Leases

Getting a New Car for Business? Buy or Lease? Part 2: Tax Consequences

This blog will address the tax consequences of both leased and owned vehicles used for business purposes. Hopefully, it will offer some insight into the decision as to what is best for your business: buying or leasing?

With both owned and leased cars, any related expenses may be deducted using the standard mileage rate or the total amount of actual expenses. If the vehicle is owned, you may choose the standard mileage rate in the first year and switch to the actual expense method in a later tax year. If a vehicle is leased, you may also choose the standard mileage rate in the first year but once you the standard mileage rate is chosen, it must be used for the life of the lease.

Getting a New Car for Business? Buy or Lease? Part 1: Leased Vehicles

Many business owners rely on transportation to achieve the goals and purposes of their business. A car purchased for use in a business has certain tax advantages for the owner. However, many business owners are now leasing cars for business use. More Americans lease autos than ever before because of attractive monthly costs and the ability to change cars frequently to keep up with new technology and safety features. But what’s better for your business, an owned or leased car?

Tax Treatment Of Lease Terms Part 4: Lease Termination Payments From Tenant To Landlord

There are many issues which landlords and tenants must negotiate in commercial leasing transactions. In the first two parts of this article, which deals with the tax treatment of important lease terms, we discussed lease inducement payments and tenant construction allowances. In this part, we will conclude our discussion of lease termination payments.

Tax Treatment Of Lease Terms Part 4: Lease Termination Payments From Tenant To LandlordAs mentioned earlier in this series of blogs, there are two types of lease termination payments: (1) payments made by the landlord to the tenant and (2) payments made by the tenant to the landlord. Part three addressed payments made by the landlord to the tenant. This final section will consider lease termination payments made by a tenant to a landlord.

Tax Treatment Of Lease Terms Part 3: Lease Termination Payments From Landlord To Tenant

There are many issues which landlords and tenants must negotiate in commercial leasing transactions. In the first two parts of this article, which deals with the tax treatment of important lease terms, we discussed lease inducement payments and tenant construction allowances. In this part, and the next, we will briefly discuss the importance of lease termination payments.

Tax Treatment Of Lease Terms Part 3: Lease Termination Payments From Landlord To Tenant

Generally, I.R.C. § 263 disallows a current deduction for amounts chargeable to capital account. The applicable Tax Regulations provide that a taxpayer must capitalize amounts paid to another party to terminate a lease of real property between the taxpayer-lessor and the lessee. However, these regulations fail to discuss whether the payment is a nondeductible capital expenditure or whether it is amortizable and, if so, for what period is it capitalized into the cost of the building?

Tax Treatment Of Lease Terms Part 2: Tenant Allowances

Tenant construction allowances are a common detail in commercial real estate leases. Because landlords need tenants to fill their commercial spaces, and tenants need to customize these spaces for their business, a tenant allowance is a vital lease term which significantly pushes forward and finalizes a commercial real estate leasing transaction. An allowance must be structured accordingly to avoid undesired tax consequences.

I.R.C. § 110 provides landlords and tenants with a safe harbor which ensures that a tenant is not required to recognize income for a tenant allowance in leases which are for 15 years or less of a retail space. Otherwise, the tenant treats a tenant allowance received from the landlord as ordinary income, while depreciating assets over their useful life, typically resulting in much more income than expenses.

Tax Treatment Of Lease Terms Part 1: Lease Inducement Payments

The relationship between commercial landlord and tenant is often fraught with complications which often arise from a failure to understand the legal consequences of some formal or informal arrangement within the landlord-tenant relationship. To understand, avoid, and, at the very least, minimize these consequences, commercial tenants and landlords should avail themselves of the experience and knowledge of a qualified tax professional.

A common arrangement between landlords and tenants is a lease inducement payment, made by or on behalf of the landlord to entice a tenant to sign a lease agreement. Lease inducement payments may be:

  • cash;
  • moving expenses;

Testimonials

Categories