Leasehold Improvement

[kacpa]

Hello,

I have a new business partnership tax return that I am preparing for 2019 (they are filing late). They lease a building for their new business. In the lease agreement is $50,000 buildout fee that they paid to the lessor prior to the grand opening of the business. It appears that this is not included as start up expenses because of the capital nature. How is this reported? I read that the CARES Act made changes to qualified improvement property and it is subject to MACRS for 15 years as well as bonus depreciation. Am I missing something or is that how I treat the leasehold improvement?

Thanks in advance!

[TaxGuyBill]

buildout fee

You first need to find out EXACTLY what was done. To me, the word "buildout" implies expansion. In order to qualify as 15 year "Qualified Improvement Property", it CAN'T be for the enlargement of a building or for the internal structural framework.

https://www.irs.gov/publications/p946#en_US_2019_publink1000299325

[kacpa]

Thank you for the replies! Much appreciated!

One additional question... sometimes if a tax return isn't filed timely (including with extensions), the taxpayer can loose out on certain treatments. For instance, because my client didn't timely file his tax return, they can't elect to deduct $5k of start up expenses. Is there some stipulation for leasehold improvements? I don't see one, but I could have easily overlooked it.

[terryats]

Be sure and let your clients know that their is a late filing penalty of $205 / month times number of partners. You should also check the link on possibilities of having penalty abated.

https://www.thetaxadviser.com/issues/2013/jul/buttonow-july2013.html