We had a contractor build 2 walls and an office space in our building which we rent.

[YoungCPA]

We had a contractor build 2 walls and an office space in our building which we rent.  For Tax purposes, should I capitalize these expenses, expense them in the year done/paid, depreciate them?  I realize these are improvements to the space, but because we rent the space, I don't show the building on my balance sheet.  I believe it should be taken over the course of several years, but how to go about doing this?  Form 4562 as amortization costs for start up? These costs were incurred during the 2nd year of my business.

[qbteachmt · Accepted solution]

Here's an article for this topic:

https://www.accountingtoday.com/opinion/common-depreciation-missteps-and-misconceptions-qualified-le...

[YoungCPA]

to qbteachmt...Thank you for the article!  Question for you:  I still want to depreciate the improvements even though I do not own the building?

[sjrcpa]

Do it!

[YoungCPA]

I guess it's more conservative to depreciate rather than expense the entire amount!

[qbteachmt]

You follow the current rules for Qualified Improvement Property; it isn't referred to as Leasehold Improvement, now. You follow what applies to each Type of improvement. Building out a space doesn't rely on Ownership of the physical property being improved.

[YoungCPA]

Thank you, qbteachmt!

[sjrcpa]

Capitalize - Leasehold Improvements. Depreciate.