What QIP is
QIP is defined at IRC §168(e)(6) as "any improvement made by the taxpayer to an interior portion of a building which is nonresidential real property" if the improvement is placed in service after the building was first placed in service.
The classification provides a 15-year MACRS recovery period instead of the 39-year period that would otherwise apply to an improvement to a nonresidential building. The 15-year life makes QIP eligible for §168(k) bonus depreciation under the 20-year-or-less recovery-period requirement.
What is excluded
§168(e)(6) explicitly excludes three categories from QIP, even when they otherwise meet the definition:
- Enlargement of the building — adding square footage, building a new wing
- Elevators or escalators — these remain 39-year structural even when placed in service after the building
- Internal structural framework of the building — load-bearing walls, columns, foundation
Improvements to the building's exterior are also not QIP — they're typically 39-year structural unless they qualify as 15-year land improvements (parking lots, sidewalks, etc.) under a different MACRS class.
The CARES Act technical correction
The Tax Cuts and Jobs Act of 2017 was intended to assign QIP a 15-year recovery period and full §168(k) bonus eligibility. A drafting error in the bill omitted the 15-year designation in the final statute, leaving QIP defaulted to 39-year property and ineligible for bonus depreciation.
The CARES Act of 2020 corrected this error retroactively, restoring QIP to 15-year property effective for property placed in service after December 31, 2017. Taxpayers who placed QIP in service in 2018 or 2019 and depreciated it as 39-year property can file Form 3115 to capture the catch-up depreciation through a §481(a) adjustment.
CCA 202612008 — owner-occupied portions
Chief Counsel Advice 202612008 (March 2026) addressed a narrow but consequential question: whether interior improvements to the owner-occupied portion of a mixed-use nonresidential building qualify as QIP.
The CCA concluded that QIP eligibility turns on whether the building as a whole is nonresidential (which depends on the 80% gross-rents-from-dwelling-units test under §168(e)(2)(A)). Owner-occupation does not disqualify the improvement from QIP treatment as long as the building meets the nonresidential test.
Examples of QIP
- Interior tenant build-out in a leased nonresidential space (carpet, partition walls, dedicated tenant HVAC, decorative finishes) — when the build-out is paid by the landlord and the building has been previously placed in service
- Renovation of common areas in an office building — corridors, lobby, restrooms
- Interior fit-out of a retail center anchor space when the anchor tenant changes
- Restaurant interior remodels (kitchen relocation, dining room reconfiguration, decorative finishes)
Note: many of these line items also qualify as 5-year personal property under cost segregation rather than 15-year QIP. The classification follows the §1.48-1(c) permanence test — components that pass the permanence test (removable without damage) are 5-year personal property; the rest of the improvement that is permanent but interior is 15-year QIP.
QIP and §168(k) bonus depreciation
QIP is 15-year property and therefore satisfies the §168(k) 20-year-or-less recovery requirement. For QIP placed in service after January 19, 2025, the §168(k) bonus rate is 100% under OBBBA — full immediate expensing.
For QIP placed in service in 2023 or 2024, the bonus rate was 80% or 60% respectively. Catch-up via Form 3115 captures the rate that applied at placement, not the current 100%.
Recapture treatment
QIP is §1245 property by reference under IRC §1245(a)(3)(A) — 15-year property is personal property for recapture purposes. Disposition of a property with QIP improvements triggers full §1245 ordinary-income recapture on the depreciation taken on the QIP portion.
This is consequential when modeling cost-seg-driven sale economics: the 100% bonus depreciation on QIP looks larger in year 1 than the 80% bonus on residential rental (where applicable), but the recapture is also full ordinary rather than limited §1250.
Sources
- Statute: 26 U.S.C. § 168(e)(6)
- Legislative: CARES Act (P.L. 116-136) §2307; OBBBA §70304
- IRS guidance: CCA 202612008 (March 2026); Pub. 946 Ch. 1
- Form: Form 4562 (depreciation); Form 3115 (catch-up via §481(a))