15-year recovery period for certain qualified leasehold improvements.

• Author: Rohrs, Jane

Prior to the AJCA, if a leasehold improvement constituted an addition or improvement to nonresidential real property already placed in service, the improvement was depreciated using the straight-line method over 39 years, under Sec. 168.

New Law

ACJA Section 211 requires that "qualified leasehold improvements" be depreciated using the straight-line method and a 15-year recovery period. A "qualified leasehold improvement" is defined as any improvement to an interior portion of a building that is nonresidential real property, provided:

1. The improvement is made under a lease either by the lessee (or sublessee), or by the lessor, of that portion of the building to be occupied exclusively by the lessee (or sublessee);

2. The improvement is placed in service more than three years after the date the building was first placed in service; and

3. The improvement is not attributable to the enlargement of the building, any elevator or escalator, any structural component benefiting a common area or the internal structural framework of the building.

In addition, if a lessor makes a qualified leasehold improvement, such improvement does not qualify as qualified leasehold improvement property to any subsequent owner of the improvement, unless acquired by reason of death or certain nonrecognition property transfers...