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I have a client who is purchasing a Walmart building, land,

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I have a client...

I have a client who is purchasing a Walmart building, land, and lease. He would like to allocate the total cost to building, land, and a portion to lease acquisition, and amortize the latter over the term of the lease. Is this possible under any IRC sections? If so, how would the allocation be handled?

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I would also like to know if in the same situation, just a ground lease/land was purchased. Would there be an allocation between the 2? Would the ground lease acquisition be amortizable and under what code section?

Submitted: 9 months ago.Category: Tax
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9/20/2017
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 9 months ago
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
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Hi, my name is Mark. I will be happy to help you with your questions. You are not allowed to allocate the cost of the building and lease acquisition costs. The building would be depreciated over 39 years and the land would be recorded at is purchase value and would not be amortized.

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Customer reply replied 9 months ago
Thank you Mark. What about in the case of the purchase of a ground lease/land? Would an allocation for the ground lease be amortizable, and if so, under what code section?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 9 months ago

Is your client acquiring a land lease?

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Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 9 months ago

Amortization of acquiring a lease is cover in IRC Section 178. Here is a link to the code section https://www.law.cornell.edu/uscode/text/26/178

a)General rule

In determining the amount of the deduction allowable to a lessee for exhaustion, wear and tear, obsolescence, or amortization in respect of any cost of acquiring the lease, the term of the lease shall be treated as including all renewal options (and any other period for which the parties reasonably expect the lease to be renewed) if less than 75 percent of such cost is attributable to the period of the term of the lease remaining on the date of its acquisition.

(b)Certain periods excluded

For purposes of subsection (a), in determining the period of the term of the lease remaining on the date of acquisition, there shall not be taken into account any period for which the lease may subsequently be renewed, extended, or continued pursuant to an option exercisable by the lessee.

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Customer reply replied 8 months ago
Can I do a follow up question? I would like to know over what time period the land lease purchase is required to be amortized over? There are four years remaining on current lease, with multiple renewal options.
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 8 months ago

Yes, you can ask a follow up question. You would amortize the cost over the four years. You would not take into the renewals or extensions in the amortization. If you look at the IRC 178(b)you would not take into account any period for the whick the lease may be renewed or extended.

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Customer reply replied 8 months ago
Mark.....thank you!
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 8 months ago

It was my pleasure. I was happy to help. If you would take a moment to rate my response I would greatly appreciate it. There should be stars located above the question. This is the only way that I will receive credit for helping you today. If you have additional questions or need clarification I would be happy to continue the conversation. Thank you.

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