Depreciation -- Tenant Improvements - Issue Summary
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| What is the fundamental issue? |
| A temporary rule permitting the cost of leasehold improvements to be recovered over 15 years has been in place as a temporary rule for many years. Currently the 15-year life for these improvements will expire December 31, 2009. Prior to the enactment of this provision, these costs had to be recovered over the 39-year statutory life of the underlying property, even if the lease had a substantially shorter term. |
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| I'm a Realtor®. What does this mean to my business? |
| Property owners are required to amortize the costs for improvements made on behalf of tenants over a recovery period have no relation to the economic life of the assets. This artificially depresses rates of return. Correcting the depreciation rules and the tenant improvement amortization rules makes upgrades for technology and modernization more economically feasible. These types of improvements assure that nonresidential buildings will be adequately maintained and remain technologically current. Updated and well-maintained properties are more readily bought and sold. |
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| NAR Policy: |
| NAR supports efforts to establish a permanent rule that more accurately reflects the depreciable lives of buildings and to conform amortization periods for tenant improvements more closely to the term of the lease. |
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| Legislative/Regulatory Status/Outlook: |
| There is no controversy about the merits of the 15-year life for leasehold improvements or any of the other expired provisions. The provision has always been part of a huge package driven by the need to reduce the numbers of taxpayers subject to the Alternative Minimum Tax. Controversy on that so-called "extenders package" has always been a matter of how to "pay for" it. Activity on a new extenders package is likely to commence during the summer of 2009. |
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