Office Furniture Depreciation

Understanding Tenant Improvement Allowances

When a landlord provides a tenant improvement allowance (TIA) to help a tenant build out leased office space, the tax treatment depends on who controls the construction. If the tenant directs the work and receives TIA funds, the IRS generally treats the allowance as a lease incentive—the tenant reduces the depreciable basis of the improvements by the amount received. A $200,000 office renovation with a $50,000 TIA gives the tenant a net depreciable basis of $150,000, depreciated over 15 years as Qualified Improvement Property.

If the landlord retains control and the improvements legally belong to the landlord, the landlord depreciates the full cost. Mischaracterizing the arrangement is a common audit risk. Documenting who holds title to the improvements is critical, and lease agreements should explicitly address ownership of tenant build-out assets at lease expiration.

Leasehold Improvements vs. Building Components

Not all office renovation costs qualify for the favorable 15-year QIP treatment. Interior walls, dropped ceilings, new lighting, flooring, and HVAC distribution qualify as QIP when made to the interior of a nonresidential building already in service. However, enlargements to the building's footprint, elevators, escalators, and internal structural framework do not qualify—these remain 39-year property.

A law firm spending $400,000 converting raw shell space into a finished office suite might allocate $280,000 to QIP-eligible improvements (partitions, lighting, flooring, ceiling tiles) and $120,000 to structural elements (load-bearing framing, new rooftop HVAC unit). The $280,000 QIP portion can benefit from 40% bonus depreciation in 2025, delivering an immediate $112,000 deduction—a meaningful cash flow benefit in the early years of the lease.

Office Furniture Under Accelerated Methods

The 7-year MACRS schedule for office furniture can be shortened through strategic use of Section 179. The 2024 deduction limit of $1,220,000 applies to all qualifying personal property purchased during the year, including every desk, chair, conference table, and cubicle partition in your office. Businesses with strong taxable income should prioritize Section 179 elections on furniture to generate immediate deductions rather than waiting for the 7-year MACRS schedule to run its course.

One constraint to plan around: Section 179 is limited to the taxpayer's taxable business income. Unused amounts carry forward to future years but do not generate a net operating loss. Large furniture purchases in low-income years may be better served by bonus depreciation, which can create or increase an NOL that is itself carried forward.