What Is Depreciated Over 15 Years: Land Improvements and QIP

Property depreciated over 15 years under the Modified Accelerated Cost Recovery System (MACRS) falls into two broad groups plus a short list of industry-specific assets. The two big groups are land improvements (outdoor additions like parking lots, fences, sidewalks, drainage, and building-tied landscaping) and qualified improvement property, or QIP (interior renovations to existing non-residential buildings). The industry-specific 15-year assets include retail motor fuels outlets, telephone distribution plant, municipal wastewater treatment plants, and certain high-voltage electric transmission property.¹ Getting an asset into the 15-year class matters in 2026 because that classification unlocks 100% bonus depreciation and, for some items, Section 179 expensing.

Land Improvements

Land itself is never depreciable because it doesn’t wear out. Improvements you add to it, though, have a determinable useful life, and the IRS treats them as 15-year property.¹ The common examples:

Paved parking areas and roads built for vehicle or foot traffic on business property.
Permanent fences and retaining walls around commercial sites.
Sidewalks and bridges connecting buildings to roads or other structures.
Drainage ditches, culverts, and storm systems that manage water on the property.
Swimming pools, wharves, and docks.
Landscaping that is closely associated with a building.

The landscaping rule trips people up. Shrubs and trees planted right next to a building qualify as 15-year property because replacing the building would destroy them. Trees planted along the outer border of a lot don’t qualify, because they would survive a demolition. The test is whether the landscaping’s useful life is tied to the building it serves.¹

Where Land Ends and a 15-Year Improvement Begins

Separating a depreciable land improvement from non-depreciable land cost is one of the trickier judgment calls. The general rule: initial clearing and grading to make raw land usable for any purpose is part of the land itself. You can’t depreciate it because the benefit is permanent regardless of what you build.

Grading and earthwork become depreciable only when they are directly tied to a specific structure or use. Courts have allowed depreciation for grading that carved out pads and roadbeds for a mobile-home park, because any future use of the land would require ripping out those improvements and regrading. The same reasoning applied to fill work for a racetrack’s roads and parking lot. If your earthwork would survive a change in use, it’s land. If tearing down the structure makes the earthwork useless, it’s a 15-year improvement.

A related question is whether work on an existing improvement is a new depreciable asset or a currently deductible repair. Under the IRS tangible property regulations, an expenditure must be capitalized only if it results in a betterment, a restoration, or an adaptation to a new use.² Repaving a parking lot with normal wear may be a deductible repair. Tearing out a gravel lot and replacing it with concrete is almost certainly a betterment that gets capitalized and depreciated over 15 years.

Qualified Improvement Property

QIP covers interior renovations made to an existing non-residential building after the building was first placed in service. Retail store remodels, office buildouts, and restaurant renovations are the typical examples. The improvement must be to the interior, and the building must already be in use when the work begins.³

QIP has a messy history worth knowing. The 2017 Tax Cuts and Jobs Act intended to assign QIP a 15-year recovery period, but a drafting error left it at 39 years. The CARES Act in 2020 fixed the mistake retroactively, so QIP has been 15-year property for anything placed in service after 2017.⁴

Qualifying work includes new flooring, interior lighting, ceilings, non-structural interior walls and partitions, and interior doors. Three categories are carved out and still require 39-year depreciation:

Building enlargements that increase total square footage.
Elevators and escalators, excluded by name in the statute.
Internal structural framework, meaning load-bearing walls, columns, and other structural elements.

One attribution point matters on leased space. Tenant improvements can qualify as QIP, but only for the party that actually pays for the work. If the landlord builds out the space before the tenant moves in, the landlord claims the deduction; if the tenant funds the improvement, the tenant does.

What Is Not QIP: HVAC, Roofs, and Building Systems

Replacing a commercial roof or an HVAC system is not QIP. These are structural components of the building and, under standard MACRS rules, carry the same 39-year recovery period as the building itself. This catches property owners off guard because these projects feel like improvements and can cost hundreds of thousands of dollars.

The workaround is Section 179. Starting in 2018, Congress made roofs, heating and air-conditioning systems, fire protection and alarm systems, and security systems eligible for immediate expensing under Section 179 as “qualified real property,” even though they stay 39-year property for regular MACRS purposes. So a new commercial roof isn’t 15-year property, but its full cost may still be deductible in the installation year through a Section 179 election, subject to the annual dollar caps.

Industry-Specific 15-Year Assets

Beyond land improvements and QIP, the tax code names several specialized asset types as 15-year property. Misclassifying them as 39-year building property means years of delayed deductions.

