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The
American Jobs Creation Act
of 2004 includes a provision to reduce the recovery period for
qualifying leasehold improvements to nonresidential real estate, and
restaurant improvements to 15 years (formerly 39 years) for property placed
in service after October 22, 2004, and before January 1, 2006.
Further, qualified leasehold property must be recovered using the
straight-line method along with the half-year or mid-quarter convention.
“Qualifying
leasehold improvement property” is any improvement to an interior portion
of your nonresidential building made by a lessor, lessee, or a sublessee
under or pursuant to a lease. The
improved portion of your property must be occupied by the lessee or
sublessee, and must be placed in service more than three years after the
date the building was first placed in service.
“Qualifying
restaurant property” is any property which is an improvement to a building
if such improvement is placed in
service more than three years after the date such building was first placed
in service, and more than 50 percent of the building's square footage is
devoted to preparation of and seating for on-premises consumption of
prepared meals.
In
the past, nonresidential property and restaurant equipment were depreciable
as 39-year property; therefore, these provisions will allow you to deduct a
larger depreciation allowance, and to recover the cost of improvements more
quickly. If you were considering making such improvements, but were not
satisfied with the tax benefits of doing so, you may wish to reconsider
going ahead with your project in the near future to take advantage of this
new tax incentive.
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