For taxpayers in restaurant or retail businesses or with business
leasehold improvements, these PATH Act provisions may spell advantageous new ways to expense real property assets or accelerate their depreciation.
The expanded definition of bonus depreciation applicable to qualifying improvement property allows taxpayers to claim bonus depreciation starting in 2016 where bonus depreciation was previously limited to qualified
leasehold improvements requiring the building to be at least 3 years old and the improvements to be made subject to a lease.
As we know from recent history, the IRS has changed lives for amortizing
leasehold improvements several times from 39 years for commercial property and 27.5 years for residential property to 15 years.
1361 --both titled the "
Leasehold Improvement Depreciation Act of 2007" --would make the 15-year recovery period for
leasehold improvements permanent.
Leasehold improvements placed in service (or contemplated) at or near the beginning of the lease term are generally amortized on a straight-line basis over the shorter of the estimated useful life of the assets or the lease term.
The company said it amortized certain
leasehold improvements on one of its properties over a period that exceeded the lease term, causing a cumulative understatement of leasehold amortization expense of $410,000 as of Dec.
It can be especially costly and aggravating when a financing package is held up because the lender wants its loan secured by
leasehold improvements constructed by your company at numerous locations, and one improperly structured lease holds up the entire package.
The
Leasehold Improvement Depreciation Coalition, of which the Appraisal Institute is a member, sent a letter to the House in support of the American Jobs Creation Act of 2003, which the group says "combines an appropriate and much needed blend of international and domestic tax reform [and] will help the United States be the best place in the world to run a business and create good, high paying jobs."
On November 25, 1997, Tax Executives Institute filed comments with the Department of Finance proposing a legislative change in respect of the treatment of capital cost allowances (CCA) for
leasehold improvements (Class 13 assets).
Attached to this bill was the Small Business Job Protection Act, which included a much sought-after change in the depreciation rules for
leasehold improvements.
Currently, the 15-year cost recovery period for
leasehold improvements has been extended, but expires on December 31, 2007.