topic Re: Writing off Leasehold Improvements in Self employed

Writing off Leasehold Improvements

pbmunkey — Mon, 09 Mar 2026 07:48:31 GMT

I asked this question and got an answer saying that I CANNOT write it off since I do not own the house and another answer saying that the first answer is WRONG. I'm more confused than ever. Here's the question:

I rented a home from someone 2 years ago and rented it out on Airbnb. I spent money putting in a new kitchen and driveway and have not fully captured the depreciation on the renovations. I returned the home to the owner in 2021 and walked away from the business. I would like to capture the rest of my depreciation. Would I dispose of this asset as a sale with a value of $0?

Re: Writing off Leasehold Improvements

ColeenD3 — Thu, 17 Mar 2022 11:24:30 GMT

You can't take depreciation for property you do not own.

From Tax Topic 704 from the IRS.

You may depreciate property that meets all the following requirements:

It must be property you own.

Depreciation

Re: Writing off Leasehold Improvements

pbmunkey — Thu, 17 Mar 2022 11:40:39 GMT

Just making sure we’re on the same page:

number 1 says it must be property that I own. Though I don’t own the house, the kitchen renovation and driveway was paid for by me. The cabinets and countertops can be removed if need be but I chose to leave it in the house when I returned the home to the owner.

is it still not depreciable? If not, what other options do I have to in order to write off this expenditure?

Re: Writing off Leasehold Improvements

JillS56 — Thu, 17 Mar 2022 12:14:53 GMT

That is correct, if you do not own the property you cannot write off any of the expenditures. There are no other options for you to write off these expenditures.

Re: Writing off Leasehold Improvements

pbmunkey — Thu, 17 Mar 2022 13:30:13 GMT

When you say “you do not own the property” are you referring to the house, not the items I put in as improvements to the house?

lastly, during the years I had the house, I shouldn’t have been depreciating my leasehold improvements either?

Re: Writing off Leasehold Improvements

LudwigVan_fan — Thu, 17 Mar 2022 19:49:37 GMT

Question...is this house where you live, and thus the improvements are for personal use? If so, there is no write off of the improvements.

However, if this house is used by you for a business, you do not live there, and you have a lease, then leasehold improvements paid by you can be amortized over the course of the lease. This applies to property that you paid for and should be capitalized. If the property would be left behind when you terminate the lease, then if business property, it would be amortized either under the life of the property or the terms (including automatic renewals) of the lease. If the property would be taken with you, such business property would be depreciated by you and you would own such property.

It comes down to what are you renting the house for and the use of the house in your hands. For example, if you were renting space in a mall, strip mall, etc., etc., and you did improvements to the space. Those improvement would be leasehold improvements for a business and would be amortized over the lease or if expected to be renewed, the lease plus expected renewals.

Personal use of leasehold improvements are basically lost to you. The same as the rent can't be deducted for personal use.

Re: Writing off Leasehold Improvements

DaveF1006 — Thu, 17 Mar 2022 20:41:47 GMT

To answer this question, I reviewed the IRS link that ColeenD3 mentioned in her previous post. In the post, it mentions that you cannot depreciate property that you don't own.

Your argument is that even though you do not own the property, you own the leasehold improvements, which should be independent from the property. This argument cannot be made because you would need to own the property to claim those leasehold improvements that are attached to that property. Those leasehold improvements become part of the property which you do not own, thus cannot be claimed as depreciable assets.

@pbmunkey

Re: Writing off Leasehold Improvements

pbmunkey — Fri, 18 Mar 2022 07:49:28 GMT

Thank you for your explanation. Some people are saying that I can't depreciate it since I've already returned the house, but I have depreciated a little on these improvements while my lease was active. I'm assuming that was the wrong thing to do as well?

Re: Writing off Leasehold Improvements

ColeenD3 — Fri, 18 Mar 2022 10:42:21 GMT

Yes, it was. You will have to amend your return and delete those entries.

Re: Writing off Leasehold Improvements

AmeliesUncle — Fri, 18 Mar 2022 16:09:48 GMT

While you don't own the original building and land, you DO own the improvements that you made.

I'll point you to the actual law itself - Regulation §1.167(a)-4:

§ 1.167(a)-4 Leased property.

(a) In general. Capital expenditures made by either a lessee or lessor for the erection of a building or for other permanent improvements on leased property are recovered by the lessee or lessor under the provisions of the Internal Revenue Code (Code) applicable to the cost recovery of the building or improvements, if subject to depreciation or amortization, without regard to the period of the lease. For example, if the building or improvement is property to which section 168 applies, the lessee or lessor determines the depreciation deduction for the building or improvement under section 168.

https://www.law.cornell.edu/cfr/text/26/1.167(a)-4

Re: Writing off Leasehold Improvements

DianeW777 — Fri, 18 Mar 2022 17:01:10 GMT

The qualified leasehold improvements apply only to nonresidential real property according to the IRS. If you reported this as business income as indicated below, there may be a possibility but continue to review your specific situation.

