§110 — Title 26 Internal Revenue Code | U.S. Code

Summary

If your landlord gives you cash (or a rent reduction) to build or improve space you rent for your retail business, you do not have to count that money as income, as long as the lease is for 15 years or less and the money is used for long-term improvements to the retail space. The improvements must revert to the landlord when the lease ends. The improved property is then treated as the landlord's nonresidential real property for tax purposes. Both you and the landlord must report the amounts received and spent to the IRS under its rules.

Title 26, §110

Internal Revenue Code — Source: USLM XML via OLRC

(a)Gross income of a lessee does not include any amount received in cash (or treated as a rent reduction) by a lessee from a lessor—

(1)under a short-term lease of retail space, and

(2)for the purpose of such lessee’s constructing or improving qualified long-term real property for use in such lessee’s trade or business at such retail space,

(b)Qualified long-term real property constructed or improved in connection with any amount excluded from a lessee’s income by reason of subsection (a) shall be treated as nonresidential real property of the lessor (including for purposes of section 168(i)(8)(B)).

(c)For purposes of this section—

(1)The term “qualified long-term real property” means nonresidential real property which is part of, or otherwise present at, the retail space referred to in subsection (a) and which reverts to the lessor at the termination of the lease.

(2)The term “short-term lease” means a lease (or other agreement for occupancy or use) of retail space for 15 years or less (as determined under the rules of section 168(i)(3)).

(3)The term “retail space” means real property leased, occupied, or otherwise used by a lessee in its trade or business of selling tangible personal property or services to the general public.

(d)Under regulations, the lessee and lessor described in subsection (a) shall, at such times and in such manner as may be provided in such regulations, furnish to the Secretary—

(1)information concerning the amounts received (or treated as a rent reduction) and expended as described in subsection (a), and

(2)any other information which the Secretary deems necessary to carry out the provisions of this section.

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

A prior section 110, act Aug. 16, 1954, ch. 736, 68A Stat. 33, related to income taxes paid by lessee corporations, prior to repeal by Pub. L. 101–508, title XI, § 11801(a)(6), Nov. 5, 1990, 104 Stat. 1388–520.

Statutory Notes and Related Subsidiaries

Effective Date

Pub. L. 105–34, title XII, § 1213(e), Aug. 5, 1997, 111 Stat. 1001, provided that: “The

Amendments

made by this section [enacting this section and amending section 168 and 6724 of this title] shall apply to leases entered into after the date of the enactment of this Act [Aug. 5, 1997].”

§110 Qualified Lessee Construction Allowances for Short-term Leases