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I received a tenant allowance for contruction build on a leased property. The lease states the landlord owns the permanent improvement on the asset. I consider this a credit towards capital expense, therefore not eligible for straight line over the life

Answers

(Agent, JKS Solutions, Inc.) |

This is something for your Controller to help you with. If you received a live check, make sure you deliver it to accounting immediately.

Accounting for the elements of leases including tenant improvement incentives is not always straight forward and yes, this is something that is dealt with in fixed asset accounting. The cash will be deducted from the final asset, but also the incentives may be required to amortized over the lease term as a credit against rent expense depending on the accounting treatment.

Talk with your Accounting team.

Anonymous
(CFO) |

You should also check with your tax accountant in that for federal income tax purposes, a leashold improvement must be amortized over either 15 years under GDS or 39 years under ADS regardless of the lease term.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

If the tenant is responsible to pay for the leasehold improvements but received a tenant allowance to cover a portion of those improvements, wouldn't that simply credit the leasehold improvement account?

Kevin Roones
Title: Senior Accounting Professional
Company: In-between
(Senior Accounting Professional, In-between) |

The tenant allowance is an incentive that should be recorded as a deferred rent liability and amortized as a reduction to lease expense over the lease term.

The leasehold improvements should be amortized over the shorter of their economic lives or the lease term. The tenant allowance should not be netted against leasehold improvements, which should remain on the books as the gross amount.

Dan Kardatzke
Title: CFO
Company: Solstice Mobile
(CFO, Solstice Mobile) |

I concur with Kevin as we just went through this with our auditors in the spring on our buildout from last fall. We had to record it with the rental abatements as deferred rent liability. We are then amortizing over the lease term.

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