Tax Considerations For Office Leases

With the changing work environment in recent years, many businesses are reconsidering their office spaces and current leases. This could include renegotiating leases, reducing or increasing space, or leasing a new space. While there are many things to consider before signing or modifying a lease for office space, one of the areas that should not be overlooked is tax implications. Some tax items to consider are how is rent deducted, if the lease is subject to IRS Section 467 (which applies additional rules), how improvements are treated and what happens if you cancel the lease early.

BACKGROUND

Rent is defined as any amount paid for use of property that the taxpayer does not own. Depending on the taxpayer's method of accounting and subject to a few exceptions, the taxpayer lessee can deduct rent expense if it is paid or incurred by them during the year in connection with their trade or business, is ordinary and necessary and the taxpayer has no equity and is not