Leasehold and qualified restaurant improvements can be amortized over 15 years instead of depreciated over 39 years. To qualify for the 15-year write-off, all of the following requirements must be met:
Ĺ The improvement is made pursuant to the terms of a lease to the interior of nonresidential property.
Ĺ The lease is not between related parties.except that where 50 percent ownership usually is required, in this case, 80 percent ownership applies.

Ĺ The building (or portion of the building to which the improvement ismade) is occupied exclusively by the lessee or sublessee.
Ĺ The improvement is a structural component that would otherwise qualify for 39-year depreciation.
Ĺ The improvement is placed in service more than three years after the date the building is first placed in service.

For restaurant improvements to qualify for the 15-year recovery period, more than 50 percent of the building’s square footage must be devoted to the preparation of meals to be consumed on the premises. Also, the building must have been in service for at least three years.
Leasehold and qualified restaurant improvementsmust occur before January
1, 2008 (unless Congress extends this break).
Certain types of improvements specifically do not qualify for the 15-yearwrite-off. These include the enlargement of the building, elevators and escalators, structural components that benefit a common area, and internal structural framework.

This special rule also applies to restaurant improvements. To qualify as a restaurant, more than 50 percent of the building’s square footage must be devoted to the preparation of meals and seating for the serving of meals on the premises. As in the case of general leasehold improvements, qualified restaurant property must be placed in service more than three years after the building is first placed in service.
If you enter into a lease after August 5, 1997, for retail space for 15 years or less and you receive a construction allowance from the landlord to make additions or improvements to the space, you are not taxed on these payments provided they are fully used for the purpose intended.