What are the depreciation rules for leasehold improvements in 2018?

[tony-j]

My client leased office space for his business in 2018 and paid $20,000 for the build out of the interior of the office.

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

How is the $20,000 he paid depreciated for tax purposes?   Is 39 year depreciation the only option? 

[TaxGuyBill]

I suspect your term "build out" means it is either enlarging the building or involves the "internal structural framework of the building".  If that is the case, that disqualifies it as a "Qualified Improvement Property" (which qualifies for Section 179).
https://www.law.cornell.edu/uscode/text/26/168#e_6

That leaves 39 years as the only option, even if Congress fixes the "Qualified Improvement Property" to 15 years.

[tony-j]

The unit was delivered to him with just studs.   The $20,000 includes doors, trim, walls, paints, carpet.  He seems to be convinced that this can be deducted 100% in 2018.

[TaxGuyBill]

It sounds like it qualifies for Section 179.

If it doesn't involve "enlargement" or the "internal structural framework of the building", then it would be a "Qualified Improvement Property" (code J5 on the ProSeries Asset Entry Worksheet), which qualifies for Section 179.

[tony-j]

From what I understand, the issue and questions with the Tax Cuts and Jobs Act is bonus depreciation, but Section 179 is still allowed for "Qualified Improvement Property"?

[TaxGuyBill]

As I said twice before, yes.
https://www.law.cornell.edu/uscode/text/26/179#e

[tony-j]

Thank you for your help.

[Just-Lisa-Now- · Accepted solution]

Check one of the boxes in this window of the federal information worksheet, and then click the yellow question mark to see information about leasehold improvements.  This should at least give you a starting point for research.