§178 — Title 26 Internal Revenue Code | U.S. Code

Summary

When figuring the tax write-off for the cost of getting a lease, count all renewal periods and any other time you reasonably expect the lease to continue as part of the lease term if less than 75% of that cost applies to the lease time still left when you bought it. But when you check how much of the cost applies to the time still left at purchase, do not count any extra time the tenant could add later by using a renewal option.

Title 26, §178

Internal Revenue Code — Source: USLM XML via OLRC

(a)In determining the amount of the deduction allowable to a lessee for exhaustion, wear and tear, obsolescence, or amortization in respect of any cost of acquiring the lease, the term of the lease shall be treated as including all renewal options (and any other period for which the parties reasonably expect the lease to be renewed) if less than 75 percent of such cost is attributable to the period of the term of the lease remaining on the date of its acquisition.

(b)For purposes of subsection (a), in determining the period of the term of the lease remaining on the date of acquisition, there shall not be taken into account any period for which the lease may subsequently be renewed, extended, or continued pursuant to an option exercisable by the lessee.

Notes & Related Subsidiaries

Editorial Notes

Amendments

1988—Subsec. (a). Pub. L. 100–647 substituted “the deduction allowable to a lessee for exhaustion, wear and tear, obsolescence, or amortization” for “the deduction allowable to a lessee of a lease for any taxable year for amortization under section 167, 169, 179, 185, 190, 193, or 194”. 1986—Pub. L. 99–514, § 201(d)(2)(A), in amending section generally, substituted provision relating to amortization of cost of acquiring a lease, subsec. (a) setting out a general rule and subsec. (b) excluding certain periods, for former provision for depreciation or amortization of improvements made by lessee on lessor’s property, subsec. (a) setting out a general rule, subsec. (b), in case of related lessee and lessor, setting out a general rule in par. (1) and defining related persons in par. (2), and subsec. (c) setting out a reasonable certainty test. Subsec. (b)(2)(B). Pub. L. 99–514, § 1812(c)(4)(B), inserted before the period “and subsection (f)(1)(A) of such section shall not apply”.

Statutory Notes and Related Subsidiaries

Effective Date

of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Effective Date

of 1986 AmendmentAmendment by section 201(d)(2)(A) of Pub. L. 99–514 applicable to property placed in service after Dec. 31, 1986, in taxable years ending after such date, with exceptions, see section 203 and 204 of Pub. L. 99–514, set out as a note under section 168 of this title. Amendment by section 201(d)(2)(A) of Pub. L. 99–514 not applicable to any property placed in service before Jan. 1, 1994, if such property placed in service as part of specified rehabilitations, and not applicable to certain additional rehabilitations, see section 251(d)(2), (3) of Pub. L. 99–514, set out as a note under section 46 of this title. Amendment by section 1812(c)(4)(B) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

Effective Date

Pub. L. 85–866, title I, § 15(c), Sept. 2, 1958, 72 Stat. 1613, provided that: “The

Amendments

made by this section [enacting this section and amending analysis preceding section 161 of this title] shall apply with respect to costs of acquiring a lease incurred, and improvements begun, after

July 28, 1958 (other than improvements which, on

July 28, 1958, and at all times thereafter, the lessee was under a binding legal obligation to make).” Plan

Amendments

Not Required Until January 1, 1989For provisions directing that if any

Amendments

made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

§178 Amortization of cost of acquiring a lease

Summary

Title 26, §178

Notes & Related Subsidiaries

Editorial Notes

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Statutory Notes and Related Subsidiaries

Effective Date

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