Sheet metal & Air Conditioning Contractors’ National Association

Issue Briefs

Leasehold Improvement Depreciation


SMACNA supports (S.1361/H.R 2014) amending the internal revenue code to make permanent a shortened depreciable recovery period for all improvements to leasehold properties, including HVAC equipment, to 15 years.


The Congress amended the Internal Revenue Code to reduce temporarily the 39-year recovery period for the depreciation of interior improvements on leased properties to a 15-year recovery period beginning in 2004 and expiring December 2007.  This change was limited to “any improvement to the interior portion of a building which is non-residential real property”.  This change should be expanded to cover all leasehold improvements for all types of buildings.  This would reflect actual property values as determined by current tenant needs, business practices and building use patterns.  This would encourage investment in renovations to suit tenant needs, increase the use of high-efficiency energized systems and lighting, help local economies, lower building operating costs and improve indoor air quality.  Extension of the Leasehold depreciation extensions have been included in several measures in the 110th Congress but none have survived in a final bill.


  • In commercial structures leasehold improvements typically last as long as the lease, an average of five to ten years.  Therefore, a 15-year depreciation period proposed is far more realistic than the current IRS depreciable life of 39-years for the leasehold improvements.
  • Leasehold improvements are alterations made to office and general commercial space, as part of a lease agreement.  Improvements made to a building’s interior or exterior can include, but are not limited to roofing, electrical wiring, walls and partitions, plumbing, heating and cooling systems.
  • A 15-year depreciation period would reduce current disparity between tenant depreciation expenses, and tenant demands and building use patterns.
  • Reducing the leasehold cost recovery period would further provide incentives to invest in high-efficiency energy systems for facility lighting, heating and air conditioning.  Such improvements are known to lower building operation cost and improve indoor air quality


S.1361, sponsored by Sen. Kent Conrad (D-ND), would set the leasehold depreciation period permanently at 15 years. H.R. 2014, sponsored by Rep. Joseph Crowley (D-NY), would reduce permanently the depreciation period for all HVAC system equipment replacement in non-residential buildings to 15 years. Both bills are pending committee approval.

Updated September 2008