It is common practice for commercial real property trade or businesses to offer new, prospective or long-standing tenants a tenant improvement (TI) allowance. These costs are used to help offset the tenant’s cost of moving into the space and/or retrofitting the space to meet industry guidelines or unique needs. The lease agreement outlines who will complete the design, the work, the timeline and, most importantly, who will pay for the improvements. It is pertinent to properly review all lease agreements for pitfalls and leasing issues hidden beneath the legal jargon.Normally, a real property trade or business (property owner) will give a tenant a set budget or a maximum amount they are willing to spend on the improvements. Typically, the property owner is in charge of getting the improvements completed themselves, and the tenant pays out of pocket expenses that exceed the budget. The tenant improvements are depreciated over a given useful life, as set forth in Internal Revenue Service (IRS) technical guidance.The other way TI allowances can be handled is when the property owner gives the tenant cash and the tenant goes out and contracts the improvement work themselves under guidelines and parameters set forth in the lease agreement. In this instance, there is a different tax treatment on those payments, for both the property owner and the tenant. The property owner amortizes the costs over the life of the lease. Since the costs are amortized over the life of the lease, there is no accelerated depreciation eligible on this property for the property owner.