Interior enhancements to nonresidential real property can, under specific conditions, qualify for advantageous tax treatment. This classification applies to improvements made to an interior portion of a building that is nonresidential real property, provided that such improvements are placed in service after the building was first placed in service. Specifically excluded from this category are enlargements to the building, elevators or escalators, or the internal structural framework of the building.
The classification of such improvements impacts depreciation schedules, potentially allowing for accelerated depreciation under certain provisions of tax law. This can lead to a more rapid recovery of costs associated with these improvements, which in turn can provide a beneficial impact on a business’s cash flow and overall tax liability. The establishment of this category was designed to simplify and incentivize investment in the improvement of existing business spaces. Prior to its implementation, the determination of depreciation timelines for interior improvements could be complex and often resulted in longer depreciation periods.
