Is depreciation charged on leasehold improvements?
Sarah Duran
Published Feb 28, 2026
Ground no. 2 is against not allowing depreciation on leasehold improvements. AR contended that if the assessee’s contention of such an amount being a revenue expenditure is not accepted, then depreciation should be allowed on it.
What is the depreciation method for leasehold improvements?
Leasehold improvements are depreciated as follows: “Qualified improvement property,”, as defined below, is 15-year MACRS property with a 15-year recovery period if placed in service after 2017. The applicable method is the MACRS straight-line method with half-year or mid-quarter convention.
What are the rules for depreciation of leasehold improvements?
Depreciation of leasehold improvements. There are several rules associated with this depreciation, which are: Useful life basis. If the leasehold improvement is expected to have a useful life less than the remaining term of the associated lease, depreciate the asset over the remaining useful life.
What is the useful life of leasehold improvements?
Useful Life Basis: In the case where the leasehold improvements are incurred, they are assumed to have a useful life of around 5 years or 10 years. Depending on the useful life of the asset, they are amortized and expensed every subsequent year.
How often does the 15 year depreciation rule need to be reauthorized?
The 15-year rule is not permanent and must be reauthorized every year. The depreciation term is fixed regardless of the actual useful life of the leasehold improvement or the remaining term of the lease. For GAAP financial reporting, improvements to leaseholds can be capitalized or expensed depending on the dollar amount of the improvement.
How are leasehold improvements reported on the balance sheet?
What are leasehold improvements on a balance sheet? When the leasehold improvement meets the company’s criteria to capitalize as fixed assets, then in the balance sheet, leasehold improvement is to recognize at costs. Then the leasehold improvement will be reported at the net of depreciation.
