Can the startup/build-out costs for a small business be depreciated straght-line over the term of the lease (in this case 5 years) or must it be straight-line over 27.5?

I read straight-line over term of a 5-year lease is acceptable versus 27.5 straight-line over a 5 year period with a large depreciation deduction in final year of lease for the remaining depreciable balance.

3290

Expert Alumni

May 31, 2019 7:18:39 PM

You can elect to deduct Start-up and organizational costs for $5,000 each. The remainder has to be amortized over 180 months.

Please see the following IRS document on Start-up and Organizational costs:

https://www.irs.gov/publications/p535/ch07.html

Build-out costs are Leasehold Improvements. There are special rules for their depreciation.

Please see the following IRS documents on Depreciation :
https://www.irs.gov/publications/p946/ch04.html#en_US_2013_publink100010751

If your leasehold improvements satisfy the conditions for Qualified household improvements as defined in this IRS document https://www.irs.gov/publications/p946/ch03.html
then you claim a Section 179 deduction which allows to deduct all these costs in 2016.

Please see the following IRS document on Section 179:
https://www.irs.gov/publications/p946/ch02.html

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Can the startup/build-out costs for a small business be depreciated straght-line over the term of the lease (in this case 5 years) or must it be straight-line over 27.5?