Improvements by Lessee If you add buildings or make other permanent improvements to leasedproperty, depreciate the cost of the improvements using the modifiedaccelerated cost recovery system (MACRS). Depreciate the property overits appropriate recovery period. You cannot amortize the cost over theremaining term of the lease. If you do not keep the improvements when you end the lease, figureyour gain or loss based on your adjusted basis of the improvements atthat time. For more information, see the discussion of MACRS in Publication 946. Assignment of a lease.If a long-term lessee who makes permanent improvements to landlater assigns all lease rights to you for money and you pay the rentrequired by the lease, the amount you pay for the assignment is acapital investment. If the rental value of the leased land increasedsince the lease began, part of your capital investment is for thatincrease in the rental value. The rest is for your investment in thepermanent improvements. The part that is for the increased rental value of the land is acost of getting a lease, and you amortize it over the remaining termof the lease. You can depreciate the part that is for your investmentin the improvements as discussed earlier.