Qualified improvement property, QIP, is the single most valuable classification for anyone renovating commercial space. IRC section 168(e)(6) defines it as any improvement made by the taxpayer to the interior portion of a nonresidential building, placed in service after the date the building itself was first placed in service. QIP gets a 15-year recovery period with straight-line MACRS, and because bonus depreciation under section 168(k) covers property with a recovery period of 20 years or less, QIP is fully bonus-eligible.
Yes, it gets bonus, and the rate depends on acquisition date
Under OBBBA, enacted July 2025, 100 percent bonus depreciation is permanent for qualified property acquired after January 19, 2025. QIP acquired on or before that date keeps the old phase-down: 80 percent for 2023 placements, 60 percent for 2024, 40 percent for 2025. So a renovation contracted and placed in service in 2026 generally deducts in full in year 1, while one locked in during 2024 does not. This was not always true: the 2017 tax law accidentally left QIP at 39 years, and the CARES Act retroactively fixed it to 15, which is why older renovations sometimes sit misclassified on depreciation schedules and need a Form 3115 correction, following the Form 3115 instructions, to catch up.
What counts and what is carved out
QIP covers interior work: new partitions, drywall, ceilings, interior doors, flooring, interior lighting, and plumbing or electrical runs serving the renovated space. Section 168(e)(6) excludes 3 things even when they are interior: enlargements of the building, elevators and escalators, and the internal structural framework. Exterior work, roofs, facades, windows, site work, is never QIP, and neither is any improvement to residential rental property; the building must be nonresidential. The improvement must also come after the building was first placed in service by anyone, so initial build-outs of a brand-new shell that was never placed in service can fail the test.
A worked example
A fund spends $350,000 renovating one floor of a 39-year office building it has owned since 2021: demolition of old partitions, new offices, ceilings, LED lighting, and an upgraded break room. Suppose $300,000 qualifies as QIP and $50,000 is 5-year personal property such as modular casework and dedicated equipment circuits. With the work acquired and placed in service in 2026, 100 percent bonus applies to both buckets and the full $350,000 is deductible in year 1. Without the QIP classification, the $300,000 would have produced only about $7,692 of first-year deduction at 39-year straight line.
Where QIP does not help
Residential landlords get nothing from QIP; their interior renovations depreciate at 27.5 years unless a cost segregation analysis moves components into 5- or 7-year classes. Structural framework repairs stay at 39 years even mid-renovation. And bonus on QIP, like all bonus, can be limited at the state level, since many states decouple from section 168(k). Amadae's cost segregation screen separates the QIP, short-life, and structural buckets of a renovation as a screening estimate, and Amadae prepares the Form 3115 when an old renovation was booked at 39 years by mistake.