Like qualified
leasehold improvement property, qualified retail improvements must be placed in service more than three years after the building is first placed in service.
Step 1: Determine if the assets are depreciated over 39 years as nonresidential real property or over 15 years as qualified
leasehold improvement, qualified restaurant, or qualified retail improvement property.
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.
The tax treatment of
leasehold improvements has traveled a twisted path over the last two decades.
By the end of the month, more than 80 companies had either restated or were determining the amount of a restatement due to problems associated with their lease accounting and accounting for incentives related to
leasehold improvements.
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.
That provision allows businesses to take a one-year, 50 percent bonus tax deduction on the cost of new
leasehold improvement projects.
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).
One method of encouraging tenants to move in--or to stay--is through tenant
leasehold improvement allowances.
if the
leasehold improvement is classified as commercial real estate, it is required to be depreciated straight-line over 39 years, using the mid-month convention.
