Lease Law, Tax, and Accounting Flashcards

Under ASC 842, what is the impact on a lessee's income statement for an operating lease compared to a finance lease?

Answer: Operating leases show a single straight-line rent expense; finance leases show front-loaded total expense

Operating leases recognize straight-line rent expense over the term, while finance leases front-load expense by combining accelerated ROU amortization with interest on the liability.

The doctrine of 'estoppel' in lease law most commonly prevents a lessor from:

Answer: Asserting a lease default after having repeatedly accepted late payments

Estoppel prevents a lessor who has consistently accepted late payments from suddenly declaring a default based on lateness, without first providing reasonable notice of intent to enforce.

For a lessor, operating lease income must be recognized under ASC 842 using which method?

Answer: Straight-line basis over the lease term

Under ASC 842, lessors recognize operating lease income on a straight-line basis (or another systematic basis) over the lease term.

An 'accelerated rent' clause in a lease allows the lessor to:

Answer: Demand all remaining rent immediately upon lessee default

An accelerated rent clause permits the lessor to declare all future rent payments immediately due and payable upon the lessee's default, reducing the need to sue for payments as they come due.

Under IRC Section 168(k), bonus depreciation allows a lessor owning qualified leased property to deduct what percentage of the asset's cost in the first year (for property placed in service in 2023)?

Answer: 80%

For qualified property placed in service in 2023, IRC Section 168(k) bonus depreciation is 80%, phasing down from the 100% level available for 2017-2022.

Which lien perfection method is most commonly used by a lessor to protect its ownership interest in leased personal property against the lessee's creditors?

Answer: Filing a UCC-1 financing statement in the appropriate state office

Lessors file a UCC-1 financing statement to publicly perfect their interest in leased personal property and protect against competing claims from the lessee's creditors or trustee in bankruptcy.

When a lease is terminated early and the lessee owes an early termination fee, how is this fee generally treated for tax purposes by the lessee?

Answer: Deducted as an ordinary business expense in the year paid

Early termination fees paid to exit a business lease are generally deductible as ordinary business expenses in the tax year they are paid.