For vacant tenants, which statement describes the treatment of deferred leasing costs under both ITB and GAAP?

For vacant tenants, which statement describes the treatment of deferred leasing costs under both ITB and GAAP?

• A. Write off the remaining unamortized costs
• B. Amortize over the original term of the lease
• C. Reclassify to impairment
• D. Record as revenue when the tenant vacates

Answer: (A)

When you incur leasing costs and capitalize them to be amortized over the lease term, those costs are tied to the expected economic benefit of securing a tenant. If a space becomes vacant, there is no future benefit left from those deferred leasing costs, so they should no longer be carried as an asset. The remaining unamortized balance is not recoverable, and the appropriate action is to write it off as an expense in the period of vacancy. This approach aligns with both GAAP and ITB principles in practice because it matches the cost to the benefit actually received and stops recognizing amortization once the benefit is no longer expected. Continuing to amortize over the original lease term would overstate assets and distort expenses. Reclassifying to impairment or recording as revenue upon vacancy does not reflect the reality of the unused economic value or the generation of revenue from vacancy.

When you incur leasing costs and capitalize them to be amortized over the lease term, those costs are tied to the expected economic benefit of securing a tenant. If a space becomes vacant, there is no future benefit left from those deferred leasing costs, so they should no longer be carried as an asset. The remaining unamortized balance is not recoverable, and the appropriate action is to write it off as an expense in the period of vacancy.

This approach aligns with both GAAP and ITB principles in practice because it matches the cost to the benefit actually received and stops recognizing amortization once the benefit is no longer expected. Continuing to amortize over the original lease term would overstate assets and distort expenses. Reclassifying to impairment or recording as revenue upon vacancy does not reflect the reality of the unused economic value or the generation of revenue from vacancy.