Leasehold Improvements - lese not renewed

[equinecpa]

A taxpayer made qualified leasehold improvements in 2004 to a warehouse property (office cabinets, and interior paving).In 2006 renegotiated lease to a month to month basis and reduced area used in lease substantially (formerly it was entire premises now only part of the warehouse. The leasehold improvements were made to an area that is now a common area - no tenant has specific rights to it. Do I still depreciate these leaseholds or do I write them off?

Thanks

Carolyn

[erchess]

wow

I know that you absolutely may continue to depreciate the improvements. The tenant still gets some benefit from them. However, your point about their being a common area seems well taken, and if the amount of money in question were sufficient for the client to care, I would ask NATP or some other organization to which I belonged for an opinion. I might even pay a tax attorney for a written opinion.

Another real world question would be, how much longer will your client be in the warehouse and how much does it hurt him to wait for the writeoff until he is out? I have clients who need me to dig for every possible penny now without worrying about tomorrow, and I have others who want to minimize their lifetime tax payments even at the cost of increasing them for the current year. You obviously can't do anything that is clearly wrong but among the remaining options I let the client decide. My job is to present options. and guidance.

[JG EA]

Common areas need to have things in it. If your client is the only one to put things there then I would take them as a normal business expense. Especially if customers visit his business. How would it be if they came in to a stark empty area. They'd say Whoa, this is not a very good business I'm leaving right away.