I’m Paying to Get a Lease?!?!?!

Crystal has found the perfect location to set up her health and beauty spa!  It has everything she needs and wants, and she is convinced that there is no better spot for her to start her business.  There is only one small problem, somebody else is already there!

Her determination is unstoppable, and she convinces the current lessee to let her have the location, but it is going to cost her.  She must pay the lessee $10,000 for the remainder of the lease, which is 8 years and $2,000 for the option to renew for an additional 4 years.  Crystal will also have to pay the monthly rent to the lessor of the property.

Crystal will not be allowed to deduct the entire $12,000 in the first year when she pays it.  This amount will have to be amortized over the life of the lease, to include option periods.

The $12,000 will be divided by the 8 years on the original term.  Crystal will be able to deduct $1,500 each year for the cost of the lease.  This is because the cost of the original lease ($10,000) is more than 75% of the total ($12,000).

There is another factor that needs to be reviewed.  In the case that Crystal only paid $7,000 for the original term and $5,000 for the option, the deductible amount would be divided by 12 years and she could deduct $1,000 per year.  The difference in calculation is due to $7,000 for the original term is less than 75% of the total.

If you have any questions on how to deduct the cost of getting your lease, contact us at info@excerebus.com or 407-988-5647.

Categories: Tax Information

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