In theory, the cost of investments in a leasehold should be recovered over the life of the improvement except where more rapid recovery is allowed for purposes of stimulating the economy1 or a slower rate of cost recovery is intended to reduce inflationary pressures. While the costs of leasehold improvements are ordinarily recovered by the lessor or the lessee,2 depending upon who provided the funds for the improvement, a 2009 Tax Court case has focused on another possibility – deducting the cost of the improvement made by the lessee as additional rent.3 The critical factor is whether there is a clear showing of intent that the cost of the improvements are to be treated as rent.4



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