Remodel and Refresh Regulations for Restaurant and Retail Accounting

Q and AWe recently received a question from one of our clients:

“There are some new remodel and refresh regulations (Rev. Proc. 2015-56). Do you have any suggestions on how Bassets could handle the depreciation. Remodels and refreshes would be allowed to expense 75% of the Lease Hold Improvement in the first period and the remaining 25% would be allowed bonus depreciation. “

Here is our reply:

Yes, we added a new ITC code “C” for Capitalization Rules. Here is a sample LHI (Lease Hold Improvement) calculation example with the new code:  

  • Cost $1,000.00
  • 75% of $1,000.00 asset cost can be expensed at $750.00
  • 25% of $1,000.00 asset cost can be depreciated @ $250.00
    • Qualified LHI w/ 50% bonus depreciation @ $125.00
    • Qualified LHI w/ Straight Line, Full Month 1st Year Convention over 15 years

T1 Tax Report Columns:

  • Purchase Price = $1,000.00
  • Section 179 = $0.00
  • ITC Amount = $750.00
  • Bonus Depreciation = $125.00
  • Depreciable Basis = $125.00
  • Prior, Current Period, Total Accum and Net Book Value reflect current period depreciation during the life of the asset

The start or effective date for this new feature applies to assets acquired after 01/01/2015. For more information, see this post “Majority of Costs to Remodel or Refresh Retail Stores Are Deductible Under New Safe Harbor” from TheTaxAdvisor.com.

Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.


Track Associated Lease Detail for Fixed Assets

This optional module in Bassets eDepreciation enables you to track basic information about leased assets. This information includes a description of the asset along with the lease type values as shown below:

Track Associated Lease

Additionally for each lease you can track the contract, expiration and option dates. The lease term is stored in months and the frequency of payments can be selected from the available drop down list. Lastly there are dollar amounts for purchase, maintenance and lease fees, contract interest and the total amount of the contract.

The Lease Asset Tracking module of Bassets eDepreciation allows you to attach associated lease information to each individual leased fixed asset. This allows for easy retrieval of the lease detail when working with fixed asset maintenance.

Questions? Comments? Let us know in the comments section below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

New Rules of Depreciation for Qualified Retail Property

As is the case with Qualified Leasehold Property and Qualified Restaurant Property, a newly allowable 15 year recovery period will be usable when depreciating Qualified Retail Property.  This is the first time this will be so, but can only occur if the given parameters are met.
1)  Effective Date of 1/1/2009
2)   Not Elective, if the qualifications below are met:

  • A)  The property depreciated must be to the interior portion of a building that is non-residential real property.
  • B)  The interior portion of the building must be open to the general public and used in the retail trade or business of selling tangible personal property to the general public.
  • C)  The improvements must be placed in service more than years after the building was first placed service.
  • D)  The building must be placed in service between 1/1/2009 – 12/31-2009

3)  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 1245 (Personal Property) may be depreciated under Cost Segregation Rules.  This allows for a shorter recovery period of 5 or 7 years.
5)  Bonus Depreciation is NOT ALLOWED
*  Qualified Retail Property does not include improvements consisting of building enlargements, internal structural frameworks, any elevator/escalator, or a structural component benefiting a common area in the building.

Unfortunately, retail businesses have suffered tremendously as a result of the current tumultuous economy.  To help alleviate the pressures preventing businesses from surviving and growing, legislation such as this has been passed.  However, much of it is confusing, and many businesses may not be aware of the benefits that can be found.  Hopefully, this will have helped provide some insight on the topic.  Also, if there is anything else you would like to know, feel free to ask below or on the questions page.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

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.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Improvements or Additions to Leasehold Property

One of the emerging hot topics in tax depreciation is Leasehold Improvement Depreciation.  Lately, there seem to be many questions revolving around what qualifications there are for depreciating leasehold improvements and what guidelines must be followed when doing so.  This probably stems from the recent rules and allowances created through the initial law (Job Creation and Worker Assistance Act of 2002) through the stimulus plans of 2008 and 2009.  Below, are the general rules behind depreciating qualified leasehold improvements as well the current changes that have been put into place.

Generally, additions and improvements to leasehold property are depreciated under the same rules as the real property being improved, had that real property been placed in service at the same time as the addition or improvement.  In other words, additions or improvements to a building placed in service prior to MACRS would be depreciated under the current MACRS rules in effect at the time that the addition or improvement was placed in service.  This normally would mean a 39 year recovery period for non-residential real property under straight line with a mid-month first year convention.  However, there are many exceptions to this general rule, including how to handle Qualified Leasehold Improvements.

Here is what you need to know about Qualified Leasehold Improvements:
1)  Effective date of 10/23/2004
2)  It’s not elective if the qualifications below are met:
3)  Qualified Leasehold Improvements must:

  • A.  Be made subject to a lease with a taxpayer as either the lessee or lessor
  • B.  Be made for a lease between unrelated parties
  • C.  Be where the leased portion is only occupied by the lessee.
  • D.  Be of Section 1250 Property (structural components such as walls, plumbing or certain wiring).
  • E.  Be placed in service more than 3 years after the building was initially placed in service

4)  If these qualifications are met, the qualified leasehold improvements can be depreciated over 15 years under MACRS GDS Straight Line with Half-Year or Mid Quarter Convention.  This is opposed to the normal 39 year recovery period with Straight-Line and Mid-Month Convention.
5)  Section 179 does not apply since only Section 1245 property is allowable.
6)  Bonus Depreciation at 50% has been extended until 12/31/2009
7)  Section 1245 (Personal Property) may be depreciated under Cost Segregation Rules.  This allows for a shorter recovery period of 5 or 7 years.

*There are also important exceptions for Qualified Restaurant Property and Qualified Retail Property.  However, to keep things as simple as possible, these areas will be addressed in different posts which will be coming soon.

Hopefully this will have answered many questions about depreciating improvements or additions to leaseholds.  If there is any additional information that you would like, please feel free to ask below in the comments or on the questions page.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.