There are specific rules related to leased property outlined in the new tangible asset regulations, specifically related to unit of property. As a reminder, the unit of property is the cornerstone by which taxpayers now will determine whether an expenditure should be capitalized or expensed.
For leased buildings, the unit of property will differ depending upon whether the taxpayer is the lessee or lessor.
If a taxpayer is a lessee of an entire building, the building structure and building systems are the units of property for the lessee.
If a taxpayer is a lessee of a portion of a building, the portion of the building structure or portions of the building systems subject to the lease are the unit of property for the lessee.
If the taxpayer is a lessor of a building, the entire building structure and building systems are the units of property; even if there are multiple tenants, the entire building and systems are still the unit of property for analysis of expenditures.
This is just a reminder related to the new tangible asset regulations, which are being implemented for tax years beginning after January 1, 2014.
If you have any questions regarding these regulations, please contact your tax advisor or Faith Crump at 502-589-6050 or fcrump@deandorton.com.