Are qualified improvement property and carpeting in commercial office buildings treated differently for class life purposes under Section 179(d)(5)(B)?
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Yes, qualified improvement property (QIP) and carpeting in commercial office buildings are treated differently for class life purposes under Section 179(d)(5)(B).
1. Qualified Improvement Property (QIP)
Definition and Class Life:- QIP is defined as any improvement made by the taxpayer to the interior portion of a nonresidential building, placed in service after the building was first placed in service, excluding improvements attributable to the enlargement of the building, elevators/escalators, or the internal structural framework.- Under current law, QIP is assigned a 15-year recovery period for MACRS (GDS) and a 20-year period for ADS.
Section 179 Treatment:- QIP is specifically included as "qualified real property" eligible for Section 179 expensing, as described in Section 179(f) and (e), and is assigned a 15-year class life for purposes of Section 179.- This means QIP is eligible for Section 179 expensing and is treated as 15-year property for class life purposes under Section 179(d)(5)(B).
2. Carpeting in Commercial Office Buildings
General Treatment:- Carpeting installed in a commercial office building is generally considered tangible personal property, not a structural component, if it is not permanently affixed (e.g., installed with strippable adhesive and readily removable).- For cost segregation and depreciation purposes, removable carpeting is typically classified as 5-year property under asset class 57.0 (Distributive Trades and Services).
Section 179 Treatment:- Tangible personal property, such as removable carpeting, is eligible for Section 179 expensing and is assigned a 5-year class life for Section 179 purposes.- However, if the carpeting is permanently affixed (e.g., glued, nailed, or otherwise intended to be permanent), it may be treated as a structural component of the building and thus as part of the building's 39-year property, which would not be eligible for Section 179 expensing unless it qualifies as QIP.
3. Section 179(d)(5)(B) and Class Life
Section 179(d)(5)(B) provides:- For purposes of Section 179, the term "section 1245 property" means any property described in section 1245(a)(3) except that such term shall not include any property described in section 1245(a)(3)(C) (relating to a building or its structural components) unless such property has a class life of less than 20 years.
Application:- QIP is specifically assigned a 15-year class life for Section 179 purposes, making it eligible for expensing under Section 179.- Removable carpeting, as tangible personal property, is assigned a 5-year class life and is also eligible for Section 179 expensing.- Permanently affixed carpeting, if treated as a structural component, would be part of the building's 39-year property and would not be eligible for Section 179 unless it qualifies as QIP.
4. Summary Table
5. Conclusion
QIP and carpeting in commercial office buildings are treated differently for class life purposes under Section 179(d)(5)(B):- QIP is assigned a 15-year class life and is eligible for Section 179 expensing as qualified real property.- Removable carpeting is treated as tangible personal property with a 5-year class life and is also eligible for Section 179 expensing.- Permanently affixed carpeting, if considered a structural component, is not eligible for Section 179 unless it qualifies as QIP.
Thus, the class life and eligibility for Section 179 expensing differ between QIP and carpeting, depending on the nature of the carpeting and its installation.
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