I can only offer an opinion as I am not a tax professional, which authority you should consult; but yes, the Owner would own the improvements and not only be entitled to depreciate the improvements but also be responsible for any valuation increase, more's the pity. Of course, depending on the nature of the improvements value could actually decrease.... In any case, you should have the improvements appraised if they are substantial. Unless you have a very good relationship with your past tenant you will probably not know what the actual basis is, but neither will anyone else, so market value would constitute the guidance on that.
Mar 8, 2010