Tenant Allowance Tax Write Off Question for Landlord Upon Sale of Building
The Landlord (partnership) writes a $500K tenant allowance check to a retail tenant upon the execution of a 5 year lease for buildout/ TI costs. LL will not depreciate the improvements; that is the tenants responsibility.

The LL is then able to write off  $100K per year as a lease acquisition expense, what happens if the LL sells the property at the end of Year 2? Does the LL get to take an accelerated 300K  expense on the remainder upon the sale of the property?
[{"id": "irehm3t", "text": "Added to the basis of the property for calculation of capital gain", "replies": [{"id": "irekaem", "text": "Per most recent tax change, through 2026, you can expense full TI packages to the tenant year 1. Confirm with your accountant", "replies": [{"id": "ireqams", "text": "The tenant in this situation is responsible for depreciating the TI\u2019s. LL is just paying out a Tenant allowance", "replies": [], "depth": 3}, {"id": "irerpzu", "text": "If the landlord provides a cash allowance to the tenant for the tenant to construct improvements it will own and use, this cash payment will constitute immediately taxable income to the tenant. To the extent the tenant uses this improvement allowance to construct its improvements in its lease space, the tenant may depreciate these assets. The cash allowance for tenant improvements would be treated as a lease acquisition cost to the landlord, who would amortize this cost, along with other lease acquisition costs, ratably over the term of the lease.  \n\nYou can structure it as Sec 110 lease to avoid income recognition by the tenant.", "replies": [], "depth": 3}], "depth": 2}, {"id": "ireqoyo", "text": "If the leasing expense cost is written off the partnerships operating income/exp in year 1 how come all of a sudden it get transferred to the cost basis of the property upon sale?", "replies": [{"id": "irerk9z", "text": "You said you are amortizing it over 5 years and selling after Year 2. Remaining lease acquisition basis is added to the basis of the property.", "replies": [{"id": "ireycc3", "text": "The $100K write off in year 1 gets written off against my operating income though, not added to the cost basis of the property?", "replies": [{"id": "ireyva4", "text": "Yes, by the time of the sale you already amortized it, it\u2019s gone. You\u2019ll have 300k of remaining unamortized basis which is included in the basis.\n\nAdjusted basis of all assets  you have on you depreciation and amortization schedule is your basis in the property and reduce capital gain. The only exception is loan costs, remaining loan costs are fully amortized in the final year and reduce ordinary income.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]