Qualified improvement property is any improvement the taxpayer makes to the interior of a nonresidential building after the building was placed in service, excluding enlargements, elevators, escalators and structural framework. It is 15-year property, eligible for bonus depreciation and section 179, and for book it is amortised over the shorter of its life and the lease.
Qualified improvement property is an interior improvement to a nonresidential building, made after the building was placed in service.
Section 168(e)(6) defines it: any improvement made by the taxpayer to an interior portion of a building that is nonresidential real property, placed in service after the date the building was first placed in service. Three things are excluded however they are built: enlargement of the building, any elevator or escalator, and the internal structural framework. The Tax Cuts and Jobs Act folded the old qualified leasehold, restaurant and retail improvement categories into this one and meant to give it a 15-year recovery period; the drafting left it at 39 years until the CARES Act (Public Law 116-136, section 2307) corrected it, retroactive to 2018. Since then qualified improvement property is 15-year property under the general depreciation system (straight line, half-year or mid-quarter convention) and 20-year under the alternative depreciation system, and, because its recovery period is 20 years or less, it qualifies for bonus depreciation and for section 179 as qualified real property.
Who made the improvement matters.
The improvement must be made by the taxpayer. A tenant that pays for and owns its fit-out has qualified improvement property. A landlord that builds out space for a tenant has it too. An improvement bought with the building does not qualify, because it was not made by the taxpayer, and a fit-out on a building the taxpayer has not yet placed in service does not qualify either, because it was not placed in service after the building. These are register fields, not judgement calls at filing time.
| Book | Method and life | Year 1 (2026) | Year 2 | Years 3 to 8 |
|---|---|---|---|---|
| Federal, bonus taken | 100% special allowance | 240,000.00 | 0.00 | 0.00 |
| Federal, class elected out | 15-year straight line, half-year | 8,000.00 | 16,000.00 | 16,000.00 a year |
| State (no bonus) | 15-year straight line, half-year | 8,000.00 | 16,000.00 | 16,000.00 a year |
| Book | Straight line over the 8 years left on the lease | 30,000.00 | 30,000.00 | 30,000.00 a year |
The book life is the lease, not the tax life.
For financial reporting a lessee amortises leasehold improvements over the shorter of their useful life and the remaining lease term, counting renewal periods only where renewal is reasonably certain (ASC 842-20-35-12). A fit-out with eight years left on the lease is an eight-year asset for book and a 15-year asset for federal and most states, with 100% bonus available on the federal side for property acquired after 19 January 2025. The four books above are the reason a register carries four books: the same $240,000 is deducted in one year federally, over fifteen years in a state that adds bonus back, and over eight years in the financial statements, and the roll-forward, the deferred tax computation and the state return each need their own figure. The depreciation engine page lists the methods and conventions; the state conformity article covers the addback.
What to record on the asset.
- That the improvement is to the interior of a nonresidential building, and the date the building was first placed in service.
- That the taxpayer made the improvement, and whether it includes any enlargement, elevator, escalator or structural framework, which are carved out.
- The remaining lease term at the placed-in-service date and whether renewals are reasonably certain, for the book life.
- The bonus election or elect-out for 15-year property in the year, and the section 179 amount if elected.
- The state treatment in each state book.
In Fixed Asset Desk: qualified improvement property is a class with a 15-year federal life and a book life you set from the lease; the retail page on leasehold improvements across locations shows the pattern.
Sources: Internal Revenue Code section 168(e)(6) and (k); Public Law 116-136 (CARES Act), section 2307; Publication 946 (2025), chapter 3; FASB ASC 842-20-35-12. Checked 20 September 2026.