USA Money Reimbursed from Landlord

[ag_cpa]

Hello All,

Lets say a client enters into a lease to rent out space for a restaurant. Rent every month is $50,000. So far, the renters have put in $1,000,000 into leasehold improvements (repairing and making the space to their liking).

6 months pass before the landlord took notice of all the changes and decided to reimburse them $150,000 because the improvements they made increased the value of his property. My question is, as an accountant I have 2 options I believe. The first is to take the $150,000 reimbursement and deduct it from Rent Expense. The other option is to take it out of Leasehold Improvements which is a depreciable asset.

What is the proper way of taking into account the reimbursement?

Thank You,
Jay

 

[smallbushelp]

Actually, neither option is correct. It would be booked as other income because GAAP says you're not supposed to offset expenses with reimbursements and below the line because it's not associated with income from operations.

 

[ag_cpa]

Actually, neither option is correct. It would be booked as other income because GAAP says you're not supposed to offset expenses with reimbursements and below the line because it's not associated with income from operations.

Thank you for the response. I agree with you under GAAP but would it be different for Tax? On the Tax Return, would I still claim it as Income?

 

[smallbushelp]

Yes, you would.