How do I treat demolition cost to rebuilt a restaurant

[abhijitdeai]

Hi

Appreciate your advice on this topic. Here is our scenario. We rented a existing restaurant from a landlord in California to build our own restaurant last year.

We then had to incur demolition cost to tear down the existing restaurant (interior walls, kitchen, concrete etc etc) to then start building our own restaurant.

This question in how do we treat the demolition cost. Is it an expense or a capital expense that has to be depreciated over the time of the lease?

Appreciate any guidance on this topic.

Thanks

Abhijit

[Mike9241]

those get added to the land cost net of any insurance reimbursement.  it is not depreciable.

[abhijitdeai]

Thanks Champ. But we are tenants. We do not own the land nor the structure. The restaurant that we rented from the landlord, is a small shop.

The demolition expense was to tear down a few internal walls, existing kitchen, counter tops, drywalls etc and haul the removed material away.

The external structure remians as is.

Shouldnt it be either a cost or a capital expense for us a renter?

Abhijit

[Vanessa A]

Your demolition costs to remodel would be part of the new asset cost so you would capitalize the expense over the useful life of the property or if the lease period is shorter, you would capitalize over the life of the land lease. 

[abhdesai]

Thank you Vanessa. This helps.