Relief From the Leasehold Improvement 39 Year Life Through 2010 Section 179 Changes

Typically depreciated assets are recovered through the lifetime of their service. For a commercial lease this would be five years. Unfortunately for the lessee the congress has passed legislation that mandates that the recoverable life of leasehold improvements equal the recoverable life of the building costs, which are 39 years versus 5 years.

A temporary reduction to a 15 year cost recovery period was enacted by congress in 2004. This expired in 2009, so the cost recovery period for leasehold improvements reverted to the 39 year period.

For 2010 relief may be sought by revisions to Section 179 property, which now includes leasehold improvements. Rather than taking costs evenly over a 39 year period, leasehold improvements that are part of a lease, placed in service after three years in which the building was placed in service, and are contained in Section 1250 property (property that is disqualified for long term capital gain treatment).  The cost of enlargement of the building, elevators. escalators, and any structural improvements of common areas are not qualified for the immediate Section 179 expense.

The limit for Section 179 expense of leasehold improvements is $250,000 of the overall annual limit of $500,000.