In general, real property and improvements to real property are depreciated over either 27.5 years (residential property) or 39 years (commercial property). In the past, major improvements such as HVAC replacements and roofs were caught by this rule. However, the tax law that went into effect in 2018 expanded the depreciation rules for non residential rental property. The new law expands the definition of section 179 property to allow the taxpayer to elect to immediately expense the following improvements made to nonresidential real property:
- Qualified improvement property, which means any improvement to a building’s interior. However, improvements do not qualify if they are attributable to:
- the enlargement of the building,
- any elevator or escalator or
- the internal structural framework of the building.
- Roofs, HVAC, fire protection systems, alarm systems and security systems.
Section 179 does come with limits – there are caps to the total amount written off ($1,040,000 for 2020), and limits to the total amount of the property purchased ($2,590,000 in 2020). The deduction begins to phase out on a dollar-for-dollar basis after $2,590,000 is spent by a given business or landlord (thus, the entire deduction goes away once $3,630,000 in purchases is reached).