Tenant improvements create tax quandaries; few landlords and tenants fully consider the tax consequences of starting and ending leases

Article Abstract:

Starting and ending leases can create a variety of unforeseen tax consequences for landlord, tenant, or both, depending on the lease and other elements of the transaction. The cost of improvements can be handled in at least three ways, which achieve different balances between landlord and tenant benefit. Lease-termination payments by either party may have to be capitalized rather than written off. Landlords who own tenant improvements may sometimes take an abandonment loss rather than depreciate their cost.

United States, Taxation, Economic aspects, Landlord and tenant, Landlord-tenant relations

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The ins and outs of leasehold improvements

Article Abstract:

Tax provisions governing leasehold improvements changed in 1986 with IRC 168(i)(6). This code section requires tenants to amortize costs over structure's tax life rather than the terms of the lease. A lessee who wants to keep improvements at the end of a lease should own the building, if possible. Getting the landlord to do the improvements in return for higher rent is another option. Finally, improvements which are not permanently attached to the real estate may be depreciable over shorter lives.

Laws, regulations and rules, Buildings, Remodeling and renovation, Amortization

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