MEDOWS CPA, PLLC a Manhattan tax and accounting firm provides clients with guidance from its NYC CPA. If you have any questions on the NYS or NYC tax implications related to the following material, please contact our nyc tax accountants.

The Protecting Americans from Tax Hikes (PATH) Act of 2015 makes permanent the 15-year reduced recovery period for qualified restaurant property, leasehold improvement property, and retail improvement property. The provision originally enacted by the American Jobs Creation Act of 2004 for restaurant and leasehold improvement property, and expanded to include retail improvement property by the Emergency Economic Stabilization Act of 2008 was extended by legislation in past years to apply to assets placed in service before January 1, 2015.

Qualified leasehold improvement property. A qualified leasehold improvement is any improvement to an interior portion of nonresidential real property if the following requirements are satisfied:

  • the improvement is made under, or pursuant to, a lease by the lessee, lessor or any sublessee of the interior portion;
  • the improvement is section 1250 property;
  • the lease is not between related persons;
  • the interior portion of the building is to be occupied exclusively by the lessee or any sublessee of that interior portion; and
  • the improvement is placed in service more than three years after the date the building was first placed in service by any person.

If an improvement was made by the lessor of the improvement when it was placed in service, the improvement can be qualified leasehold improvement property only so long as it is held by the lessor. Our nyc tax accountant can provide additional details regarding how this applies to nys taxes.

Qualified retail improvement property. The following requirements must be met in order to meet the definition of a qualified retail improvement:

  • the property must be an improvement to an interior portion of a building that is nonresidential real property.
  • 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.
  • the improvement must be placed in service more than three years after the building was first placed in service.

Excluded from the definition of both qualified leasehold improvement property and qualified retail improvement property are expenditures attributable to:

  • the enlargement of the building
  • any elevator or escalator
  • any structural component benefiting a common area, and
  • the internal structural framework of the building.

Qualified restaurant property. Qualified restaurant property includes a building or improvements 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. That is, qualified restaurant property includes a new building and improvements made to an existing building. Unlike leasehold improvement property and retail improvement property, it is not necessary for the building to have been in service for more than three years.

If your business reported restaurant, retail or leasehold improvement property in prior years, you may want to note this favorable tax development when planning to acquire qualified restaurant, retail or leasehold property. The specific requirements for qualification of the improvement property for 15-year treatment are somewhat detailed and complex, MEDOWS CPA PLLC would be happy to assist you in ensuring that your nyc tax benefits from use of such property are maximized. Please call our office at your earliest convenience to arrange an appointment with one of our nyc cpa experts.