P roperty M anagement
Real Estate Journal — Owners, Developers & Managers — January 27, 2017 - February 9, 2017 — 9B
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hen entering into a new lease agree- ment, both tenants By Laura Riso, CPA, WithumSmith+Brown Tax treatment of leasehold improvements when paid by lessee vs lessor W
allowance, which is an amount the landlord is willing to spend so that the tenant can reno- vate the space. The allowance amount and intent should be clearly stated in the lease agree- ment. In this scenario, the tenant would be the owner of the improvements, and would depreciate the amount of the allowance over the statutorily prescribed life. If the tenant vacates the property before the end of the depreciable life, the balance can be written off at that time. The allowance would be taxable income to the tenant. The landlord can then amortize the amount of the al- lowance over the lease term as a leasehold acquisition cost. The lease term is typically shorter than the depreciable life, and therefore this scenario would be advantageous to the landlord who is able to recover the costs over the shorter period. The landlord could also pro- vide the tenant with free rent, in lieu of an improvement Smith. “Throughout his career, Dave has proven himself to be a strategic problem solver with the ability to execute smart solutions across all areas of the organizations in which he has worked. I expect his proficiency in business development and property management will al- low him to bring Aureus to the next level of success.” Prior to joining Aureus, Hardy was an executive direc- tor with FirstService Residen- tial, overseeing the company’s property management opera- tions in Northern New Jersey and Southern New York. He also spent 17 years at Real- ogy Corporation in a variety of roles, including his most recent positions of senior vice president of operations for Century 21 Real Estate and senior vice president of busi- ness development for the com- pany’s Real Estate Franchise Group. Hardy was a board member
allowance, at the beginning of the lease (typically for the same amount that the al- lowance would have been). The tenant would have to use its own funds for the cost of the improvements and would depreciate the cost over the statutorily prescribed life. The lease agreement must stipulate that the rent is being reduced in consideration for the lessee’s expenditures for improvements in order for it to be considered taxable income and a depre- ciable asset to the landlord. Unless there is significant evidence that the parties in- tended for the improvements to substitute for rent, the courts generally have not found tax- able income. If the tenant opts to pay for the improvements, they would own the improvements and would depreciate the cost of the improvements over the statu- torily prescribed life. There would be no tax consequence to the landlord, unless the tenant of the National Association of Hispanic Real Estate Profes- sionals and the Asian Real Estate Association of America, and a member of the National Association of Realtors Fair Housing and Cultural Di- versity committee. He also completed the CEO Academy at The Wharton School at University of Pennsylvania and the Managing Technical Professionals and Organiza- tions program at MIT Sloan School of Management, and is Lean Six Sigma certified. “I am excited to join Aureus Property Management,” said Hardy. “I look forward to using my expertise to help broaden the delivery of the gold stan- dard in property management for which Aureus is known, and to expand upon the com- pany’s well established efforts in personalized property man- agement solutions for property owners, relocating employees and renters.” n
conveys the improvements to the landlord. If the improve- ments revert to the landlord, whether upon completion of the work or upon termination of the lease, the landlord would have taxable income and become the owner of the improvements. If the tenant transfers ownership to the landlord at the beginning of the lease term, the tenant can then amortize the cost of improvements over the lease term as a leasehold acquisi- tion cost. There is an exception to some of the scenarios above, related to retail leases under Section 110 of the Internal Revenue Code. Specifically, Section 110 pro- vides that cash, or an amount treated as a rent reduction, received by a retail tenant is not gross income if the amount is used for qualifying construc- tion of leasehold improvements. In order to meet these require- ments, the lease must be a short-term lease of retail space and the amounts excluded must
be expended in the taxable year received on constructing or im- proving qualified long-term real property for use in the lessee’s retail business. The differing tax consequenc- es in the above scenarios should be carefully considered by both tenants and landlords when negotiating lease terms. Ask Our Experts To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Laura Riso is a certified publicaccountant in the state of NewJersey and amanager with WithumSmith+Brown, one of the nation’s top-30 audit, tax and advisory firms, headquartered in Princeton, NJ. n in New Jersey that includes nearly 60 developments and $1.2 billion of total develop- ment cost. Pennrose currently has 1,200 units in its develop- ment pipeline for the Garden State. “Our partner relationships and history in New Jersey have been and will continue to be pivotal in Pennrose’s growth,” said Timothy Hen- kel , senior vice president of Pennrose Properties. “Jacob has shown time and again his ability to lead development projects in this region to com- pletion, while nurturing the collaborative effort that needs to exist between partners, vendors and internal teams.” In addition to Fisher’s port- folio, Pennrose has a history of developing award winning communities in New Jersey. Also in 2015, Pennrose was named Property Management Company of the Year (Afford- able) by the New Jersey Apartment Association . n
and landlords ne ed t o be careful when determining who will be paying for the leasehold im- provements. T h e r e a r e multiple op-
Laura Riso
tions available and the decision could have tax impacts on both parties. One option would be for the landlord to pay for the improve- ments, in which case they would own the improvements and would depreciate the cost of the improvements over the statuto- rily prescribed life. There would be no tax consequences for the tenant in this scenario, unless the tenant also contributes to- ward the cost of improvements. Another option would be for the landlord to provide the tenant with an improvement
Aureus Property Management names David Hardy president
Pennrose promotes Fisher to regional VP of development
PHILADELPHIA, PA — Pennrose recently announced the promot ion of Jacob
MORRIS PLAINS, NJ — The Weichert Family of Companies has announced
F i s he r t o regional vice president of development t o ove r s e e the organi- zation’s de- v e l o pme n t ac t i v i ty in New Jersey.
that David Hardy has been named president of i t s wh o l l y owned prop- erty manage- ment compa- ny, Aureus P r o p e r t y
Jacob Fisher
David Hardy
Fisher will lead the execu- tion and growth of Pennrose’s development pipeline within New Jersey, and will be re- sponsible for the realization of production goals that have been defined in the company’s ten-year strategic plan. The role’s business development responsibilities are focused on future development opportuni- ties that meet the company’s defined parameters and are consistent with its long-term growth strategy. Pennrose has an extensive development track record
Management . In this role, Hardy will be responsible for all corporate functions and ser- vice teams and hold ultimate responsibility for the compa- ny’s strategic growth and the execution of the Aureus value proposition. He will report directly to Denise Smith, presi- dent of the Affiliated Services Group for the Weichert Family of Companies. “I am very pleased to wel- come Dave to the Weichert Family of Companies execu- tive team and to Aureus,” said
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