Construction of building on rented land – an expense or asset?

Construction of a building on rented land is generally considered an expense. Here's why:

• Land Ownership: You do not own the land on which the building is constructed. Therefore, the building itself is not a long-term asset that you can sell or depreciate.
• Lease Agreement: The terms of your lease agreement will likely stipulate that any improvements made to the property (such as a building) become the property of the landlord upon lease expiration.
• Temporary Nature: The building is considered a temporary improvement to the land, not a permanent asset that you can claim ownership of.

However, there might be exceptions:

• Leasehold Improvements: In some cases, if the lease agreement explicitly allows for leasehold improvements, you might be able to capitalize (treat as an asset) a portion of the construction costs. This can be done if the improvements are expected to increase the value of the leasehold interest.
• Tax Implications: The tax treatment of construction costs on rented land can vary depending on your jurisdiction and specific circumstances. It's advisable to consult with a tax professional for guidance.

In general, unless you have specific contractual arrangements or tax considerations, construction costs on rented land should be treated as expenses.