How are tenant leasehold improvements depreciated in 2018?

[tony-j]

I leased office space for my business in 2018 and paid $20,000 for the build out of the interior of my office.

The landlord did not charge rent for the first 8 months of the lease term as part of the negotiation for me to pay for my own office build-out.

How is the $20,000 I paid depreciated for tax purposes?  

[Leonard · Accepted solution]

Your $20,000 leasehold improvements can be depreciated in a straight line over a 15-year period. 

However you can generally expense qualified leasehold improvements up to $500,000 (adjusted annually for inflation) under Section 179, as opposed to depreciating them.

[matrix2019]

This is outdated information. Section 179 is no longer 500k for 2018 but 1mil under the Tax Cuts and Jobs Act and leasehold improvements went back to 39 years due to the drafting error in TCJA.

[mickireland]

Did the error in drafting for tenant improvements get fixed in the CARES act of 2020?

[AmeliesUncle]

@mickireland   Yes, that was retroactively corrected in the CARES Act.  Qualified Improvement Property is 15 years, and qualifies for Bonus depreciation.

However, I think the original answer is likely wrong for several reasons.  First, a "build-out" implies altering the structure of the walls, which would not qualify as Qualified Improvement Property.  Second, 8 months of rent were waived.  Depending on the exact details of the contract, it could actually be paying 8 months of rent and effectively the landlord would claim the improvements.