Title: What is Qualified Leasehold Improvement Property?
Headings: What is Qualified Leasehold Improvement Property?
What is Qualified Leasehold Improvement Property?
Content: What is Qualified Leasehold Improvement Property? Depreciation
What is Qualified Leasehold Improvement Property? Tamara Hubbard, CPA U.S. GAAP Technical Accounting Editor/Author
July 14, 2020
Tamara Hubbard, CPA U.S. GAAP Technical Accounting Editor/Author
July 14, 2020
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As accounting professionals navigate the transition between ASC 840 and ASC 842, Leases, and consider the changes implemented in the Tax Cut and Jobs Act (TCJA) of 2017 and the Coronavirus Aid, Relief and Economic Security Act (CARES Act) enacted in March 2020, questions regarding the definitions of lease-related terms and proper accounting application are in no short supply. A common question among entities who are installing leasehold improvements is “What is Qualified Leasehold Improvement Property?” Qualified Improvement Property (QIP) is a term found in the Internal Revenue Code, Section 168, and encompasses any improvements made to the interior of a commercial real property. Improvements must be placed into service after the building’s date of service and explicitly exclude expansion of the building, elevators and escalators, and changes made to a building’s internal structural framework. QIP replaces several categories of improvements detailed in tax regulations prior to the TCJA, including Qualified Leasehold Improvement Property. Any property that is subject to the rules of QIP and is leased by a single tenant now falls under the rules for QIP for tax accounting purposes. The new rules under the CARES Act modify the depreciable life of assets falling under this category from 39 years to 15 years, which makes QIP eligible for bonus depreciation and offers taxpayers significant tax-reduction opportunities. This bonus depreciation may be retroactively applied for those entities who placed qualified improvement property into service in the 2018 and 2019 taxable years and may create losses, which could result in tax refunds.