Individual soley owns a c-corp and rents a building to the business. C-corp aquired a loan and added an extra room to the building. According to IRS rules, altering a building does not qualify for leasehold improvements. Previous accountant posted all costs to date in a "Work in Progress" account. Should I transfer all costs to a "Due from Stockholder" account and tell individual to double the rent so he can pay back the c-corp?
USA Leasehold Improvements
- Thread starter Nar1957
- Start date
Altering a building is considered LHI. https://ownersrepny.com/2011/09/21/...old-improvements-construction-and-renovation/ You are adding value to the building for the landlord/owner. It really shouldn't be in a WIP account - they just go directly to the LHI account. The key to LHI vs expense of course is determining whether or not the dollars spent are for things that could be removed at the end of the lease. Not WILL they but could they. Obviously a room addition will not be removable so those are all LHI. I remember in the past a client installed a phone system in his leased space. The phone equipment was all able to be removed - the wiring and modifications to the space was not taken so equipment was expensed and wiring was LHI
Ladyrider,
Thank you for your reply, but I think you missed the part where I said the C-Corp added a room. This means he structurally changed the building. In the link you sent it validates my quandary. "Qualified improvements don’t include things like installing an elevator or altering the building’s structural framework." I know the owner of this business believes he will be able to depreciate the addition through the C-corp. I'm wondering if he can even depreciate it through his own tax return because if he is the owner of the building and not his wife then the lease doesn't even qualify as a true lease.
Thank you for your reply, but I think you missed the part where I said the C-Corp added a room. This means he structurally changed the building. In the link you sent it validates my quandary. "Qualified improvements don’t include things like installing an elevator or altering the building’s structural framework." I know the owner of this business believes he will be able to depreciate the addition through the C-corp. I'm wondering if he can even depreciate it through his own tax return because if he is the owner of the building and not his wife then the lease doesn't even qualify as a true lease.