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.
In 2016, a tenant moves into the building and makes qualifying improvements to the interior of the building (i.e., not internal structural framework, escalator, or elevator).These improvements are not qualified
leasehold improvements depreciable over 15 years under Sec.
As we know from recent history, the IRS has changed lives for amortizing
leasehold improvements several times from 39 years for commercial property and 27.5 years for residential property to 15 years.
During the 1996 annual liaison meeting between Tax Executives Institute, Inc., 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.
The restatements have focused on three areas: the amortization of
leasehold improvements, the recognition of rent expense when the lease agreement contains rent holidays, and incentives related to
leasehold improvements.
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.
ACJA Section 211 requires that "qualified
leasehold improvements" be depreciated using the straight-line method and a 15-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.
One method of encouraging tenants to move in--or to stay--is through tenant
leasehold improvement allowances.
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.
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.
