How to Charge for a Capital expense

Only the landlord can capitalize major improvements to his property that increases its value and period of service. If you are paying part or most of it, it is a business expense that you would deduct from your revenue each month you pay him rent (assuming cash basis accounting). Google: "Expense Recognition" for more information.

Oops, I am off on this one. You can capitalize improvements that you make to the store directly. The sign would be a depreciable asset over 7 - 9 years, depending on how you classify it. However, if the landlord makes the improvements himself (signage) and adds the cost to the lease, you cannot capitalize it unless you have a capital lease (where you eventually own the property after a number of years).

Yes, see my revised response.

"Rocinante" wrote

Leasehold improvements are amortized/depreciated over many more years than

"Additions and improvements, such as a new roof

The same recovery period as that of the property to which the addition or improvement is made, determined as if the property were placed in service at the same time as the addition or improvement.

Additions or improvements to property.

Treat depreciable additions or improvements you make to any property as separate property items for depreciation purposes. The recovery period for an addition or improvement to property begins on the later of:

a.. The date the addition or improvement is placed in service, or b.. The date the property to which the addition or improvement was made is placed in service. The property class and recovery period of the addition or improvement is the one that would apply to the original property if it were placed in service at the same time as the addition or improvement."

Clearly, this improvement is depreciated over something closer to 39 years for a commercial structure - regardless of who pays for the improvement.

To answer the OP's question, there isn't anything specific in GAAP that addresses how the landlord should allocate the cost to rents.

He's basically on his own to decide how fast he needs to recoup the cost. As are you on your own to decide if the rents he wants is still reasonable given all the variables.

"Rocinante" wrote

I didn't think we're talking about "the sign"......

From the OP: "Landlord recognized this before we met and had an architect draw up a higher rooftop with a place for the sign. The cost will be $30K"

The roof change is a leasehold improvement - in and of itself - that is depreciated over 39 years.

Any sign attached to that roof is probably going to be like 7 year property.

Thanks very much to everyone for their responsiveness. This was the answer I was hoping for.

We'll be adding the cost to the square footage of the lease. The way I'm going to pose it to him is to go for 20 years so it's only a small increase per square foot.

I just don't want to pay it off in case I'm not there in 10 years.

Thanks again.

improvement is made,

addition or improvement.

Thanks, it's the Landlord who is putting up the structure and depreciating etc.

I'm just concerned with how that ends up working it's way into rent. I think it was answered above.

Thanks thanks thanks