Additions or Improvement to Qualified Restaurant Property
One of the hardest hit industries as a result of the current recession has been the restaurant industry. Thus, it has been exceedingly difficult for many restaurants to maintain day-to-day operations, much less for them to make additions or improvements to their existing property. However, congress has provided some incentive to do so anyway, with the new or amended provisions regarding how restaurant property can be depreciated. Below is helpful information on the issue.
Qualified Restaurant Property:
1) Effective date of 10/23/2004
2) Is Not Elective, if the qualifications below are met:
- A) The improvement must be subject to a lease with a taxpayer as either the lessee or lessor
- B) The lease must be between unrelated parties
- C) The leased area must be occupied exclusively by the lessee.
- D) The improvement made must be section 1250 Property (structural components such as walls, plumbing or certain wiring).
- E) The improvement must be placed in service more than 3 years after the building was initially placed in service.
- * The 3 year requirement has been eliminated for improvements and/or buildings placed into service in 2009
3) Restaurant buildings will also be treated the same as an improvement, when placed in service in 2009. At least 50% of the building must be used as a restaurant. If these qualifications are met, the qualified leasehold improvements can be depreciated over 15 years under MACRS GDS Straight Line, as opposed to the normal 39 year recovery period.
4) Section 179 does not apply since only Section 1245 property is allowable.
5) Bonus Depreciation at 50% allowable from 10/23/2004 – 12/31/2008, but not from 1/1/2009 – 12/31/2009.
6) Section 1245 (Personal Property) may be depreciated under Cost Segregation Rules. This allows for a shorter recovery period of 5 or 7 years.
*Newly constructed buildings placed in service in 2009, where more than 50% of the building is used as a restaurant, are also allowed the 15 year recovery period.
Much of this governing information is very similar to that of the qualified leasehold property. Still, there are differences which can lead to confusion about the rules of depreciation. Should you have any questions, please leave them here or in the questions section, and we will be glad to help clarify things. Also, you may find the post on Qualified Leasehold Property helpful in understanding this matter, and there will be a upcoming post on Qualified Retail Property to address that area as well.