Repairs and Improvements in Escrow for Asset Sale

[David]

S Corp is entering into an asset sale for it's restaurant business. The owner is agreeing to put an amount for repairs and improvements into escrow for use by the purchaser in the future. 

I can't find anything in the regs regarding how to treat this in the asset sale. I would think that this should be treated as ordinary expenses instead of selling costs. This would allow the expenses to be deducted at ordinary tax rates instead of reducing LT gain.

Does anyone know any cites or have any information on how to handle this?

Thanks.

[DANRVAN]

"Repair escrows" are setup to fund repairs needed at the time of closing. Sometimes they are required by the lender to insure that the property is brought up to it's fair market value. The terms of the escrow will usually set a time line for repairs and specify who will get the unspent portion.

I believe you will record the amount as selling expense since the repairs will occur after ownership has passed. You might also have a potential refund to account for.