Retail Motor Fuels Outlets

A building used for the retail sale of petroleum products qualifies as 15-year property even when it looks like an ordinary commercial structure. Convenience stores attached to gas stations qualify only if they pass at least one of three tests:¹

The building is no larger than 1,400 square feet.
At least 50% of gross revenue comes from petroleum sales.
At least 50% of the floor space is devoted to petroleum marketing.

A large convenience store that happens to sell gas but generates most of its revenue from food and merchandise won’t qualify unless it meets the square footage test. Car wash structures used primarily for washing motor vehicles also fall in the 15-year class.

Telephone Distribution Plant

Telephone distribution plant and comparable equipment used for two-way voice and data communications is 15-year property.³ This covers the physical infrastructure that telecom providers use to deliver service to end users, such as distribution lines and switching equipment.

Municipal Wastewater Treatment Plants

Wastewater treatment plants owned by municipalities are specifically listed in the statute as 15-year property.³ Don’t confuse this with water utility property generally. Water gathering, treatment, and distribution systems, along with municipal sewers, are 25-year property. The 15-year designation is limited to wastewater treatment.

Electric Transmission Property

Property used to transmit electricity at 69 kilovolts or more qualifies as 15-year property if the original use begins with the taxpayer and the property was placed in service after April 11, 2005.³ This covers high-voltage transmission infrastructure but not power generation equipment, which is 20-year property.

How the 15-Year Class Actually Depreciates in 2026

The 15-year recovery period is the default schedule, but two provisions can compress the deduction into a single tax year, and in 2026 both are unusually generous.

100% Bonus Depreciation

The One, Big, Beautiful Bill (OBBB) restored a permanent 100% additional first-year depreciation deduction for eligible property acquired after January 19, 2025.⁵ Any 15-year land improvement or QIP placed in service in 2026 can potentially be written off entirely in the first year rather than spread over 15. Before this law, bonus depreciation had been phasing down: 80% in 2023, 60% in 2024, 40% in 2025, and heading to 20% in 2026. The OBBB reversed that trajectory. Starting in 2026, the full 100% applies unless you affirmatively opt out.

Section 179 Expensing

Section 179 lets you deduct the full cost of qualifying property in the year you place it in service, up to an annual cap. For 2026, the maximum Section 179 deduction is $2,560,000, and the benefit begins phasing out once total qualifying property placed in service exceeds $4,090,000. QIP is eligible for Section 179; most land improvements are not. The one exception on the building-systems side: roofs, HVAC, fire protection and alarm systems, and security systems for non-residential buildings qualify under the “qualified real property” provision even though they remain 39-year property for regular depreciation.

The difference between the two provisions matters for planning. Bonus depreciation can create or increase a net operating loss you carry forward. Section 179 cannot reduce taxable income below zero. If you’re profitable and within the dollar limits, the result is similar. If you’re near break-even or operating at a loss, bonus depreciation is the stronger tool.

Method and Timing

When bonus depreciation doesn’t apply or you elect out, 15-year property follows the General Depreciation System (GDS) using the 150% declining balance method.¹ That front-loads deductions relative to straight-line and automatically switches to straight-line when doing so gives a larger deduction for the remaining years. Straight-line over 15 years is also available by election.

Most 15-year property uses the half-year convention, treating everything placed in service during the year as if acquired at the midpoint. If more than 40% of all depreciable property you place in service that year goes into use during the last three months, the mid-quarter convention applies instead. This rule prevents taxpayers from buying everything in December and claiming a full half-year of deductions.¹

When 15-Year Property Depreciates Over 20 Years Instead

Under the Alternative Depreciation System (ADS), the recovery period for 15-year property stretches to 20 years, and you must use straight-line depreciation.¹ ADS is required in several situations; the most common involves the business interest expense limitation under Section 163(j). A business that elects out of that limitation to deduct more interest must use ADS for all property with a recovery period of 10 years or more, and the election is generally irrevocable.

Farming operations feel this particularly hard. A farm that elects out of the interest limitation must use 20-year ADS for drainage facilities, paved lots, and water wells that would otherwise be 15-year GDS property, and it also loses bonus depreciation on those assets.⁶ For operations with heavy land-improvement investment, the Section 163(j) math is worth running carefully before committing.

1
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
2
Internal Revenue Service. Tangible Property Final Regulations
3
Office of the Law Revision Counsel. 26 US Code 168 – Accelerated Cost Recovery System
4
LII / Legal Information Institute. Definition: Qualified Improvement Property From 26 USC 168(e)(6)
5
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
6
Internal Revenue Service. Farmer’s Tax Guide