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Bonus depreciation, which was scheduled to expire after 2014, was extended through 2019 by the PATH Act. Under the PATH Act, 50 % bonus depreciation applies to qualified property placed in service in 2015, 2016 and 2017. The rate is reduced to 40 % for qualified property placed in service in in 2018 and 30 % for qualified property placed in service in 2019. Unless additional legislation is enacted, bonus depreciation is scheduled to expire after 2019.
Effective for property placed in service after January 1, 2016, the PATH Act allows bonus depreciation to be taken on a class of property referred to as “qualified improvement property”. For bonus depreciation purposes, “qualified improvement property” replaces the class of property known as “qualified leasehold improvement property”.
“Qualified improvement property” is defined as any improvement to an interior portion of a building that is nonresidential real property, if the improvement is placed in service after the date the building was first placed in service. Qualified improvement property does not include expenditures attributable to the enlargement of a building, an elevator or escalator, or the internal structural framework of the building.
Qualified leasehold improvement property (which qualifies for bonus depreciation if placed in service before 2016) was defined similarly to qualified improvement property, except that the following conditions applied:
Qualified improvement property is defined much more broadly than qualified leasehold improvement property because the improvement to the property does not need to be made pursuant to a lease, and improvements to common areas also qualify.
While beyond the scope of this article, it is important to note that qualified improvement property does not qualify for a 15-year recovery period unless the qualified improvement property is:
Qualified improvement property that does not qualify for a 15-year recovery property is depreciated over 39 years as nonresidential real property using a mid-month convention.
Please contact us if you have questions regarding qualified improvement property or your ability to utilize bonus depreciation and visit our Construction and Real Estate pages to see a full listing of our service offerings.
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