17.26 Ark. Code R. 51-404(a)(1)

Current through Register Vol. 49, No. 9, September, 2024

Rule 17.26-51-404(a)(1) - Lease of Buildings

When buildings are erected or improvements made by a lessee pursuant to an agreement with the lessor and such buildings or improvements are not subject to removal by the lessee, the lessor may report the income therefrom upon either of the following bases:

(a) The lessor may report as income, at the time when such buildings or improvements are completed, the fair market value of such buildings or improvements subject to the lease; or

(b) The lessor may spread over the life of the lease the estimated depreciated value of such buildings or improvements at the termination of the lease and report as income for each tax year of the lease an allocated part thereof.

If the lease is terminated and the lessor comes into possession or control of the property prior to the time originally fixed for the termination of the lease, the lessor receives additional income for the tax year in which the lease is so terminated to the extent that the value of such buildings or improvements exceeds the amount already reported as income on account of the erection of such buildings or improvements. No appreciation in value due to causes other than the premature termination of the lease shall be included. Conversely, if the buildings or improvements are destroyed prior to the expiration of the lease, the lessor is entitled to deduct as a loss for the tax year when such destruction takes place the amount previously reported as income because of the erection of such buildings or improvements, less any salvage value and only to the extent that such loss was not compensated for by insurance.

17.26 Ark. Code R. 51-404(a)(1)