Deduct 75% of my remodeling costs? Yes, please!

Interested in updating your space, but not interested in the costs associated with it? Well, you’re in luck because the IRS recently issued a new revenue procedure, providing a safe harbor method of accounting for most* retailers and restaurants incurring remodeling expenses on qualified buildings.

So, what does this mean in plain English? Eligible retailers and restaurants are now able to deduct 75 percent of their ‘qualifying expenses’ with the remaining 25 percent capitalized and depreciated over time.

Who’s eligible?

The safe harbor is available to most* retailers and restaurants with audited financial statements. To qualify for the safe harbor, the project must alter the physical appearance and/or layout of a qualified building for an eligible purpose, such as:

• Maintaining a contemporary and attractive appearance
• More efficiently locating retail or restaurant functions and products
• Conforming to current building standards and practices
• Standardizing the consumer experience across multiple locations

What are ‘qualifying expenses?’

Deductible ‘qualifying expenses’ include everything from painting interior walls to making changes to exterior facades. Additional examples include:

• Adding, replacing, repairing, maintaining or relocating permanent floor, ceiling or wall coverings or kitchen fixtures
• Adding, replacing or modifying signage or fixtures
• Relocating or changing the square footage of departments, eating areas, checkout areas, kitchen areas, beverage areas, management space or storage space within the existing footprint of a qualified building
• Moving, constructing or altering walls within the existing footprint of a building
• Adding, relocating, removing, replacing or re-lamping lighting fixtures

Sound too good to be true?

Well, it is – true that is. And taxpayers can start taking advantage of this change for tax years beginning on or after January 1, 2014. So, what are you waiting for? To use the safe harbor, you can work with your tax advisors to file an application with the IRS to change your method of accounting – and your space will be like new again in no time.

*Within the retail category, car dealers; gas stations; manufactured home dealers; and nonstore retailers are excluded from the safe harbor rules. Within the restaurant category, hotels, civic or social organizations; amusement parks; theaters; casinos; country clubs; caterers; and mobile food services are excluded from the safe harbor rules.

Jones Lang LaSalle does not practice law or accountancy and therefore does not render tax advice to its clients. The preceding material is general in nature and should not be relied upon as it does not seek to determine the tax consequences of specific factual situations. Clients and prospective clients of Jones Lang LaSalle should obtain their own tax advice with respect to any matter. Any tax discussion in this communication is not intended to be used, and cannot be used, by any person or entity for the purpose of avoiding penalties that may be imposed on any taxpayer.

About the Author

Steve is an International Director and national practice lead for JLL’s Multi-site / Retail Program Management Practice. He is one of JLL’s senior executives responsible for managing the delivery of multi-site program management services with special focus on the retail and restaurant sectors throughout the US., and is a member of the JLL Retail Executive Board. Under his leadership, JLL has managed the roll-out of programs for clients such as Advance Auto, AMC, Arby’s, Audi, Bank of America, Bi-Lo, Chick-fil-A, Family Dollar, Food Lion, Garden Ridge, JCPenney, The Finish Line, T-Mobile, Wendy’s and many others. Programs include the project management for new construction, renovation programs, technology roll-outs, re-branding programs and ADA / facility audits.

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