Qualified Improvement Property (QIP)

Qualified improvement property (QIP) is a type of property that is eligible for depreciation deductions under certain conditions. Generally, QIP includes:

Building improvements:* Additions to a building (e.g., new wings, floors, or rooms)* Major renovations to a building (e.g., modernization, expansion)* Certain energy-efficient building improvements (e.g., insulation, HVAC systems)

Other improvements:* Land improvements (e.g., grading, paving)* Machinery and equipment used in the trade or business* Computers and software used in the trade or business

Requirements for QIP:

• Cost: The cost of the improvement must be $25,000 or more.
• Useful life: The improvement must have a useful life of at least 10 years.
• Energy efficiency: Certain energy-efficient improvements may qualify for a 17.5% bonus depreciation.

Depreciation Schedule:

• 15% depreciation in the year of purchase
• 10% depreciation in each of the following two years

Exceptions:

• Certain improvements, such as residential rental property, are not eligible for QIP.
• Improvements made to historical buildings may not be eligible for QIP.

Benefits:

• Tax savings through depreciation deductions.
• Can increase the value of the property.
• Can reduce taxable income.

Example:

A homeowner adds a new wing to their house for $50,000. The new wing is eligible for QIP, and the homeowner can deduct $7,500 (15%) in the year of purchase.

Additional Notes:

• The specific rules for QIP may vary depending on the year and jurisdiction.
• It is important to consult with a tax professional to determine whether a particular improvement is eligible for QIP.
• The depreciation deductions for QIP can be complex, so it is important to seek professional advice to ensure that you are claiming the correct amount.