When improving nonresidential rental properties or other nonresidential buildings, a small business owner could depreciate qualified improvement property (“QIP”) over 15 years and use bonus depreciation to expense more of the improvement in the first year. QIP is any improvement to a building’s interior and was formally known as leasehold improvements. But in the haste of passing the Tax Cuts and Jobs Act in late 2017, the bill inadvertently eliminated the special depreciation rules for qualified improvements. The result was confusion, numerous errors in filing tax returns and the inadvertent elimination of a popular way to recapture more of the costs of improving a building over a shorter time period.
The CARES Act, passed on March 27, 2020, included a retroactive technical correction which confirms the 15-year recovery period and accessibility to 100% first-year bonus depreciation for Qualified Improvement Property. Businesses can now choose to amend their 2018 and 2019 tax returns to apply the 100% first-year depreciation deduction on qualified improvements placed in service during those years.
To Amend or Not to Amend
But is amending your past tax returns to capture bonus depreciation the right move for your business? Sure, expensing 100% of a QIP’s cost in a single year will drastically decrease your taxable income for that year, but here are several reasons why you may be better off spreading out the improvement’s cost over 15 years.
Deciding to amend a tax return is never easy. Should you need a review of your situation, please call.
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