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 projects.
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).
