Depreciation—Tenant Improvements
| What is the fundamental issue? |
| A temporary rule permitting the cost of leasehold improvements to be recovered over 15 years has been in place since 2004 and is currently scheduled to expire as of December 31, 2007. 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. Legislation to extend the 15-year period beyond its current expiration date is an important priority. |
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| I'm a Realtor®. What does this mean to my business? |
| Property owners are required to recover their costs for building investments and for improvements made on behalf of tenants 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 measure more accurately 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 minimum wage and the Iraq funding bills, however, are exceptionally controversial. |
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Legislative Contact:
Linda Goold, lgoold@realtors.org, 202-383-1083
Regulatory Contact:
Jeff Lischer, jlischer@realtors.org, 202-383-1117
Media Contact:
Mary Trupo, mtrupo@realtors.org, 202-383-1007 |
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