Reading "between the lines" of new legislation.Don't let the title of the legislation fool you. The 2006 Tax Relief and Health Care Act contains an important provision for the real estate community. Tucked deep into the law is a provision that extends for two years--until December 31, 2007 -the accelerated 15-year depreciation on qualified leasehold improvements Leasehold Improvement Improvements on a leased asset that increase the value of the asset. Notes: A leasehold improvement is classified as an asset that must be depreciated over time. . The ramifications ramifications npl → Auswirkungen pl of this act are readily apparent to a building owner or lessee One who rents real property or Personal Property from another. A lessee of land is a tenant. Cross-references Landlord and Tenant. lessee n. the person renting property under a written lease from the owner (lessor). : The accelerated depreciation Accelerated Depreciation Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset. Notes: The straight-line depreciation method spreads the cost evenly over the life of an asset. means a faster write-off of expenses, the result of a 15-year depreciation schedule rather than a 39-year depreciation schedule. That, in turn, means tax savings and the ability, if desired, to use those funds for other purposes, including additional development projects. The accelerated depreciation on leasehold improvements originally "sunset" on December 31, 2005. The new Act restores the benefit to January 1, 2006 and extends it through December 31, 2007. "Qualified leasehold improvement property" includes any improvement to an interior portion of a building that was nonresidential real property, provided certain requirements were met: The improvement had to be made to a structural component of the building. The improvement had to be made under or pursuant to a lease either by the lessee, sublessee or lessor One who rents real property or Personal Property to another. A lessor of land is a landlord. Cross-references Landlord and Tenant. lessor n. the owner of real property who rents it to a lessee pursuant to a written lease. of that interior building portion. The building portion had to be occupied exclusively by the lessee or sublessee. The improvement had to be placed in service more than three years after the date the building was first placed in service. Qualified leasehold improvement property does not include any improvement related to the expansion of the building, to any elevator or escalator escalator Moving staircase used as transportation between floors or levels in stores, airports, subways, and other mass pedestrian areas. The name was first applied to a moving stairway shown at the Paris Exposition of 1900. , to any structural component benefiting a common area, or to the internal structural framework of the building. In addition, if a lessor (owner) made an improvement that qualified as qualified leasehold improvement property, the improvement did not qualify to a later owner of the improvement. (In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , a subsequent owner cannot claim the same leasehold improvement.) The old saying is true: sometimes, you can't judge a book by its cover. In this case, you can't ignore reading the fine print of legislation. It may hold provisions that can literally mean money in your pocket. |
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