Qualified improvement property (QIP) is 15-year, bonus-eligible property under IRC §168(e)(6): an improvement the taxpayer makes to the interior of a nonresidential building after the building was first placed in service, excluding enlargements, elevators and escalators, and the internal structural framework. A cost segregation study is how QIP is separated from 39-year structure in a build-out.
How Are Interior Renovation Costs Usually Depreciated?
When a business renovates the inside of a commercial building — new partitions, ceilings, lighting, finishes, interior doors — the costs often get booked as "leasehold improvements" or simply lumped into the building and depreciated over 39 years. For a large share of those dollars, that 39-year default is the wrong answer, and a cost segregation study of the renovation is how the 15-year share is found.
Most interior, non-structural improvements to an existing nonresidential building meet the definition of Qualified Improvement Property (QIP), which carries a 15-year recovery period and, importantly, is eligible for bonus depreciation.
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What Is Qualified Improvement Property?
QIP is defined in IRC §168(e)(6) as any improvement made by the taxpayer to an interior portion of a building that is nonresidential real property, placed in service after the date the building itself was first placed in service. Three things are carved out and never qualify:
- any improvement attributable to the enlargement of the building;
- any elevator or escalator; and
- the internal structural framework of the building.
Two words in that definition do a lot of work. "Interior" means the improvement has to be inside the building envelope — a new roof or exterior work is not QIP. "Nonresidential" means QIP does not exist for residential rental property; an apartment-building interior renovation is not QIP (its components are classified on their own merits, as in cost segregation for apartment buildings, but the 15-year QIP category is off the table). And "after" matters: QIP is a renovation concept — improvements placed in service the same day as the original building generally are not QIP.
The "Retail Glitch" and the CARES Act Fix
QIP has a famous drafting scar. The 2017 Tax Cuts and Jobs Act intended QIP to be 15-year property — and therefore bonus-eligible — but a legislative error left QIP without an assigned recovery period, which defaulted it to 39 years and disqualified it from bonus depreciation. For two years, taxpayers who renovated commercial interiors were stuck depreciating those costs over 39 years.
The CARES Act (2020) corrected the error, assigning QIP a 15-year recovery period retroactive to property placed in service after Dec. 31, 2017. Taxpayers who had been depreciating QIP over 39 years could change their method and catch up. If you placed interior improvements in service in 2018 or 2019 and never revisited them, that catch-up may still be available.
Why Does 15-Year QIP Change the Math?
The jump from 39-year to 15-year property is meaningful on its own, but the larger lever is bonus depreciation. Because QIP has a recovery period of 20 years or less, it qualifies for the additional first-year depreciation allowance under IRC §168(k). After the 2017 phase-down schedule (which had bonus stepping down toward zero), the One Big Beautiful Bill Act restored a permanent 100% bonus depreciation for qualifying property, including QIP, acquired after Jan. 19, 2025. Whether 100% applies turns on when the property was acquired (or, for self-constructed property, when construction began), not on the placed-in-service year; property acquired on or before Jan. 19, 2025 gets the phase-down rate for its placed-in-service year, as bonus depreciation in 2026 for real estate owners explains. The practical effect: for a building owner who renovated a commercial interior in that window, a large block of what was being depreciated over 39 years may instead be deductible in full in year one.
One technical nuance worth knowing: QIP is depreciated using the straight-line method over 15 years, unlike 15-year land improvements, which use 150% declining balance. When bonus applies at 100%, the method difference washes out; when bonus is reduced or elected out, it does not, and the distinction matters.
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Is QIP Labeled on Contractor Invoices?
The catch is that "QIP" is not a line on most contractor invoices. A renovation invoice bundles structural and non-structural work, interior and exterior, qualifying and non-qualifying, into lump sums. Separating the QIP-eligible interior improvements from the internal structural framework, the building enlargement, and the elevators requires walking the construction documents component by component — which is exactly what a cost segregation study does (the depth of that component-by-component work is one of the main ways cost segregation firms compare). A study identifies the interior, non-structural improvements that meet §168(e)(6), assigns them to the 15-year class, and documents the basis with reference to the underlying source records so the position is supportable.
The Practical Takeaway
If your business has renovated the interior of a commercial building — a tenant build-out, a store remodel, an office refresh, a restaurant fit-out — a meaningful portion of that spend is probably 15-year QIP rather than 39-year structure, and a portion of that may be deductible immediately under current bonus rules. The two questions worth answering before you file are simple: how much of the renovation is interior, non-structural improvement, and when was the work acquired (or, for work built for you, when did construction begin) and placed in service. The first is what a cost segregation study quantifies; on the second, the acquired or construction-start date decides whether 100% bonus can apply (after Jan. 19, 2025), and for earlier acquisitions the placed-in-service year sets the phase-down rate.
If you have a build-out or remodel on the books, run it through our free calculator to see what the QIP treatment could be worth — or start a study with your renovation cost documents. For a food-service fit-out, see restaurant cost segregation.
Related reading on the same mechanic: how QIP and QPP differ under §168 and the §168(n) 100% deduction for the production building itself.
Frequently Asked Questions
Is Qualified Improvement Property 15-year or 39-year depreciation property?
Qualified Improvement Property is 15-year property rather than 39-year property, where the work is an interior, non-structural improvement to an existing nonresidential building placed in service after that building itself was first placed in service. That definition comes from IRC §168(e)(6), and the CARES Act assigned QIP a 15-year recovery period retroactive to property placed in service after Dec. 31, 2017. The 39-year default that interior renovation costs often get booked at is the wrong answer for a large share of those dollars.
What work is excluded from the 15-year QIP depreciation class?
Three things are carved out of QIP and never qualify: any improvement attributable to the enlargement of the building, any elevator or escalator, and the internal structural framework. "Interior" also does real work in the definition — the improvement has to be inside the building envelope, so a new roof or other exterior work is not QIP.
Does QIP qualify for bonus depreciation?
Yes — because QIP has a recovery period of 20 years or less, it qualifies for the additional first-year depreciation allowance under IRC §168(k). The One Big Beautiful Bill Act restored a permanent 100% bonus depreciation for qualifying property, including QIP, acquired and placed in service after Jan. 19, 2025. QIP is otherwise depreciated straight-line over 15 years, and that method difference matters whenever bonus is reduced or elected out.
Does Qualified Improvement Property apply to apartment buildings?
No — QIP exists only for nonresidential real property, so an apartment-building interior renovation is not QIP. Those components are still classified on their own merits, but the 15-year QIP category is off the table for residential rental property.
How does a cost segregation study identify QIP in a renovation?
A cost segregation study separates the QIP-eligible interior improvements from the internal structural framework, the building enlargement and the excluded systems by walking the construction documents component by component, because "QIP" is not a line on a contractor invoice. That is why finding QIP is an engineering exercise rather than a label: the cost segregation report assigns the qualifying components to the 15-year class and documents the basis with reference to the underlying source records so the position is supportable.
