How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Robin D. Your Own Question
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15723
Experience:  15years with H & R Block. Divisional leader, Instructor
Type Your Tax Question Here...
Robin D. is online now
A new question is answered every 9 seconds

Construction expenses: A client rent/lease a space in a new

Customer Question

Construction expenses: A client rent/lease a space in a new building for office. My client incurred some costs during the construction to finish up her section. Most of the expenses are for the interiors; things like plumbing, bathroom/toilet hardwares, some wiring, cleaning,labour etc.
my client has an Scorp, took a personal loan to pay for the costs since business loan was not available. My client statrted taking money out of the Scorps account for payback for the costs incurred. I have entered all the withdrawals into a construction account (asset) pending when I have the details of the expenses.
Since this is not my client's building I know the costs cannot be capitalised.
I plan to treat the entire cost as rent at the end of the year. Although my client still pays rent, probably not as much as she is supposed to pay.
I'm yet to receive from my client the terms of agreement.
In the meantime, I'm I on the right path?
Submitted: 2 years ago.
Category: Tax
Expert:  Robin D. replied 2 years ago.
Hello and thanks for trusting me to help you today. I am a tax adviser with over 20 years of experience.
Leasehold improvements generally revert to the ownership of the landlord upon termination of the lease, unless the tenant can remove them without damaging the leased property.
When you pay for leasehold improvements, capitalize them if they exceed the corporate capitalization limit or charge them to expense in the period incurred.
If you capitalize these expenditures, then amortize them over the shorter of their useful life or the remaining term of the lease.
Technically, you will be amortizing leasehold improvements rather than depreciating them. The reason is that the landlord owns the improvements, so your client is only exercising an intangible right to use the improvements during the term of the lease - and intangible assets are amortized, not depreciated.