If you own retail property or a restaurant and are considering an improvement, the time to act is now!
The recently passed American Taxpayer Relief Act provides immediate incentives for retail property and restaurant property owners.
Under pre-Act law, qualified restaurant property and qualified retail improvement property that was placed in service before 2012 was included in the 15-year MACRS class for depreciation purposes—that is, such property was depreciated over 15 years under MACRS. This law sunset on 1/1/12, but Congress reinstated it retroactively.
New law. The 2012 Taxpayer Relief Act retroactively extends for two years the inclusion of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property in the 15-year MACRS class. Such property qualifies for 15-year recovery if it is placed in service before Jan. 1, 2014. (Code Sec. 168(e)(3)(E), and Code Sec. 168(e)(8)(E), as amended by Act Sec. 311)
Here are some additional details.
Qualified restaurant property
(A) In general. The term “qualified restaurant property” means any section 1250 property which is—
(i) a building, or
(ii) an improvement to a building,
if more than 50 percent of the building’s square footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals.
(B) Exclusion from bonus depreciation. Property described in this paragraph shall not be considered qualified property for purposes of subsection (k).
Qualified retail improvement property
(A) In general. The term “qualified retail improvement property” means any improvement to an interior portion of a building which is nonresidential real property if—
(i) such portion is open to the general public and is used in the retail trade or business of selling tangible personal property to the general public, and
(ii) such improvement is placed in service more than 3 years after the date the building was first placed in service.
(B) Improvements made by owner. In the case of an improvement made by the owner of such improvement, such improvement shall be qualified retail improvement property (if at all) only so long as such improvement is held by such owner. Rules similar to the rules under paragraph (6)(B) shall apply for purposes of the preceding sentence.
(C) Certain improvements not included. Such term shall not include any improvement for which the expenditure is attributable to—
(i) the enlargement of the building,
(ii) any elevator or escalator,
(iii) any structural component benefitting a common area, or
(iv) the internal structural framework of the building.
(D) Exclusion from bonus depreciation. Property described in this paragraph shall not be considered qualified property for purposes of subsection (k).