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By Jeff Rasmussen

On March 27, 2020, the United States Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help combat the economic effects of the COVID-19 pandemic. Of particular note to commercial real estate owners, the CARES Act included an important correction to depreciation rules enacted as part of the Tax Cuts and Jobs Act of 2017 (TCJA). While the TCJA intended to make permanent a 15-year payback period for certain expenditures known as Qualified Improvement Property (QIP), an error in the bill instead forced businesses to recover these costs over 39 years (or, for certain real estate firms, 40 years versus the intended 20-year period). This correction in the CARES Act will qualify QIP for the expanded bonus depreciation provisions in the TCJA.


Qualified Improvement Property is defined as “any improvement made by the taxpayer to an interior portion of a building that is nonresidential real property as long as that improvement is placed in service after the building was first placed in service by any taxpayer” (Section 168(k)(3)).

Most leasehold and tenant improvements will now qualify as QIP, though QIP excludes expenditures for (1) the enlargement of a building; (2) elevators or escalators; (3) the internal structural framework of a building. The CARES Act amends the TCJA to reduce the depreciable life of QIP from 39 years to 15 years, thereby making QIP eligible for 100 percent of the expanded bonus depreciation provisions in the TCJA. The amendment is retroactive to January 1, 2018.

This change will allow many commercial real estate owners to depreciate a significantly larger amount of their building and tenant improvements each year than previously allowed. This is particularly important to commercial real estate owners that have recently made, or are planning to make, improvements to their buildings. These improvements to commercial office and industrial properties, restaurants, retail and other leasehold spaces are often the largest investments made by companies with real property holdings, after the land and building themselves.

In order to take advantage of this change, there are several issues that commercial real estate owners should carefully consider. First, an owner will need to segregate between interior and exterior improvements as well as interior items excluded from QIP. This can be accomplished by conducting a cost segregation study. Another consideration is that the CARES Act added the language “made by the taxpayer” to the prior definition of QIP. The intent and result of this addition is unclear. It is likely that the added language was intended to make sure QIP paid for by a prior owner of property is no longer treated as QIP by a successor owner. However, as drafted, the added language leaves it uncertain whether a landlord will be able to treat tenant improvements made by a tenant with an allowance provided by the Landlord as QIP.

If you have questions about the CARES Act for Qualified Improvements Properties or how it might apply to you, Ray Quinney & Nebeker’s Real Estate Team is ready and able to help.

jeffrey s. rasmussen

Jeff Rasmussen is a real estate attorney and is also monitoring related legal updates for the COVID-19 pandemic. He advises on the development of residential, commercial and resort properties, leasing, acquisitions and sales of real property, and entitlements, zoning and land use issues. He represents owners and developers of all property types and also assists borrowers in the financing of office, retail, mixed-use and multi-family developments.

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