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Restaurateurs who are planning improvements to their property can reap significant tax savings by acting quickly. As most business people know, leasehold improvements must be depreciated over a 39½ year life regardless of the economic life of the asset or the length of a lease. This depreciation life is, of course, grossly unfair and unrealistic since most leases are not that lengthy, and the improvements would be obsolete in a much shorter timeframe even if they were that long.
To address this concern, Congress has provided temporary relief for qualified restaurant property so that improvements were allowed to be depreciated over 15 years and applied to property placed in service after October 22, 2004 through December 31, 2005. However, the good news is Congress has retroactively extended this 15 year depreciation schedule to now include property placed in service after December 31, 2005 through December 31, 2007.
Qualified restaurant property generally means any improvement to a building if such improvement is placed in service more than three years after the date that the building was first placed in service, and if over 50% of the building’s square footage is devoted to the preparation of, and seating for, on-premises consumption of prepared meals.
So, if you are planning on making improvements you should consider this timeframe in order to take advantage of a small but significant tax savings window. Also, if you made improvements in 2006 and qualify, be sure the 15 year life was utilized on your tax return. If not, an amended return can be filed within three years. Naturally, each restaurateur should consult their tax advisor to determine the applicability of this benefit and whether it qualifies, but taking advantage of this opportunity should yield tax savings for years to come.
The information given is provided for general, non-specific educational purposes only, and should not be relied upon as advice relating to your specific circumstances. For company-specific advice, consult directly with your tax advisor.
Jeffery Richards, CPA, Master of Science in Taxation, is a partner Bacall & Conniff, P.C., Certified Public Accountants & Business Advisors, Restaurant & Hospitality Accounting Services and can be reached at 617-367-3250.
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Finance 
