USA Legal fees associated with leases


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We are building a new building and have had legal fees associated with the creation of the lease document. Am I correct that the legal fees should be capitalized and amortized over the life of the lease?
 

bklynboy

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I understand they can be capitalized as part of the lease. They are considered initial direct costs necessary for the lease. Note that only the incremental direct legal costs are capitalized meaning those related to the actual lease itself and not the initial negotiation stage of lease terms since its assumed that those would have been incurred even if the lease was not entered into.

IFRS: http://www.knowledgiate.com/accounting-for-initial-direct-costs/
GAAP: https://www.pwc.com/us/en/cfodirect/multimedia/videos/lessor-accounting-fasb-leasing-standard.html
 
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I understand they can be capitalized as part of the lease. They are considered initial direct costs necessary for the lease. Note that only the incremental direct legal costs are capitalized meaning those related to the actual lease itself and not the initial negotiation stage of lease terms since its assumed that those would have been incurred even if the lease was not entered into.

IFRS: http://www.knowledgiate.com/accounting-for-initial-direct-costs/
GAAP: https://www.pwc.com/us/en/cfodirect/multimedia/videos/lessor-accounting-fasb-leasing-standard.html
In that pwc video it says that under the new standard costs that would be incurred even if the lease wasn't signed should be expensed. That's making me think we should expense assuming we can operate under the new regs now.
 
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I guess you mentioned that now that I look closer at your reply.
 
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We are building a new building and have had legal fees associated with the creation of the lease document. Am I correct that the legal fees should be capitalized and amortized over the life of the lease?
You would be better off if you expensed the legal fees when you paid them. You'll get a full deduction in the year incurred rather than only a portion every year the lease is in force.
 
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bklynboy

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I assumed this was not a tax question given the section its asked in - but yes Tax has a different preference. For book you would capitalize (and I assumed was what he was referring to) - Tax we expense to maximize the deduction and it creates a timing difference.
 
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