(a) Acquisition of a leasehold. If a leasehold is acquired for business purposes for a specified sum, the purchaser may take as a deduction in his return an aliquot part of such sum each year, based on the number of years the lease has to run. Taxes paid by a tenant to or for a landlord for business property are additional rent and constitute a deductible item to the tenant and taxable income to the landlord, the amount of the tax being deductible by the latter. For disallowance of deduction for income taxes paid by a lessee corporation pursuant to a lease arrangement with the lessor corporation, see section 110 and the regulations thereunder. See section 178 and the regulations thereunder for rules governing the effect to be given renewal options in amortizing the costs incurred after July 28, 1958 of acquiring a lease. See § 1.197-2 for rules governing the amortization of costs to acquire limited interests in section 197 intangibles.
(b) Improvements by lessee on lessor's property—(1) In general. The cost to a taxpayer of erecting buildings or making permanent improvements on property of which the taxpayer is a lessee is a capital expenditure. For the rules regarding improvements to leased property when the improvements are tangible property, see § 1.263(a)-3(f). For the rules regarding depreciation or amortization deductions for leasehold improvements, see § 1.167(a)-4.
(2) Effective/applicability date—(i) In general. This paragraph (b) applies to taxable years beginning on or after January 1, 2014. Except as provided in paragraphs (b)(2)(ii) and (b)(2)(iii) of this section, § 1.162-11(b) as contained in 26 CFR part 1 edition revised as of April 1, 2011, applies to taxable years beginning before January 1, 2014.
(ii) Early application of this paragraph. A taxpayer may choose to apply this paragraph (b) to taxable years beginning on or after January 1, 2012.
(iii) Optional application of TD 9564. A taxpayer may choose to apply § 1.162-11T(b) as contained in TD 9564 (76 FR 81060) December 27, 2011, to taxable years beginning on or after January 1, 2012, and before January 1, 2014.
[T.D. 6520, 25 FR 13692, Dec. 24, 1960, as amended by T.D. 8865, 65 FR 3825, Jan. 25, 2000; T.D. 9564, 76 FR 81084, Dec. 27, 2011; T.D. 9636, 78 FR 57706, Sept. 19, 2013 ]
Notes of Decisions
Cited in
33
cases (
1 in the last 5 years), 1961–2026 · leading case:
Kingsbury v. Comm'r, 65 T.C. 1068 (Tax Ct. 1976).
Kingsbury v. Comm'r, 65 T.C. 1068 (Tax Ct. 1976).
· cites it 4× “There is no question but that the holding period requirement has been met and that the lease was property used in petitioner's trade or business. Furthermore, the lease was subject to the allowance for depreciation.”
Uecker v. Comm'r, 81 T.C. 983 (Tax Ct. 1983).
· cites it 4× “162-11(a), Income Tax Regs. , the allocable portions of the ranch purchase price with respect to the Federal and State grazing privileges must be amortized and deducted over the specific terms of such grazing agreements, i.”
Union Carbide Foreign Sales Corp. v. Comm'r, 115 T.C. 423 (Tax Ct. 2000).
· cites it 4× “The cost of acquiring an interest as a lessee under an existing lease of tangible property is to be taken into account under present law (see section 178 of the Code and Treas.”
Buddy Schoellkopf Prods., Inc. v. Comm'r, 65 T.C. 640 (Tax Ct. 1975).
· cites it 2× “Conversely, where the lease term is for a definite period, improvements are generally amortizable over the useful life of the improvement or the remaining period of the lease, whichever is shorter. Sec. 1.162-11(b), Income Tax Regs.”
Baker v. Comm'r, 38 T.C. 9 (Tax Ct. 1962).
· cites it 4× “1954 , 3 as interpreted by section 1.162-11, Income Tax Regs.”
Morris v. Comm'r, 38 T.C. 279 (Tax Ct. 1962).
· cites it 4× “This issue, as both the petitioners and respondent concede, turns on the question whether there was a reasonable certainty that petitioners' lease would be renewed.”
Bellingham Cold Storage Co. v. Comm'r, 64 T.C. 51 (Tax Ct. 1975).
· cites it 4× “Respondent asserts that the "conclusion is inescapable that increased improvement rental is being paid by petitioner in the first part of the leases to compensate for the use of the improvements over the entire length of the lease," and then, under regulations section…”
Consol. Foods Corp. v. Comm'r, 66 T.C. 436 (Tax Ct. 1976).
· cites it 2× “, 5 which applies to purchased leaseholds, in support of this argument.”
Hopkins Partners v. Comm'r, 2009 T.C. Memo. 107 (Tax Ct. 2009).
· cites it 4× “Generally, where a lessee makes and invests in improvements on the property leased by the lessee, the lessee is entitled to recover that investment through depreciation deductions rather than through a current business expense deduction.”
Wiseman v. Comm'r, 53 T.C.M. 1432 (Tax Ct. 1987).
· cites it 6× “00 fee paid Salem for the right to conduct mineral explorations and to select the tract of land ultimately *388 leased from Salem must be capitalized as a lease acquisition cost under section 1.162-11(a), Income Tax Regs.”
Bardes v. Comm'r, 37 T.C. 1134 (Tax Ct. 1962).
· cites it 2× “56 over the term" of the 12-year lease with Oliver. In view of our holding on the first issue, we hold Ilsco Corporation is entitled to amortize the amount of $ 240,952.”
Giumarra Bros. Fruit Co. v. Comm'r, 55 T.C. 460 (Tax Ct. 1970).
· cites it 10× “" 3 *29 We therefore assume that respondent intends his argument to be that petitioner has failed to show the amount of deduction to which it would be entitled under section 1.162-11(a), Income Tax Regs.”
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