Qualified Improvement Property: What Counts and How It Is Depreciated in 2026

A commercial building depreciates over 39 years. Most of what you spend on its interior later, walls, ceilings, lighting, restrooms and finishes, does not have to. If it meets the definition of qualified improvement property, it is 15-year property, and in 2026 that generally means it can be deducted in the year it is placed in service.

This guide is educational, not individualized tax advice. The classification of a specific project depends on the work performed, the building and your records.

An improvement is QIP when it is (1) made by you, (2) to an interior portion of a building, (3) that is nonresidential real property, (4) placed in service after the building itself was first placed in service. Three things are excluded even if they meet those conditions: enlargements of the building, elevators and escalators, and the internal structural framework.

• Recovery period: 15 years, straight-line, with the half-year convention (or mid-quarter, when most of the year's property goes into service in the last quarter), not the mid-month convention that applies to the building itself.
• Bonus depreciation: QIP has a recovery period of 20 years or less, so it can take bonus depreciation. For QIP acquired after January 19, 2025, the rate is 100%. See the bonus depreciation guide for the acquisition date rules.
• Section 179: QIP is also qualified real property for Section 179, along with roofs, HVAC, fire protection and security systems added to a nonresidential building. The 2026 limit is $2,560,000, reduced dollar for dollar once qualifying purchases pass $4,090,000, and the deduction cannot exceed business income.
• The exception: a real property business that elected out of the business interest limit must depreciate QIP under the alternative depreciation system over 20 years, and that property cannot take bonus. Section 179 may still be available, so the election and the buildout should be planned together.

A dental practice owns its building and spends $400,000 in 2026 on an interior renovation: $350,000 of new walls, ceilings, lighting, plumbing and finishes, and $50,000 to add an elevator.

Illustrative example, not a client result. Whether the larger first-year deduction helps depends on the owner's income, the entity and state conformity. If the renovation tore out interior work that was still on the depreciation schedule, the remaining cost of what was removed can often be written off too, through a partial asset disposition.

QIP belongs to whoever made the improvement. A tenant who pays for a buildout depreciates it as QIP; a landlord who pays for tenant improvements claims them instead. Leases with improvement allowances need a look at who owns what.

Interior improvements placed in service in 2018 or later that are still on a 39-year schedule are a common find. That is usually fixed without amending returns: an automatic accounting method change on Form 3115 claims the missed depreciation in one year as a Section 481(a) adjustment. Owners planning a larger project often pair it with a study of the whole building; studies are performed by Engineered Tax Services, our cost segregation partner.