Writing off Leasehold Improvements

[mwarney]

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.

[js3991]

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? 

[AbrahamT]

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

[js3991]

I use the online self employed one. 

[AbrahamT]

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

[js3991]

In regard to spreading the expenses over 15 years, I was under the assumption that it would just be over the time of the lease (5 years for me) but if not, no worries. I just want to make sure I do it the right way. 

[AmeliesUncle]

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@js3991 wrote:

In regard to spreading the expenses over 15 years, I was under the assumption that it would just be over the time of the lease (5 years for me) but if not, no worries. I just want to make sure I do it the right way. 

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It is still over 15 years.  However, if you "abandon" the improvements in five years (by moving out due to the end of the lease), you will take the rest of the cost then.

[js3991]

Okay, also the project has carried over into the new year. Would i just add these expenses into that leasehold asset and then adjust the depreciation next year when i do taxes?

[RobertB4444]

Yes.  The completed project is bundled into one amount and called 'leasehold improvements'.  Since it won't be completed until 2024 then you will put it into service on the date it is completed and depreciate the total amount as of that date.

@js3991 

[js3991]

Okay, and what if it is a situation where its operational in 2023 but other things were done in 2024? Could I just deduct those as expenses and not add it to the asset next year?

[AmyC]

I assume you mean two projects that are related, one done in 2023 and the other in 2024. The 2023 project would be bundled up and placed on the 2023 return, like a new room added. For 2024, you could have the furniture and carpet that goes in the room as a separate deduction. They are related but not the same and are different deductions.

@js3991 

[taxnomyown0328]

so I have to buy the home and business version?

I used self-employee online, but can not find Class 13 or the Leasehold improvement part

please help

[KristinaK]

No, you do not need the Home & Business version. Self-employment will work as well. In TurboTax, you need to:

1. Add Asset.

2. Select Real Estate.

3. Select either Qualified improvement or Specific qualified improvement property (whichever applies). 

4. Follow through the rest of the steps. 

[taxnomyown0328]

Hi, Kristina :

in the turbo tax online version, I can not find the add asset.  

or do I have to buy the self-employment version running on Windows 10?

[KristinaK]

I don't think you are in TurboTax. Is it possible that you are in QuickBooks Self-Employed? You need to use this site to log in to TurboTax https://turbotax.intuit.com You would need TurboTax Premium to report your income and expenses from self-employment. This is how it looks for me.