A new component of bonus depreciation in the PATH Act of 2015 was introduced with the passing of this act: Qualified Improvement Property.

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“Qualified Improvement Property: Relief for Manufacturers Who Own the Building” by Steve Steve Mazza HeadshotMazza, CPA | Manager – Tax

With the passing of the PATH Act of 2015, bonus depreciation was retroactively extended through 2019. This part of the legislation is well known, but a lesser known aspect of the act finally provides relief to manufacturers who own the building they operate in. A new component of bonus depreciation was introduced with the passing of this act: Qualified Improvement Property.

What is Qualified Improvement Property?

Previously, if a manufacturer owned the building they operate out of, either in the operating entity or another limited liability company, any improvements made to the nonresidential real property were “stuck” in 39 year class life and were not eligible for bonus depreciation. In simple terms, any improvements deemed to be nonresidential real property received a deduction in the first year equal to one-thirty-ninth of the cost of the improvements. Obviously, there were little tax incentives to improve the building.

With the Qualified Improvement Property provision in the PATH Act of 2015, such improvements still maintain their original useful live of 39 (or 15 years in some cases), but are now eligible for bonus depreciation. As long as all qualifications are met, the taxpayer can now immediately expense 50% of the total cost of the improvements in the year the improvements are made.

A new component of bonus depreciation in the PATH Act of 2015 was introduced with the passing of this act: Qualified Improvement Property.

Qualifications of a Qualified Improvement Property

Qualification for such property are that it must be original-use property (new), it must have been placed in service after 12/31/2015, and it cannot be improvements made to enlarge the building, elevator or escalator related, or for the internal structural framework of the building. The provision also eliminates previous language contained in the Qualified Leasehold Improvement provision where the building had to be at least three years old and the improvements had to be subject to the terms of a lease agreement.

Do not miss your opportunity to take advantage of this great new tax incentive. Please contact your trusted advisor at Apple Growth Partners or any member of our Manufacturing and Distribution group for more information or to see if your improvements qualify.

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