Publication 535 |
2001 Tax Year |
Improvements by Lessee
If you add buildings or make other permanent improvements to leased
property, depreciate the cost of the improvements using the modified
accelerated cost recovery system (MACRS). Depreciate the property over
its appropriate recovery period. You cannot amortize the cost over the
remaining term of the lease.
If you do not keep the improvements when you end the lease, figure
your gain or loss based on your adjusted basis in the improvements at
that time.
For more information, see the discussion of MACRS in Publication 946,
How To Depreciate Property.
Assignment of a lease.
If a long-term lessee who makes permanent improvements to land
later assigns all lease rights to you for money and you pay the rent
required by the lease, the amount you pay for the assignment is a
capital investment. If the rental value of the leased land increased
since the lease began, part of your capital investment is for that
increase in the rental value. The rest is for your investment in the
permanent improvements.
The part that is for the increased rental value of the land is a
cost of getting a lease, and you amortize it over the remaining term
of the lease. You can depreciate the part that is for your investment
in the improvements over the recovery period of the property as
discussed earlier, without regard to the lease term.
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