Upon reversion of improvements to a land owner at exp of a ground lease, can the owner then depreciate the imp

When an owner has the fee simple position in a ground lease and the tenant has constructed a building at their own expense, when the improvements revert to the land owner at the termination of the ground lease, can the land owner then depreciate the improvements, and if so how would you calculate the basis?
In General Area - Asked by Michael J. F. - Mar 8, 2010
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Mark L.
Property/Asset Manager
Roswell, GA

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
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Tim M.
Biloxi, MS

The short answer is NO, the land owner (landlord) does not have basis in the improvements and, hence, is not entitled to any depreciation thereon. IN essence, the landlord, at the termination of the lease does "inherit" property with significant value for which he has paid nothing. Bottom line is that upon sale of the land AND improvements down the road the owner will recognize a gain on the sale to the extent that the sales proce execeeds his basis in the LAND only.

Mar 14, 2010
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