In a previous article, we saw how the tax legislation allows a business tenant to deduct the income element of the premium paid under a short lease. In particular, we found that the deduction is spread over the term of the lease.
This makes sense and has symmetry, though this symmetry is due to the legislation. Under the lease premium rules the landlord is treated as receiving part of the premium as income, so the tenant is treated as having incurred this same amount as an income expense. However, this statement isn’t quite true as we shall find out.