100% Bonus Depreciation with Phased Tenant Improvements: How Timing Impacts Tax Savings
- Bob Montes
- Sep 1
- 2 min read
Qualified Improvement Property (QIP) and tenant buildouts
completed after core & shell construction
What’s the Strategy?
In commercial real estate, the timing of placed-in-service events can dramatically impact your bonus depreciation eligibility.
When a property is developed or renovated in phases, it's common to place the building core & shell in service before completing tenant improvements. This strategic sequencing opens the door to classifying those later improvements as Qualified Improvement Property (QIP)—and therefore eligible for 100% bonus depreciation.
IRS Definition of “Placed in Service”
Per IRS guidance, a property is placed in service when it's:
In a condition of readiness,
Available for its assigned function, and
Under control of the taxpayer.
This means a building’s core & shell can be placed in service even while tenant areas are unfinished. Later, once tenant improvements are completed and functional, those specific assets are placed in service—triggering separate depreciation treatment.
How Tenant Improvements Qualify for 100% Bonus Depreciation
The key is that tenant improvements:
Are placed in service after the building,
Are interior in nature,
Do not involve elevators, escalators, enlargements, or structural framework.
These are the exact traits of QIP, which carries a 15-year recovery period under MACRS, making it eligible for 100% bonus depreciation under §168(k).
MACRS Breakdown Example
Asset Type | Life | Method | Special Depreciation |
|---|---|---|---|
QIP – Tenant Improvements | 15 yrs | Straight Line | 100% Bonus Eligible |
Office Furniture & Fixtures | 7 yrs | 200% DB | 100% Bonus Eligible |
Equipment & IT | 5 yrs | 200% DB | 100% Bonus Eligible |
Land Improvements | 15 yrs | 150% DB | 100% Bonus Eligible |
Nonresidential Real Property | 39 yrs | Straight Line | Not Bonus Eligible |
QIP includes: interior partitions, lighting, HVAC, plumbing, ceilings, floor coverings
QIP excludes: elevators, escalators, structural work, building enlargement
Strategic Tax Benefits
By documenting and separating core & shell from tenant improvements:
You start depreciation sooner on major building costs.
You unlock immediate write-offs through QIP classification.
You comply with IRS definitions and maximize ROI.
How Do We Do That?
Want to find out how much tax you could save with a phased placed-in-service strategy?
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