Title: How Long Can a Building Owner or Landlord Depreciate a Leasehold Improvement?
Headings: How Long Can a Building Owner or Landlord Depreciate a Leasehold Improvement?
How Long Can a Building Owner or Landlord Depreciate a Leasehold Improvement?
Key Takeaways
Understanding Leasehold Improvements
GAAP Financial Reporting
U.S. Tax Basis Financial Reporting

Content: Leasehold improvements, as noted above, apply to structural changes in the space that will benefit a specific tenant. So making changes to one tenant's space does not qualify as a leasehold improvement to the neighbor. Changes to the exterior of a building or its landscape also don't apply. If a landlord replaces the roof of the building, upgrades the elevator, or paves the parking lot—none of these changes are considered leasehold improvements, as they don't benefit a specific tenant. Once the lease ends, the improvements generally belong to the landlord, unless otherwise specified in the agreement. If the tenant is able to take them, they must remove them without any damage to the property. GAAP Financial Reporting
For GAAP financial reporting, improvements to leaseholds can be capitalized or expensed depending on the dollar amount of the improvement. Companies set a capitalization limit, an internal accounting standard determined by management that sets the threshold amount above which an item is capitalized instead of expensed. If the amount does not exceed the capitalization limit, the leasehold improvement is expensed in the period in which it is incurred. If, however, the cost exceeds the capitalization limit, the company capitalizes and amortizes it.