As noted in Part 1, the Coronavirus Aid, Relief, and Economic Security (CARES) Act resulted in changes that impact past tax filings. The previous post delved into the impact of these changes on net operating losses (NOLs). This post will discuss how the law impacts real estate qualified improvement property (QIP).

What is a QIP?

A QIP is an improvement to the interior of a nonresidential building. Essentially, QIP allows businesses to receive tax benefits in exchange for investing in their property. There are exclusions to the types of improvements that can qualify for the benefits including elevators, escalators, enlargements to the building or changes to the internal structural framework of the building.

In 2017, the Tax Cuts and Jobs Act (TCJA) included provisions that negatively impacted QIPs. One key change that is especially important during the current coronavirus pandemic was the exclusion of qualified retail improvements and qualified restaurant property. The CARES Act has removed this exclusion and now allows these businesses to benefit from QIPs.

What has changed?

In addition to allowing QIPs to extend to retail and restaurant improvements, the CARES Act has expanded the power of the QIP and allowed for bonus depreciation — something that was lost with the passage of the TCJA. The change allows for a 100% bonus depreciation.

Is the change retroactive?

Like the change to NOLs, the CARES Act also applies retroactively through 2018 for QIPs.

What does this mean?

The change can result in two benefits: a lower tax bill this year and the potential to create additional NOLs to carryback to previous tax years.

The attorneys at Goldburd McCone can review the impact of these changes on businesses, providing entrepreneurs with the information they need to make the decision that is most in line with their business interests.