---
kind: "section"
citation: "26 U.S.C. § 110"
title: "26"
title_heading: "Internal Revenue Code"
number: "110"
heading: "Qualified lessee construction allowances for short-term leases"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/110"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter B — Computation of Taxable Income"
  - "Part III — Items Specifically Excluded from Gross Income"
---

# §110. Qualified lessee construction allowances for short-term leases

- (a) **In general—** Gross income of a lessee does not include any amount received in [cash](/usc/26/856.md?p=c-5-K) (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](/usc/26/317.md?p=a) for use in such lessee’s [trade or business](/usc/26/1402.md?p=c) at such retail space,

  but only to the extent that such amount does not exceed the amount expended by the lessee for such construction or improvement.

- (b) **Consistent treatment by lessor—** Qualified long-term real [property](/usc/26/317.md?p=a) constructed or improved in connection with any amount excluded from a lessee’s income by reason of [subsection (a)](#a) shall be treated as nonresidential real [property](/usc/26/317.md?p=a) of the lessor (including for purposes of [section 168(i)(8)(B)](/usc/26/168.md?p=i-8-B)).
- (c) **Definitions—** For purposes of this section—
  - (1) **Qualified long-term real property—** The term “qualified long-term real [property](/usc/26/317.md?p=a)” means nonresidential real [property](/usc/26/317.md?p=a) which is part of, or otherwise present at, the retail space referred to in [subsection (a)](#a) and which reverts to the lessor at the termination of the lease.
  - (2) **Short-term lease—** 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)](/usc/26/168.md?p=i-3)).
  - (3) **Retail space—** The term “retail space” means real [property](/usc/26/317.md?p=a) leased, occupied, or otherwise used by a lessee in its [trade or business](/usc/26/1402.md?p=c) of selling tangible personal [property](/usc/26/317.md?p=a) or services to the general public.
- (d) **Information required to be furnished to Secretary—** Under regulations, the lessee and lessor described in [subsection (a)](#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)](#a), and
  - (2) any other information which the Secretary deems necessary to carry out the provisions of this section.

## Source credit

(Added Pub. L. 105–34, title XII, § 1213(a), Aug. 5, 1997, 111 Stat. 1000.)

## Notes

### 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 sections 168 and 6724 of this title] shall apply to leases entered into after the date of the enactment of this Act [Aug. 5, 1997].”