Usually leasehold improvement is amortized over the length of the lease term. What about if there is no lease? Can the leasehold improvement be expensed in the same year?
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what kind of LHI?
Leasehold Improvements are depreciated as real property (or possibly personal property when appropriate) and so they are either 39 years, 27.5 years or if Qualified, 15 years. -
According to a recent Congressional Committee Report:
"Generally, depreciation allowances for improvements made on leased property are
determined under MACRS, even if the MACRS recovery period assigned to the property is
longer than the term of the lease. This rule applies regardless of whether the lessor or the lessee places the leasehold improvements in service. If a leasehold improvement constitutes an addition or improvement to nonresidential real property already placed in service, the improvement generally is depreciated using the straight-line method over a 39-year recovery period, beginning in the month the addition or improvement was placed in service."
Looks to me like the "shorter of the lease term or..." notion doesn't apply for income tax purposes. Perhaps GAAP...Comment
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Who is Making the Improvement
If the tenant makes the improvement, the tenant gets the deduction prorated over the remaining term of the lease. The improvement reverts to the landlord at the end of the lease but the landlord gets no basis.
If the landlord makes the improvement, the landlord gets the deduction according to the class and life of the asset.Comment
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from CCC Depreciation Guide
The cost of a leasehold improvement is recovered under MACRS without regard to the length of the lease (Code Sec 168(i)(8)(A). If upon termination of the lease, an improvement made and depreciated by the lessee is not retained by the lessee, the lessee may compute gain or loss on the improvement by reference to the remaining adjusted basis of the improvement...
Later it talks about that if the improvement is made in place of rent, then it is possible to 'pass' the improvement to the owner and take a rent deduction.
So, again, it is 39 years (or maybe 5 or 7 if PP) for Leasehold Improvements to a commercial rental and 15 years if you have Qualified Leasehold Improvements. The balance would be written off when the lessee leaves them behind.
CCH Depreciation Guide - not CCCLast edited by abby; 05-08-2008, 05:37 PM.Comment
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