Leasehold Improvements

Today TaxMama hears from David in New York with this sensible question. “I have leasehold improvements in a warehouse I rent. The lease is five years. May I depreciate the leasehold improvements over the life of the lease, or five years? Next year, may I depreciate the improvements over the remaining life, or four years?”

Dear David,

Now you’re just being logical, aren’t you?

How silly is that? Don’t you know that legislators with political agendas create the tax laws?
Not people who understand the reality of small business. Or do they?

Typically, if you’re going to invest heavily in leasehold improvements, you won’t be moving out at the end of the 5 year lease. You will be exercising your option to renew. And if your business is any good, you’ll be there for the next couple of decades – unless someone convinces you to buy your own building. (Ask me about the bizarre conversation I had with someone at a major company who’s moving into a massive new leased headquarters building. I said they should have bought the place, considering the rent they’re paying. You don’t want to know their answer!)

Anyway, regardless of the life of your lease, leasehold improvements get depreciated using the non-residential depreciation tables – 39 years.

http://www.irs.gov/publications/p946/ch04.html#d0e4823

Sorry to be the bearer of bad news.

And remember, you can find answers to all kinds of questions about leasehold improvements, depreciation and other tax issues, free. Where? Where else? At TaxMama.com

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