-year building.

Second, property with a recovery period of 20 years or less can qualify for bonus depreciation, and QIP at 15 years clears that bar. The 2017 Tax Cuts and Jobs Act intended QIP to be bonus-eligible, a drafting error left it at 39 years, and the CARES Act in 2020 corrected it retroactively to 15 years. The 100% bonus depreciation now in effect is what makes that correction worth real money today.

Under the One, Big, Beautiful Bill Act, 100% bonus depreciation is permanent for qualifying property acquired after January 19, 2025, as confirmed in IRS Notice 2026-11. Property acquired on or before that date stays on the old phase-down schedule — 40% for 2025 placements, 20% for 2026 placements — so the acquisition date decides the rate.

QIP and cost segregation: two classifications, one renovation

A cost segregation study does not create QIP. It documents how a renovation budget splits among the depreciation categories the tax code already provides. For a renovation, that split typically produces three buckets, and QIP is only the middle one:

• 5- and 7-year property: removable fixtures, specialty electrical or plumbing serving equipment rather than the building, appliances, and other tangible personal property the study identifies. It also qualifies for bonus depreciation, and is depreciated faster than QIP when bonus is not available.
• 15-year QIP: the interior improvement itself — walls, flooring, lighting, and finishes that are part of the remodel but are not personal property and are not structural.
• 39-year property: the structure and its structural framework, plus excluded work such as an enlargement or elevator.

That split is where studies earn their fee: a single "interior build-out, $500,000" invoice almost never belongs in one bucket. For the purchase side, see the commercial property cost segregation example, a $2 million office building on the same 39-year baseline.

Worked example: a $500,000 interior renovation

Assume an owner renovates the interior of an existing office building in 2026. The building was first placed in service years earlier, the renovation is placed in service in 2026, and the property was acquired after January 19, 2025. The $500,000 budget splits as follows — illustrative allocations, not a forecast for any real project:

With 100% bonus depreciation, the 5-year and 15-year buckets — $450,000 in total — are deductible in year one. The $50,000 structural portion deducts at $50,000 / 39, or about $1,282 in a full year. First-year depreciation is therefore about $451,282.

If the entire $500,000 had been treated as part of the building, the full-year deduction would have been $500,000 / 39, or about $12,821. The classification moves roughly $438,000 of deductions from future years into year one. It does not create a deduction that was not already there; it changes when the deduction arrives.

Two limits can shrink that result. If the business elected out of the Section 163(j) business interest limitation, it must depreciate QIP under ADS over 20 years, and ADS property does not qualify for bonus depreciation. And whether the owner can use a large first-year loss depends on the passive activity and at-risk rules — the same gate that decides whether any cost segregation deduction is usable in the year it is created.

Bonus depreciation or Section 179?

QIP is eligible for both bonus depreciation and the Section 179 election. Section 179 is applied first, then bonus depreciation covers the remaining basis, but Section 179 is capped: for tax years beginning in 2026, the maximum is $2,560,000, phasing out dollar-for-dollar once total qualifying property placed in service exceeds $4,090,000, and it cannot exceed the business's taxable income from the active conduct of a trade or business. Bonus depreciation has no dollar cap and no taxable-income limit, and it can create a loss.

For most renovations under the caps, bonus depreciation alone does the job. The comparison, including when combining the two helps, is covered in Section 179 vs. bonus depreciation.

One caution applies to both routes: the placed-in-service date controls the tax year. A renovation finished in December but not ready for its intended use until January belongs to the later year.

How to document a QIP renovation

QIP fails most often on paperwork, not on the law. Before work starts, ask for itemized invoices that separate interior work, personal property, structural work, and exterior work, rather than one lump-sum "renovation" line. Photograph the space before and after, and give your CPA the placed-in-service date and the acquisition date — both matter, for different reasons, as shown above.

Get your renovation classified before you file

A cost segregation study splits a renovation into the buckets the tax code actually provides — 5-year property, 15-year QIP, and the 39-year structure — so each dollar gets the fastest life it qualifies for. Get a free feasibility estimate for your property at room42.io and see what your renovation, or your next purchase, would reclassify.