Cost Segregation Study

Qualified Improvement Property (QIP) is one of the most powerful and widely missed depreciation opportunities in commercial real estate.

QIP applies to interior improvements made after a nonresidential building was first placed in service. When properly identified and documented, QIP is 15-year property and may be eligible for 100% bonus depreciation—producing a significant after-tax cash-flow benefit in the year placed in service.

At US Valuation (Alpha Consulting US), QIP is treated as a capital recovery discipline, not a tax shortcut. We identify QIP conservatively, classify it defensibly, and document it to withstand IRS and institutional review.

Qualified Improvement Property is generally defined (IRC §168(k)(3)) as:

Any improvement made by the taxpayer to an interior portion of a building that is nonresidential real property, provided the improvement is placed in service after the building was first placed in service by any taxpayer.

QIP is not original construction.

It is improvement work after the building’s initial placed-in-service date.

QIP specifically excludes costs attributable to:

• Enlargement of the building
• Elevators or escalators
• Internal structural framework of the building
   

These exclusions are the most common failure points under IRS scrutiny.

Subject to functional and structural classification, QIP may include:

• Interior electrical additions or reconfiguration
• Interior mechanical modifications tied to tenant improvements
• Interior walls, partitions, and layout reconfiguration
• Built-in cabinetry, millwork, and tenant build-out components
• Data/telecom/low-voltage systems installed as part of interior improvements
• Interior HVAC distribution and controls (where properly supported)
   

QIP is not “anything inside a building.”

Eligibility depends on function, permanency, and structural classification.

QIP requires that the interior improvements are placed in service after the building was first placed in service.

This is why QIP is often associated with:

• Tenant improvements (TI)
• Re-tenanting and repositioning
• Interior modernization programs
• Post-acquisition renovations
• Recurring build-out strategies in office, retail, and industrial service space
   

The key issue in QIP is not the label.
It is whether the improvement is a qualifying interior improvement and whether the components are properly classified under IRS concepts of:

• Inherently permanent property
• Structural components
• Non-structural interior improvements

We do not “assume” QIP.
We document it.

We use recognized classification criteria commonly applied in cost segregation and property classification analysis, including:

1. Can the property be moved?
2. How difficult is removal?
3. Is the property designed to remain permanently in place?
4. Are there facts that show intended length of affixation?
5. How much damage will occur upon removal?
6. How is the property affixed to the building or land?
    

These tests help separate legitimate QIP from costs that belong in long-life structural categories.

QIP must align with the client’s tax reporting position. Our process is structured accordingly:

1) Identify improvement scope
We start with the owner’s project documentation and place-in-service timing.

2) Confirm tax positions with the client’s advisor
We request that QIP-eligible interior improvements be identified in coordination with the client’s tax advisor.

3) Classify components defensibly
We apply engineering- and appraisal-informed classification logic and document exclusions.

4) Reconcile to total project basis
We reconcile all allocations to the capitalized project cost—no “percentage-only” studies.

5) Deliver audit-ready support
Workpapers and schedules are prepared to withstand IRS and CPA review.

QIP is not only about depreciation.

It can materially affect:

• After-tax cash flow in the year placed in service
• Capital recovery timing
• Post-renovation reinvestment capacity
• After-tax return on capital
• Exit and recapitalization economics
   

For enterprise or company valuation, after-tax outcomes drive value.
QIP is one of the few tools that can shift after-tax economics immediately—when executed correctly.

• Post-acquisition renovations
• Tenant improvement programs
• Repositioning and modernization
• Recurring interior reconfigurations
• Properties with frequent re-tenanting cycles
• Portfolios with ongoing capex renewal strategies
   

Qualified Improvement Property is not a category to “claim.”
It is a classification to be earned through disciplined analysis and documentation.

At US Valuation, QIP is treated as:

• Defensible classification
• Tax-advisor-aligned execution
• Audit-ready documentation
• Capital recovery discipline grounded in economic reality
   

If your asset has post–placed-in-service interior improvements, QIP may represent a substantial capital recovery opportunity—provided it is identified and documented defensibly.

👉 Request a QIP Feasibility Review