Qualified Improvement Property (QIP) has been the buzzword of the season in the commercial real estate industry. This new classification of building improvements is the key to lucrative bonus depreciation, and doesn’t have to be made subject to a lease like Qualified Leasehold Improvements. Plus, the definition of QIP is quite broad — almost any improvement to an interior portion of a building which is nonresidential real property can be considered QIP, as long as the improvement was placed-in-service after the date the building was first placed-in-service. The timing is admittedly, a bit unclear. The PATH Act stressed that QIP isn’t subject to the “three-year rule” that constricts several other property types. As such, we know that the building does not need to have been placed-in-service at least three years before the improvement. But what kind of “waiting period” is required then? In order for an improvement to qualify as QIP, precisely how long does the building have to be in-service before the improvement is placed-in-service? The IRS recently released Rev. Proc. 2017-33 which clarifies this matter. Since the exclusion of a holding period seemed purposeful, many surmised that there simply was no holding period – that an item could be placed-in-service as soon as one day after the building was placed-in-service and qualify for QIP. Rev. Proc. 2017-33 confirms that this is indeed the case. Example 2 on page 14 of the Rev. Proc states as follows: In 2015, C, a corporation and manufacturer, enters into a written contract with X for X to construct a new building for use by C in its trade or business. The building will house a manufacturing operation and office space. The initial construction plans did not include a private restroom for the owner of C. During the construction of the building, C enters into a written contract with Y to construct a private restroom in the new building for the owner of C. On May 27, 2016, C places in service the building, except for the private restroom. On May 28, 2016, the private restroom in the building for the owner of C is placed in service. Because the building is first placed in service on May 27, 2016, and the private restroom is placed in service on May 28, 2016, the assets in the private restroom that are § 1250 property are qualified improvement property, assuming all other requirements in § 168(k)(3) and § 1.168(k)-1(c), taking into account section 4.02(3) of this revenue procedure, are met. This clarification of the “one day after” in-service position should remove any uncertainty in practice that practitioners are “playing fast and loose” with the rules. The Rev. Proc. then goes on to indicate that an improvement made under an amendment to the existing contract may be QIP-eligible as long as it is placed-in-service at least one day after the building was placed-in-service. In short, it doesn’t matter if the improvement was performed under a separate contract with a third party, or if there was an amendment to the existing construction contract with the building’s contractor – as long as there is at least one day between the improvement in question being placed-in-service and the building having been placed-in-service, QIP is on the table, and the implications could be significant. Bruce A. Johnson, MBA, CEM is a co-founder and partner at Capstan Tax Strategies. Bruce works closely with commercial real estate owners and accounting firms to provide practical, creative, and customized engineering-based tax solutions.