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Week Four Down, But April Stays Strong
The last week of April showed that independent grocery sales took a negative turn, with retailers reporting their same store sales were down 3.26 percent compared to the same week in 2015. However, positive sales in weeks one through three kept April in solidly positive territory. Sales in April were up 1.26 percent, which was the first positive month since February 2015 and the best one month period since November 2014.
The Bureau of Labor Statistics released its April unemployment report last week, and the results showed an expected cooling off of job growth. The US netted 160,000 jobs, which is well below the monthly average we’ve been experiencing. The under the hood numbers weren’t too encouraging either. The size of the labor force, the participation rate, and revisions for the past two months were all down slightly. More positively, the unemployment rate stayed at 5 percent and wages were up slightly. While there wasn’t a lot of good news in this report, it’s just one month out of several stronger ones.
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| Same Store Sales
% Change from last year
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| Same Store Sales – Previous Months
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| BGBC Partners Tax Update: Qualified Improvement Property Depreciation Rules
Are you thinking about remodeling or renovating your store soon? Although the cost of such a project might be a negative, add “potential tax benefit” to your list of pros. In this segment of our Tax Update, we are going to discuss a recent revision to the Tax Code which created a new broader category of improvement property eligible for more favorable depreciation treatment. This new category of property, “Qualified Improvement Property”, applies to property placed in service on or after January 1, 2016.
So what exactly is “Qualified Improvement Property”? It is property that includes any improvement to the interior portion of a building which is nonresidential property, if the improvement is placed in service after the date the building was first placed in service. It does not include an addition or enlargement of your store, or anything that changes your store’s internal structural framework. Think renovations like new flooring and fixtures.
And why is this new category important? This category is important primarily because more improvements can now qualify for bonus depreciation. Usually, buildings are depreciated over 39 years, meaning you have to spread out that tax deduction for the cost of a building over a significant period of time. But if you’re making a “Qualified Improvement” to a building, you get a better break in the form of writing 50% off, using the bonus depreciation provisions.
For property placed in service on or after January 1, 2016, this new category “Qualified Improvement Property” replaces the former category “Qualified Leasehold Improvement Property”. As noted, this new category is broader than the former category. First off, it is not limited to leased property so building owners can now also qualify their improvements as eligible for bonus depreciation. Secondly, it is not limited to improvements placed in service more than 3 years after the date the building was placed in service, as under the old classification “Qualified Leasehold Improvements”. Third, there is no longer a prohibition against improvements made to common areas.
Qualified Improvement Property does not qualify for the favorable 15 year life (i.e., the other 50% of the property cost remaining after taking 50% bonus depreciation) unless it qualifies as Qualified Leasehold Property, Qualified Retail Improvement Property or Qualified Restaurant Property.
Likewise, Qualified Improvement Property does not qualify for section 179 expensing unless it qualifies as Qualified Leasehold Property, Qualified Retail Improvement Property or Qualified Restaurant Property. If it does qualify for section 179 expensing, the bonus depreciation rules state that section 179 is considered before bonus depreciation.
Very relevant to you as a store owner, Qualified Retail Improvement Property is any improvement to an interior portion of a building which is nonresidential real property and placed in service more than three years after the date the building was first placed in service. Retail establishments that qualify include those open to the public and primarily in the business of the sale of goods (tangible personal property) to the general public and not services. A grocery store is considered a retail establishment for this purpose. Excluded from qualifying retail improvements are enlargements, elevators/escalators, common area work, and internal structural framework.
As you can see, these rules can be complex. So see your CPA if you are considering making an improvement to your store. This will not only improve your store, but also improve your chances of surviving a tax audit on these issues!
BGBC Partners, LLP is a full service certified public accounting and business consulting practice.
For more information, contact Brad Bell, CPA or Steve Reed, CPA/ABV/CFF at BGBC Partners, LLP (317-633-4700).
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| For More Information,
Contact Mark Ehleben
877-435-9400 x1402
marke@fmssolutions.com
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