§110 Qualified Lessee Construction Allowances for Short-term Leases

Summary

Lets a tenant exclude from taxable income money a landlord gives (or treats as lower rent) to pay for building or improving long-term parts of a retail space, as long as the amount excluded is no more than what the tenant actually spent. The rule only applies when the lease is short-term (15 years or less). The landlord must treat the improved property as nonresidential real property for tax purposes, and the improved parts must go back to the landlord when the lease ends. Qualified long-term real property: long-lasting, nonresidential parts of the retail space that revert to the landlord. Short-term lease: occupancy of 15 years or less. Retail space: property used to sell goods or services to the public. The tenant and landlord must give the IRS, under IRS rules, information about the amounts received or treated as rent reductions, amounts spent, and any other details the IRS needs.