How to depreciate real property when its "life" changes

Question

Our corporation has owned a leasehold aircraft hangar for several years now which is rented out. We are depreciating it, straight-line, for the life of the lease (30 years originally, 22 years left). The leaseholder (a city) is proposing to modify the lease provisions, including an extension in life for another 40 years. How do we depreciate after the extension? Instead of depreciating over 22 years, we'll now be doing it over 40 years, right? Will we have to appraise it to establish a new basis, or can we just use the remaining depriciation amount (22/30 * purchase price, approx) as the new basis?? Thanks in advance for any help...

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Tony Cox · Accepted Answer

Thanks Seth! Pub. 946 doesn't tell you this, of course.

Tony Cox · Answer

Another quick question. Does that final write-off appear on the line for depreciation (going, say, from $2K one year to $10K the next) or does one write it off as a casualty loss? If the former, is it wise to attach a note to explain it, or is the IRS used to wild fluctuations in depreciation?

L K Williams · Answer

There is no reason to attach an explanation. Such statements get filed with the physical return and are never read by anyone. In addition, IRS does not routinely make year-to-year comparisons on individual returns. So, when a screener looks at your return he/she does not know what your deduction was for the previous year. Thus, they would not be aware of any fluctuation. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

How to depreciate real property when its "life" changes

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