Updated: May 21
The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the separate definitions for qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property and left us with a single definition for qualified improvement property (QIP). In general, QIP means any improvement made by the taxpayer to an interior portion of a building, which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. Congress intended to provide QIP a 15-year recovery period under Section 168(e)(3)(E) but Section 168 was not amended to include QIP. As part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, congress made a technical correction to amend IRC Section 168(e)(3)(E) retroactively1. Due to the technical correction, any QIP acquired by the taxpayer after September 27, 2017 and placed in service by the taxpayer after December 31, 2017, is eligible for the additional, first-year depreciation deduction under Section 168(k)2.
How do you go about claiming the additional, first-year depreciation deduction for property placed into service after December 31, 2017? Based on your business’s circumstances there are a couple options:
Business’s that have not already filed their 2019 tax return
· Amend your 2018 tax return
· File an automatic accounting method change and record the change in 2019
Business’s preparing to file a 2019 tax return
· If you file your 2019 return in a manner that ignores the CARES Act QIP update, an accounting method will be established and improper treatment can generally only be updated through an accounting method change
· If you file your 2019 return consistent with the CARES Act QIP update, you can amend your 2018 tax return to take advantage of the first-year depreciation deduction under §168(k)
Business’s that have already filed a 2019 tax return
· If you have already filed your 2019 return you can complete a change in accounting method to correct it in 2020.
There are many factors that need to be considered to determine the best way to take the additional QIP deduction. Please reach out with any questions and Halverson & Company would be happy to assist.
 EY. 2020. Tax News Update. March 31. Accessed April 20, 2020.  IRS. 2020. "Rev. Proc. 2020-25."