Neither Dentist or Landlord can ‘Double Dip’ on Tenant Improvement Deduction

I am in the process of a start up and have made arrangements to have a cost segregation study done so I can take accelerated depreciation on my taxes within the first 5-10 years.

I have agreed to pay extra on my rent in exchange for increase TI’s with the understanding that I will then be adding this to my cost segregation for accelerated depreciation. Now the landlord is going back on agreeing to the above saying that HE wants to take the accelerated depreciation.

My question is: If the landlord is recouping his TI by an increase in my rent in the first 10 yrs, can he then ‘double dip’ so to speak and claim that in accelerated depreciation form as well? (I think he called it bonus accelerated depreciation)

Based on how you’ve described the situation, yes, the landlord owns the TI, and is receiving additional rental income for them so they can take depreciation on them.

Either way, you’re paying for the TI and you’ve chosen to pay for them as rent and you’re deducting rent as you pay it. So YOU can’t double dip and also show them as an asset and take depreciation.

Now, if what you’re saying is the additional payment on top of rent is a loan payment where you’re paying P&I to the landlord for lending you the money to “own” the TIs, then you can depreciate them.

What approach did your CPA was better for you in your particular case?

Thank you for your reply. Yes the agreement is essentially me ‘owning’ the TI’s: I would not be expensing the additional amount above base rent that I have agreed to in exchange for TI’s, it is interesting that CPAs seem to be divided on this issue, my CPA is essentially in the camp of ‘landlord cannot double dip’ but a couple other I have consulted with think that it is landlord’s TI regardless, of course including the landlord’s CPA. 

For now it seems like the landlord is backing down and agreeing to what he had originally agreed: allowing me to take the accelerated depreciation. We’ll see if he actually signs off on it in the actual lease.

Clearly no one can double dip – every CPA will agree to that. That’s not really the issue though. The issue is how this part of your lease is negotiated and ultimately worded/structured.

Good luck

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