Lessee Construction Allowances for Retail Tenants

If you are an owner or operator of a business that leases retail space, you may be entitled to an exclusion from your income of any allowance received from your lessor to renovate or improve your retail space. There are certain limitations that apply, but this can be a good opportunity for business owners to give their leased retail space a renovation without shouldering the tax burden and without spending their own money to renovate.

In order to qualify for this exclusion, there are certain criteria you must meet (Section 110 of the Internal Revenue Code):

  • Your business must be a tenant of a retail space.
  • Your business must receive an allowance from your landlord to renovate or improve the leased space your business is located in.
  • Your retail space lease must be for 15 years or less.
  • Your retail space must be located in nonresidential real property.
  • Your retail space must be returned to the lessor at the end of the lease.

If you meet the above criteria, feel free to contact Brittany Craft via Email or by calling 301-652-6700 to discuss how to take advantage of this opportunity for your retail business. For more detailed information, please read the Journal of Accountancy article on this topic.