Leashold improvement depreciation

[Mo__]

How do I depreciate construction expenses for a new business in turbotax? I used intangible assets -> other business types but then I am not sure if I should use straight line depreciation and for how many years?

[DavidS127]

No, your constructed asset is not an intangible asset, so you will need to delete that asset and enter your asset correctly.

Edit your self-employed business, and use the TurboTax Home and Business interview questions in the Business Assets section to enter your constructed asset.  One of the questions is "Did you make improvement to a building you used for this business in 2019".  Assuming this fits your situation, follow the prompts to enter your construction expenditures.  If not, when you answer "No", on the next screen choose "Real Estate Property" and enter the date the construction was "placed in service", i.e., when it was finished and started to be used.  TurboTax will guide you the rest of the way.

[Mo__]

We did not constructed the building and we don't own the building. We lease a building and the construction was the inside of the building to make it a retail shop. When I see other messages on the forum I see this being called out as intangible asset -> other business type .. Is this right?

[RobertG]

Under the new law the leasehold improvements are Nonresidential Real Property.

Qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property are no longer separately defined and no longer have a 15-year recovery period under the new law. These changes apply to property placed in service in taxable years beginning after Dec. 31, 2017.

Qualified improvement property.

Generally, this is any improvement to an interior part of a building that is nonresidential real property, and the improvement is section 1250 property and is placed in service by you after 2017 and after the date the building was first placed in service by any person.

However, a qualified improvement does not include any improvement for which the expenditure is attributable to any of the following.

• The enlargement of the building.

• Any elevator or escalator.

• The internal structural framework of the building.

Nonresidential real property. This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27.5 years.

A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. For taxable years beginning after 2018, these amounts of $1 million and $2.5 million will be adjusted for inflation.

The new law also expands the definition of section 179 property to allow the taxpayer to elect to include the following improvements made to nonresidential real property after the date when the property was first placed in service:

• Qualified improvement property, which means any improvement to a building’s interior. However, improvements do not qualify if they are attributable to:
  • the enlargement of the building,
  • any elevator or escalator or
  • the internal structural framework of the building.
• Roofs, HVAC, fire protection systems, alarm systems and security systems.

IRS Publication 946, How To Depreciate Property

[Mo__]

Based on this reply it seems like this can't be depreciated but this link seems to suggest it can be depreciated. On this forum there are conflicting answers, some say it goes under intangible assets and few say it goes under nonresidential property. Is there a turbotax pro who can look at my return? I thought it was a simple question of, where do construction expense of a retail store on a leased building go?

https://www.irs.gov/publications/p946#en_US_2018_publink[phone number removed]

[DavidS127]

Edit your self-employed business, and make sure you correctly answered the TurboTax Home and Business interview questions in the Business Assets section to enter your constructed asset.  One of the questions is "Did you make improvement to a building you used for this business in 2019".  Assuming this fits your situation, follow the prompts to enter your construction expenditures.  If not, when you answer "No", on the next screen choose "Real Estate Property" and enter the date the construction was "placed in service", i.e., when it was finished and started to be used.  On the next screen, select "Qualified Improvement Property".  The designation as Qualified Improvement Property (assuming it meets the definition) is critical; Section 179 treatment for leasehold improvements is new starting in 2018.  TurboTax will guide you the rest of the way.

Your constructed asset is not an intangible asset, so if you entered it that way you will need to delete that asset and enter your asset correctly.

[taxnomyown0328]

I use TurboTax online, and the system chooses the self-employee version, but I don't find "Did you make improvement to a building you used for this business in 2019". I need to claim Leashold's improvement depreciation, and also I need the subcontractor part. I do not find it

I run a massage clinic and have some company wash my sheets. also, I spent a lot of money for renovation on my rent space, thank you

[JotikaT2]

If you have depreciable assets you want to enter for your business, you will make the entries within the Self-Employment section of TurboTax.  

To do this, log back into TurboTax and proceed to the Wages & Income section.  

1. If you do not see your business listed, scroll down to until you see View all sections and select Add wages and income.
2. Select Self-employment income and expenses  and select start/revisit.
3. Select edit for the applicable business or start to enter your new business information.
4. On the screen titled Here's your business info, select Add expenses for this work.
5. On the screen titled "Select any new expense categories you have", select the box to the left of Assets.  
6. Select continue and follow the prompts to enter the asset information.

Also, be aware the online version of the program is only for 2023 Income tax returns.  If you are trying to prepare a return for a prior year, please see this link for the available and supported versions of TurboTax.

Please see this link for more details on how to enter the asset.  

What self-employed expenses can I deduct also has a lot of useful information to assist you with entering any additional expenses into your tax return.

@taxnomyown0328