Cost Segregation and Qualified Improvement Property (QIP)
Qualified Improvement Property (QIP) is an asset classification concept that often shows up in renovation planning for commercial real estate. It can be relevant to bonus depreciation because QIP is generally treated as 15 year property under current federal rules.
Investors also search for phrases like cost segregation residential rental property bonus depreciation 2025 because they are trying to connect cost segregation, residential rental property rules, and the bonus depreciation schedule in a specific year. The core takeaway is that QIP is primarily a nonresidential concept, while residential rental property can still benefit from cost segregation through other shorter life classifications.
TL;DR – Key Takeaway
QIP is generally an interior improvement to a nonresidential building and is often treated as 15 year property under current rules, which can make it eligible for bonus depreciation. Cost segregation helps separate improvement costs into the correct asset classes, including QIP where appropriate and shorter life personal property where supported. The phrase cost segregation residential rental property bonus depreciation 2025 reflects a year specific bonus question, but QIP does not convert residential rental property into QIP. Model outcomes using placed in service timing and bonus phase out percentages, and confirm implementation with a CPA.
What Is QIP?
Qualified Improvement Property generally refers to certain improvements made to the interior portion of a nonresidential building after the building was first placed in service. Under current federal rules, QIP is typically assigned a 15 year recovery period for depreciation purposes.
The reason QIP matters is that a 15 year classification can be eligible for bonus depreciation depending on the placed in service year. This creates a planning intersection between renovation timing, classification, and bonus depreciation percentages.
How QIP Connects to Cost Segregation
Cost segregation is a process that can allocate costs across different asset classes. In renovation projects, a portion of the spend may be QIP, while other portions may be 5 or 7 year personal property and 15 year land improvements, depending on what was installed and why.
The practical value is that cost segregation can improve classification accuracy. That can improve planning and compliance, especially when investors want to understand what portion of a renovation could be eligible for bonus depreciation in a given year.
QIP vs Residential Rental Property Improvements
QIP is generally defined for nonresidential real property improvements. Residential rental property has a different recovery period for the building shell and does not become QIP simply because it is renovated. This is where queries like cost segregation residential rental property bonus depreciation 2025 can create confusion.
Residential rental property can still benefit from cost segregation because many components, such as appliances, certain floor coverings, and site improvements, can have shorter lives. The key is that the classification must be supported by facts and tax rules, not by labeling everything as QIP.
Bonus Depreciation Treatment for QIP
QIP can be eligible for bonus depreciation under current rules because it is generally treated as 15 year property. However, the bonus percentage is not fixed and can decline due to phase out. In 2025, bonus depreciation may be lower under current law, which is why investors focus on timing.
If your question is effectively cost segregation residential rental property bonus depreciation 2025, the correct approach is to separate three ideas: the property type (residential rental versus nonresidential), the asset classification (QIP versus other classes), and the year specific bonus percentage tied to placed in service timing.
Eligibility Table for Common Improvements
Educational summary only. Eligibility depends on facts, documentation, and current law. Confirm with a CPA.
| Improvement type | Often QIP? | Notes |
|---|---|---|
| Interior drywall and finishes (nonresidential) | Often yes | Must be interior improvement to nonresidential building after placed in service. |
| Elevators and escalators | Often no | Typically excluded from QIP definition under current rules. |
| HVAC system replacement | Often no | Often treated as building system rather than QIP; depends on scope and facts. |
| Interior lighting and certain electrical | Sometimes | May be split between QIP and personal property via cost segregation. |
| Tenant improvements | Often yes | Common area, interior improvements can qualify; classification still matters. |
Common Investor Mistakes
Mistake: Treating all renovations as QIP
Not every improvement is QIP, and QIP is not a general label for renovations. When investors treat everything as QIP, they may create compliance issues and inaccurate ROI expectations.
Mistake: Ignoring placed in service timing
Bonus percentages can change by year, so placed in service timing can materially affect outcomes. Review placed in service date rules before making timing driven decisions.
How QIP and Cost Segregation Affect ROI
QIP and cost segregation affect ROI through the timing of deductions and the proportion of project cost that qualifies for shorter lives or bonus. A disciplined model starts with the incremental deductions and then converts them to after tax cash flow.
If you want to connect QIP classification back to the overall strategy, review cost segregation benefits.
For the decision framework, use Cost Segregation Return on Investment (ROI). If your question is specifically cost segregation residential rental property bonus depreciation 2025, treat 2025 bonus as an assumption and run sensitivity ranges.
Frequently Asked Questions
What is Qualified Improvement Property (QIP)?
Qualified Improvement Property is generally an improvement to the interior of a nonresidential building placed in service after the building was first placed in service. It is typically treated as 15 year property under current federal rules, which can make it eligible for bonus depreciation depending on the year.
Does QIP apply to residential rental property?
QIP is generally defined for improvements to nonresidential real property, not to residential rental property. Residential improvements may still be eligible for shorter lives through cost segregation, but they are not QIP by definition.
How does cost segregation interact with QIP?
Cost segregation can separate an improvement project into components that may fall into different lives, including 5, 7, or 15 year categories. QIP is one 15 year category for certain improvements, and cost segregation helps document how costs are classified.
Is QIP eligible for bonus depreciation in 2025?
QIP can be eligible for bonus depreciation in 2025 under current law, but the bonus percentage may be lower due to the phase out schedule. Eligibility and the applicable percentage depend on placed in service timing and the asset meeting QIP criteria.
What does the phrase cost segregation residential rental property bonus depreciation 2025 usually mean?
It usually reflects a user trying to understand how bonus depreciation rules in 2025 interact with cost segregation for a residential rental property. The key is that residential rental property can benefit from cost segregation, while QIP is a separate concept primarily for nonresidential improvements.
What are common investor mistakes with QIP and cost segregation?
A common mistake is treating all renovations as QIP or assuming QIP applies to residential rental property. Another mistake is ignoring placed in service timing, which can change which bonus percentage applies.
How do QIP and cost segregation affect ROI?
They affect ROI through timing of deductions and the share of project cost that qualifies for shorter lives or bonus. ROI depends on fees, tax rate, and your ability to use deductions, not just on whether QIP exists.
Where should I read next for timing rules and the 2025 bonus schedule?
Review the placed in service rules and the bonus phase out page. Those pages explain how timing drives the practical outcome for cost segregation and bonus depreciation in 2025.
If you want to compare QIP to other acceleration tools, see Section 179 vs bonus depreciation vs cost segregation.