Farm Income Tax Manual - 2009 Developments Impacting Return Preparation Considerations

Farm Income Tax Manual - 2009 Developments Impacting Return Preparation Considerations

Farm interests are affected by 2009 tax developments with several dimensions.

Treating Leasehold Improvements by Lessee as Rent. For example, taxpayers should examine new standards applicable to leasehold improvements by lessees. Although lessors or lessees typically recover the costs of leasehold improvements, a recent Tax Court case creates a potential opportunity to deduct the cost of improvements made by a lessee as additional rent.  In Hopkins Partners v. Comm'r, T.C. Memo 2009-107 (T.C. 2009), a partnership facing losses on hotel partnership property negotiated an arrangement with the city to make specified improvements to the hotel property to improve the level of rentals in exchange for rent credits. The partnership was allowed to credit the cost of certain improvements against the annual rent in excess of a specified minimum amount.  The court stated that if a lessor makes improvements at the lessor's own expense, the lessor is entitled to depreciation deductions on the property even though the lessee has the use and enjoyment of the improvements. If the lessee makes the improvements, even though the title vests immediately in the lessor, the lessee is not precluded from recovering the lessee's investment through depreciation deductions. The court emphasized that whether the cost of the improvements constitutes rent turns upon the intent of the parties to the lease.

Farm Income Tax Manual is an annually updated manual that helps you save time and money on farm income tax returns, whether you own a farm yourself or you prepare tax returns for farm owners. A revised and updated Farm Income Tax Manual is published each December. It draws lessons from careful study of all relevant parts of the Internal Revenue Code and major legislative acts. 

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