the date the improvements were placed in service.Other asset additions may qualify for even shorter 5 or 7 year depreciable lives. Some commercial building improvements made pursuant to a lease may qualify for a shorter 15 year tax life. Most non-residential building improvements are depreciated for tax purposes over 39 years (residential over 27.5 years). Is any portion of the deposit for the final month’s rent?.Is each tenant deposit refundable or non-refundable?.they will be included in income only to the extent that an amount is not refunded to the tenant at the end of the lease).Ĭ) Any portion of a deposit that is earmarked as prepaid rent needs to be included currently for tax purposes. when the tenant moves out.ī) Refundable deposits are treated the same for book and tax purposes (i.e. Without knowing the total, the first half might have been improperly expensed since it was less than $5,000, when in fact the total of $8,000 needs to be capitalized and amortized over the lease term.Īmounts paid for tenant deposits have different tax treatments depending on the type of deposit.Ī) Non-refundable deposits need to be included as current income for tax purposes, even though these amounts may remain in the books as a liability until it is applied against the repairs, etc. For example: total lease commission is $8,000 for a 5 year lease, but is paid 50% in December and the remaining half the following January. Possibly a copy of each lease or lease renewal signed during the yearīut be careful of year-end cut-offs! When lease commissions related to one tenant are paid over 2 tax years, additional information might be necessary.Information your CPA/ tax preparer needs: In these three cases, the lease commissions can be deducted currently. Lease commissions that are less than $5000 per tenant.The term of the lease is month-to-month, or.Where the term of the lease is less than one year, or.When your property manager is “in the know” about the treatment of the items we list below, rest assured they can make decisions in all parties’ best interests, and also provide the best information possible to the accountants that may be translating all of their hard work into a tax return filing:ġ) Lease acquisition costs (aka lease commissions)įor tax purposes lease commissions must be capitalized and amortized over the length of the lease. Moreover, a great property manager needs to be knowledgeable about the rental markets in which they deal and its legal environment, including: landlord & tenant rights and responsibilities, and the financial impacts (including tax implications) that their day-to-day decisions have on the property and ultimately its investors. The best property managers need to provide excellent service- both to the investor/owner and to the tenants they manage. Here are some tips from our real-estate savvy tax accountants to help make their efforts even more valuable. Have you ever wondered what makes a great property manager? Aside from their winning personality, ability to manage and lease-up properties, they should understand that at the end of the day, their efforts are going to end up on a tax return.