Business

[EFindley]

I have an LLC and I rented property to expand my business.  I then added structures and spent money on land improvements.  I did this a little at a time from Jan till Dec.  It was almost $15k.  How do I deduct that as an expense?  Do I enter it as an asset?

[JamesG1]

Are these expenditures leasehold improvements?  I am confused by the term ‘land improvements’ which sounds like you own the real estate not rented it. 

Leasehold improvements are defined as the enhancements paid for by a tenant to leased space. Examples of leasehold improvements are:

• Interior walls and ceilings
• Electrical and plumbing additions
• Built-in cabinetry
• Carpeting and tiles

Leasehold improvements generally revert to the ownership of the landlord upon termination of the lease, unless the tenant can remove them without damaging the leased property.

An example of leasehold improvements is offices constructed in unfinished office space.

When you pay for leasehold improvements, capitalize them and amortize them over the shorter of their useful life or the remaining term of the lease.

See this TurboTax Best answer.

[Carl]

Assuming this is a single member LLC that you report on SCH C as a part of your personal 1040 tax return, improvements you make to business property you pay rent for are classified as leasehold improvements. In the program you'll see three categories for that. Read the "learn more" link for each category so you select the one that applies to your specific improvements. That will determine the applicable MACRS depreciation schedule to use, and if you qualify for the SEC179 deduction or special depreciation allowance.

As for the land improvements, generally land improvements are not depreciated. But you enter it as an asset anyway since it does add to your cost basis. Weather it's depreciated or not depends on the specific and explicit improvement itself.