Accounting for Landlord Build-Out Allowance

Will the client receive cash from the landlord?

No. The Landlord will pay the contractor directly.

I would have the client capitalize just the potion they must pay for and if in the USA amortize over the prescribed 39 years.

Allan,

Actually the depreciation schedule changed 10/22/2004 from 39 years to 15 years for improvements through 12/31/2005. Last I heard, legislation to extend it through 2006 was still pending, but expected to pass.

SJH,

Don't listen to Allen. He's always out of date. He spends too much time bickering in the newsgroups, and not enough reading the tax codes.

You can typically use MACRS / GDS depreciation, assuming Congress extends the 15 year treatment for leasehold improvements. Nonresidential leasehold improvements are straightline depreciation, which would give you equal annual deductions for 15 years (except for the first and last year which would be partial years...)

So, you amortize the tenant's $30k over 15 years, yielding a $2k per year depreciation deduction.

There are some situations you can choose shorter depreciation, look at

If you have a 7 year lease, you may be able to justify a 7 year depreciation.

Talk with your accountants. Worst case scenario, you depreciate over 15 years, and if you terminate the lease before that you can write off the remaining undepreciated costs when the lease ends.

*Watt

Given that the OP made the original post on January 30, 2006 and spoke of this as a future event, it is save to say that this did not occur between

10/22/2004 and 12/31/2005. Until such time that the dates are extended if ever, as the law now stands, its 39 years not 15.

Now your introducing GAAP? How about introducing the fact that some states are decoupled from the Fed where depreciation is concerned.

Allan,

Let me quote somebody, quite close to you, on this newsgroup:

"Bet you feel like a moron for shooting your mouth off, when it is obvious that you do not know what you are talking about."

Check out the status of the bill on THOMAS.

(hr304) Look under section 107.

SEC. 107. 15-YEAR COST RECOVERY FOR LEASEHOLD IMPROVEMENTS.

(a) In General- Clause (iv) of section 168(e)(3)(E) (relating to 15-year property) is amended by striking `January 1, 2006' and inserting `January 1,

2007'. (b) Effective Date- The amendment made by subsection (a) shall apply to property placed in service after December 31, 2005.

Now click on Bill Summary and Status. It passed in the House 234-197 on

12/8/05.

This shows it passed the Senate on 2/2/06 66-31, but with an amendment, so it looks like it is going back to a conference committee.

The odds of this becoming law look to be very high.

Funny, Allen, you didn't seem to have a clue about any of this......

*Watt

I am fully aware of this and follow it closely. Until such time that it is extended its still 39 years and not 15. There is also the posibility that the OP's improvements will not be made until 2007 also.

Allan,

Sure. Right.

Knew it all along, just failed to mention it at all.

*Watt

Fail to mention it? I don't recall ever receiving a fee from the OP. I am under no obligation to tell all. I can assure you that each and every paying client of mine that had leasehold improvements during the allowable period got and will get 15 years not 39 to depreciate the improvements.

Allan,

OK, it's official then.

Whether Allan gives you a complete answer depends upon whether he is "receiving a fee from the OP".

He is "under no obligation at tell", and may not provide complete information on this newsgroup.

Hey Allan, it's a free country.

Martin quote #2: "Now get out of here and eat some humble pie."

*Watt

When it come to posts on a Newgroup it depends on the mood I'm in. When I'm working, moods are set aside.

Anyone feeding at the public trough should realize that they get what they pay for. There are times Big Al Martin is the price of a lunch ticket.

If I deserved it, then I would.