Subject to the overall maximum dollar amount and investment ceiling, Qualified Improvement Property (QIP), or property eligible for the expense election, consists of the following assets, if “purchased” (see below) for use in the active trade or business of the taxpayer:
- Tangible MACRS property that is considered Code Sec. 1245 property (generally, most depreciable property other than buildings and other land improvements),
- Off-the-shelf computer software, and,
- By election of the taxpayer, qualified real property (see below). (Code Sec. 179(d)(1)).
Code Sec. 179 property does not include property used in the production of income (Code Sec. 212 property); property used outside the U.S.; property used by certain tax-exempt organizations, and property used by governmental units or foreign persons or entities (Code Sec. 179(d)(1)). The election also is not available for the portion of the property's basis that is determined by reference to the basis of other property held at any time by the purchaser (e.g., trade-ins).
Let’s look at qualified real property and qualified leasehold improvement property: For property placed in service in tax years beginning after 2017, qualified real property (above) is property that is either (1) qualified improvement property or (2) the following improvements to nonresidential real property after the date such property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems. (Code Sec. 179(e)) For property placed in service in tax years beginning before 2018, qualified real property consisted of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property (all are various types of building improvements.
Qualified improvement property is property that is any improvement to an interior portion of a building that is nonresidential real property if the improvement is placed in service after the date on which the building was first placed in service, except for any improvement for which the expenditure is attributable to (1) enlargement of the building, (2) any elevator or escalator, or (3) the internal structural framework of the building. (Code Sec. 168(e)(6)(B)).
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