Explanation :
When a company buys a building, the building is usually depreciated of its useful life. The land that is purchased with the building, however, does not get depreciated. Why, you might ask? The land has an infinite life. It’s not like the building that will deteriorate over time. Land can’t be destroyed and can never be used up. Land improvements are completely separate from the land itself. That is why land improvements are considered a completely different asset than land. The money spent on improving land does not get added to the original cost of the land. Instead, it gets treated as a completely separate asset purchase and is depreciated over its useful life just like other fixed assets.In a Nutshell :
- The term land improvement refers to any changes made to customize a rental property to satisfy the particular needs of a specific tenant.
- These changes and alterations may include painting, installing partitions, changing the flooring, or putting in customized light fixtures.
- Improvements may be undertaken by the landlord or the tenant and may be paid by the tenant.
- While the useful economic life of most land improvements is anywhere between five and 10 years, the internal revenue code (IRC) requires that depreciation for such improvements to occur over the economic life of the building.
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