The Tax Cuts and Jobs Act (TCJA) has modified several cost recovery rules, expanding the definition of eligible qualified real estate under Section 179. This includes non-residential real estate, as long as the improvements are made inside the building, with certain exceptions. Unfortunately, HVAC units do not meet the criteria for Qualified Leasehold Improvement (QLHI) treatment, as the installation of an outdoor HVAC unit is not considered an improvement to the interior of the building. Other common improvements that occur inside a building that also do not meet the QLHI criteria include elevators and escalators. However, elements such as roofs, air conditioning, etc., which were previously treated as components and not as improvements, are now eligible for QLHI treatment.
This means that any improvements made to these elements can qualify for bonus depreciation under Section 179. It is important to note that improvements do not need to be made under a lease agreement in order to qualify. The Qualified Improvement Property (QIP) meets the requirements of Section 179 and is eligible for bonus depreciation. This includes any improvement made to the interior of a non-residential building that is placed in service after the building was first placed in service. However, it specifically excludes improvements to expand the building, improvements to the internal structural framework, roofs, windows, staircases, elevators, outdoor air conditioning equipment, etc.
In summary, HVAC units do not qualify as Qualified Improvement Property under Section 179. Nevertheless, other improvements made to non-residential real estate may be eligible for bonus depreciation if they meet the criteria outlined in the TCJA.
