ADVOCACY ISSUES
Leasehold Depreciation Tax
BOMA Position:
Limiting leasehold improvements to be depreciated at
a rate of 1/39th per year until the improvement goes “out of
service” runs counter both to common sense and the reality of
the marketplace. It is a hidden and inequitable tax on the commercial
real estate industry. Federal and state tax codes should be amended
to more closely reflect the reality of the marketplace.
Background Information:
Leasehold improvements, also known as tenant improvements, include changes to walls, floors, ceilings, lighting, and plumbing to meet the needs of a new or existing tenant. In the commercial real estate marketplace, with the average lease running from five to ten years, such reconfigurations are commonplace.
In 2004, President Bush signed into law a corporate tax bill that temporarily reduced the depreciation period for leasehold improvements from 39 years – the rate of the building structure itself – to 15 years for improvements put into place before the end of 2005.
Efforts to extend several expiring tax provisions, including leasehold depreciation and capital gains, were anticipated in the fall 2005 tax reconciliation bill. A one-year extension of the leasehold depreciation provision was included in each of the bills passed by the House and the Senate late in 2005, but conferees ultimately jettisoned leasehold and other expiring tax provisions in a final conference report approved in May 2006.
The House was able to pass a bill that included a one-year extension of leasehold depreciation and several other extenders. The bill also included a permanent reduction of the estate tax and an increase in the minimum wage. However, the Senate was unable to bring the bill to a vote prior to the November elections.
BOMA International will continue to work to see that this important tax provision is made permanent.
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