No matter how high the quality of prior leasehold improvements
, it is most unlikely that the partition layout will be appropriate.
Now, such qualified leasehold improvements
can be depreciated much more quickly over five years straight-line.
Generally, most lessees' improvements will qualify as qualified leasehold improvement
property; however, the biggest hurdle for qualified leasehold improvement
property, as well as bonus depreciation, is that the improvement needs to be placed in service more than three years after the date the building was first placed in service.
In the interim, for this year, real estate owners (or their tenants, depending on the arrangement) may elect to take an immediate deduction for 50 percent of the costs associated with leasehold improvements
and the Department of Finance, TEI recommended that the Department of Finance consider adopting a diminishing balance aggregate pool system that would permit taxpayers to recover the capital cost of leasehold improvements
made to real property made by, or on behalf of, the tenants.
Depreciation of leasehold improvements
occurred over a period that may have included both the initial non-cancelable lease term and the period after the early-termination option.
The provision effectively reduces the recovery period for qualified leasehold improvements
by more than half.
In addition, if a lessor (owner) made an improvement that qualified as qualified leasehold improvement
property, the improvement did not qualify to a later owner of the improvement.
Qualified leasehold improvement
property in the New York Liberty Zone is not eligible for bonus depreciation, although it does carry a five-year recovery period.
That provision allows businesses to take a one-year, 50 percent bonus tax deduction on the cost of new leasehold improvement
Despite Congress' failure to agree on an economic stimulus package before their holiday recess last year, the House did pass a bill in October concerning relief for leasehold improvement
that contained a permanent provision shortening the recovery period for these investments to 15 from 39 years.
This type of rent inducement is typically more favorable to landlords, because the cost is amortized over the life of the lease (rather than being classified as a leasehold improvement
owned by the landlord and depreciated over 39 years).