IRS Publication 956 (page 30) Printed below for your convenience.
- 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, is made by you, 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.

It's unclear how you treated your Airbnb income but here are some key components. Most people who use Airbnb are running a business and by default are required to file under Schedule C if there is "substantial services".

If you’re providing hotel-like perks such as regular cleaning or maid service (in excess of 10% of the rental cost), fresh linens or towels, in-room coffee, transportation, or sight-seeing, you’re providing substantial services, and that means you'd file Schedule C.

If you provide substantial services that are primarily for your tenant's convenience, report your income and expenses on Schedule C. If this is the case, then you use the nonresidential real estate like a hotel and/or bed-and-breakfast. This will be the 39 year recovery.
- Should I Report My Rental on Schedule E or Schedule C
- Where do I enter Schedule C?

If you did report the income as rental on Schedule E, then there is nothing you can use for depreciation that you did not own as indicated by our awesome tax experts @ColeenD3, @JillS56 and @DaveF1006.

Please update if you need further clarification.

@pbmunkey

Re: Writing off Leasehold Improvements

AmeliesUncle — Fri, 18 Mar 2022 17:22:39 GMT

@DianeW777 wrote:
If you did report the income as rental on Schedule E, then there is nothing you can use for depreciation that you did not own as indicated by our awesome tax experts @ColeenD3, @JillS56 and @DaveF1006.

Did you not read the law that I posted?

Perhaps it would be clearer if the OP asked "can I depreciate capital improvements I made to the property I rented from somebody". But just because the improvements don't qualify under the category of "Qualified Improvement Property" (or the former "Leasehold Improvement Property") does NOT mean the capital improvements can't be depreciated. They are just depreciated under the 'normal' categories for real estate.

Re: Writing off Leasehold Improvements

pbmunkey — Fri, 18 Mar 2022 21:54:07 GMT

Yes it was strictly for business use. I didn’t live there.

Re: Writing off Leasehold Improvements

DaveF1006 — Fri, 18 Mar 2022 23:03:43 GMT

I do see where AmeliesUncle has posted an IRS - Regulation §1.167(a)-4 where you could depreciate these assets. To claim, you will need to report the Airbnb like it was a business.

Go to federal>income and expenses>
Self-Employment>Self-employment income and expenses
Complete the profile that asks about your business
Then there will be a screen where you will enter your self-employment income.
After entering, you will start entering expenses into your program.
If using Turbo Tax online, there is an asset section in the expense category. This is where you can enter your improvements as depreciable assets.
if using the Turbo Tax Home and Business Software, There is a separate Business Asset section where you will enter this information.
Interviews from both products will reference improvements made, which will lead through the sections.

@pbmunkey

Re: Writing off Leasehold Improvements

AmeliesUncle — Sat, 19 Mar 2022 01:01:51 GMT

@DaveF1006 wrote:
I do see where AmeliesUncle has posted an IRS - Regulation §1.167(a)-4 where you could depreciate these assets. To claim, you will need to report the Airbnb like it was a business.

No, it does not need to be a business on Schedule C. A rental on Schedule E would qualify as well.

Re: Writing off Leasehold Improvements

mwarney — Tue, 17 Oct 2023 23:14:38 GMT

I think some people are confusing depreciation with amortization. No you can't depreciate property that you do not own. But yes you can depreciate or amortize improvements you make to leased business property. Whether you are conducting a business or not is a question you must resolve. But any improvements you make to leased business property are yours to amortize or depreciate. "Leasehold improvements" are linked to your business, not the property.

Re: Writing off Leasehold Improvements

js3991 — Wed, 31 Jan 2024 20:59:04 GMT

Hi, I do indeed have leasehold improvement for a building that is 100% business use. I understand I will write this expense off over the lease. I am struggling with how to do this in the asset section of turbotax. Any suggestions?

Re: Writing off Leasehold Improvements

AbrahamT — Wed, 31 Jan 2024 21:46:37 GMT

Just to clarify, which version of TT are you currently using?

Re: Writing off Leasehold Improvements

js3991 — Wed, 31 Jan 2024 22:43:37 GMT

I use the online self employed one.

Re: Writing off Leasehold Improvements

AbrahamT — Thu, 01 Feb 2024 16:17:43 GMT

Here's what you do:

In TT Home and Business, click on the business tab

then hit Business income

then hit Business Assets

then Do you want to go to directly to your asset summary, hit Yes

then hit Add an Asset

then on the next screen Describe This Asset , click Real Estate Property then fill in the date you bought this asset, namely;

the date you started the leasehold improvements.

then on the next screen, you will describe what kind of lhi this is.

then on the next screen, you'll describe the asset in more detail including the amount you paid for it and the date you purchased it.

then the next screen will allow you to enter some more details about the lhi

then finally on the last screen, it will give you the option of spreading the expenses over the life of the lhi which is typically 15 years or you may wish to the take the whole amount in the year you incurred this leasehold improvement as a 179 deduction.

For more information on this topic. See HERE pg. 12-15