Qualifying Stores and Restaurants Can Deduct Majority of Remodeling Costs

By Sally P. Schreiber, J.D.

Retail stores and restaurants regularly incur expenses to remodel or refresh the establishment in order to stay competitive and remain attractive to customers. However, because these projects often involve repairs and improvements to many building components, analyzing what costs can be deducted and what should be capitalized can be a complicated task. Therefore, in Rev. Proc. 2015-56, the IRS is permitting taxpayers engaged in the trade or business of operating a retail establishment or a restaurant to use a safe-harbor method of accounting for determining whether expenditures paid or incurred to remodel or refresh a qualified building are deductible under Sec. 162(a) or must be capitalized under Sec. 263(a) or 263A.

Under the safe harbor, a "qualified taxpayer" will treat 75% of "qualified costs" paid during the tax year as deductible under Sec. 162 and the remainder as costs for improvements to a qualified building under Sec. 263(a) and as costs for the production of property for use in the qualified taxpayer's trade or business under Sec. 263A.

For more on this guidance, see "New Retail and Restaurant Remodel/Refresh Safe Harbor for Determining Repairs."

Newsletter Articles

SPONSORED REPORT

Tax reform changes are now in effect

With all the recent tax law changes, this year it’s more important than ever to make sure your clients’ tax situations are squared away before year end. This report provides necessary guidance to ensure 2019 starts without a hitch.

DEDUCTIONS

Understanding the new Sec. 199A business income deduction

The new deduction allows certain business owners to keep pace with the significant corporate tax cut provided by the Tax Cuts and Jobs Act.