Lessor Financed LH improvements for Lessee

[TCl]

I am at a loss and in researching, I get differing information ... Amortize over the lease term? Section 179?

Scenario: Lessee starting new lease of Medical Office Space on 11.30.18. Lessor Financed LH Improvements (buildout) for Lessee over the Term of the Lease (10 years) to be paid monthly. What is the best way to handle these LH Improvement costs ($80K) in 2018. Lessee is a S Corporation with a current Ordinary Business Loss of $3k (before any consideration of the LH Improvements).

[BHoffman]

If the lease agreement obligates the lessee to pay for the LH improvements in full, then whether it was financed or not doesn’t matter.

[TCl]

Thank you, BHoffman! I read that they have to be amortized ... is that correct?

[TaxGuyBill]

It is depreciated, just as if they had owned the property.

The improvements would be depreciated over 39 years. Unfortunately, the "buildout" (enlargement of a building and/or amounts involving the internal structure) disqualifies it from being "Qualified Improvement Property", which in turn disqualifies this from Section 179.

[TCl]

It is depreciated, just as if they had owned the property.

The improvements would be depreciated over 39 years. Unfortunately, the "buildout" (enlargement of a building and/or amounts involving the internal structure) disqualifies it from being "Qualified Improvement Property", which in turn disqualifies this from Section 179.

Thank you,TaxGuyBill! I was under the impression that it could be depreciated over the life of the lease?

[TaxGuyBill]

Thank you,TaxGuyBill! I was under the impression that it could be depreciated over the life of the lease?

Where do you read that it allowed to amortize over the lease for income tax purposes?

§168(i)(8) says "In the case of any building erected (or improvements made) on leased property, if such building or improvement is property to which this section applies, the depreciation deduction shall be determined under the provisions of this section."

https://www.law.cornell.edu/uscode/text/26/168#i_8