Ground lease depreciation for the lessee during lease term and at sale after 10 years: If Company A (lessor) executes a ground lease with a related party Company A-2 (lessee), how does Company A-2 treat the depreciation on the building it has made on the land provided by Company A? Is the entire building treated as tangible or fixed property? Is the building considered T.I work and a leasehold improvement? After 10 years, Company A decides to buy the QOZB from Company A-2 at FMV, can Company A-2 accelerate unabsorbed depreciation? Does Company A have any restrictions on the purchase because it is a QOZ property? After 10 years, Company A decides to buy the QOZB from Company A-2 at FMV, can Company A-2 accelerate unabsorbed depreciation? Does Company A have any restrictions on the purchase because it is in a QOZ property?
Depreciation in an OpZone is no different than any other location. In general, commercial buildings have 31 year dec, but using componentized values there is potential for significant acceleration. In general, upon the expiration of a ground lease the building reverts to the land owner. However, with related parties this can be quite tricky in determining the depreciation.
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