The Real Math: $200,000 TI Allowance Under ASC 842 and Tax
Lease commencement: January 1, 2026
Lease term: 7 years (84 months)
Base rent: $40.00/sf/yr = $200,000/yr = $16,667/mo
Annual rent escalation: 3% per year
TI allowance: $200,000 (landlord reimburses within 60 days
of construction completion and lien waiver delivery)
Actual construction cost: $240,000 ($40K tenant-funded above TI)
Discount rate (incremental borrowing rate): 5.5%
STEP 1: ASC 842 LEASE LIABILITY CALCULATION
Present value of lease payments at 5.5% discount rate:
Yr 1: $200,000 / (1.055)^0.5 = ~$194,601
Yr 2: $206,000 / (1.055)^1.5 = ~$190,256
Yr 3: $212,180 / (1.055)^2.5 = ~$185,959
Yr 4: $218,545 / (1.055)^3.5 = ~$181,710
Yr 5: $225,102 / (1.055)^4.5 = ~$177,508
Yr 6: $231,855 / (1.055)^5.5 = ~$173,352
Yr 7: $238,811 / (1.055)^6.5 = ~$169,243
Total present value of payments: ~$1,272,629
Initial lease liability: $1,272,629
STEP 2: INITIAL ROU ASSET CALCULATION (ASC 842)
Initial ROU asset = Lease liability at commencement
+ Initial direct costs (e.g., broker fees capitalized)
- Lease incentives received (TI allowance)
+ Prepaid rent at commencement
Initial lease liability: $1,272,629
Initial direct costs: $15,000 (broker fee paid by tenant)
TI allowance received at/before commencement: ($200,000)
Prepaid rent: $0
Initial ROU asset: $1,272,629 + $15,000 - $200,000 = $1,087,629
STEP 3: LEASEHOLD IMPROVEMENT ASSET (SEPARATE FROM ROU)
Total construction cost: $240,000
Recorded as: Leasehold improvement asset = $240,000
(NOTE: The full $240K is the asset — both the $200K funded
by landlord and the $40K funded by tenant are capitalized.
The TI allowance reduces the ROU asset, not the leasehold
improvement asset.)
Amortization period: Shorter of useful life (15 yrs) or
lease term (7 yrs, no renewal reasonably certain) = 7 years
Annual amortization: $240,000 ÷ 7 = $34,286/yr
Monthly amortization: $2,857/mo
STEP 4: TAX TREATMENT — §168 BONUS DEPRECIATION (2026)
Qualifying improvement property: $240,000
(assume all interior improvements qualify as QIP)
2026 bonus depreciation rate: 20% (phase-down schedule)
Year-1 bonus depreciation deduction: $240,000 × 20% = $48,000
Remaining $192,000: depreciated over 15-year MACRS schedule
(Year 1 15-yr MACRS at 200% DB: $192,000 × 6.667% = $12,800)
Total year-1 tax depreciation: $48,000 + $12,800 = $60,800
Tax savings at 21% corporate rate: $60,800 × 21% = $12,768
ILLUSTRATIVE — FULL 100% BONUS DEPRECIATION (pre-2023)
Qualifying improvement property: $200,000 (TI-funded portion)
100% bonus depreciation deduction: $200,000
Tax savings at 21% corporate rate: $200,000 × 21% = $42,000
Additional tenant-funded $40K: $40,000 × 21% = $8,400
Total year-1 tax savings (100% bonus): $50,400
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BALANCE SHEET SUMMARY AT LEASE COMMENCEMENT
Assets:
Right-of-use asset: $1,087,629
Leasehold improvement asset: $240,000
Total new assets: $1,327,629
Liabilities:
Lease liability (current + non-current): $1,272,629
Net equity impact at commencement: +$55,000
(ROU asset $1,087,629 - Lease liability $1,272,629 = -$184,371
+ Leasehold improvement asset $240,000 = +$55,629 net)
Note: TI allowance received is cash; reduces ROU asset at inception.
ASC 842: The New Lease Accounting Standard and What It Changed
The Fundamental Change: Operating Leases Are Now On-Balance-Sheet
Before ASC 842 took effect (for public companies: fiscal years beginning after December 15, 2018; for private companies: fiscal years beginning after December 15, 2021), commercial operating leases were off-balance-sheet obligations — the tenant simply expensed rent payments as they occurred, and the only balance sheet impact was the potential recording of deferred rent (for straight-line rent calculations) and lease incentive liabilities (for TI allowances received). Under ASC 842, all leases with terms greater than 12 months are recognized on the lessee's balance sheet as: (1) a right-of-use (ROU) asset — representing the lessee's right to use the underlying asset for the lease term; and (2) a lease liability — representing the present value of the lessee's future minimum lease payments. This change dramatically expanded the lease-related asset and liability base of most commercial tenants with multiple locations, particularly retailers, restaurant groups, office-intensive businesses, and any company with a significant multi-location footprint.
Operating Lease vs. Finance Lease Under ASC 842
ASC 842 classifies leases as either operating or finance (what used to be called "capital") leases based on five criteria: (1) whether the lease transfers ownership of the underlying asset to the lessee; (2) whether the lessee has a purchase option it is reasonably certain to exercise; (3) whether the lease term is for the major part of the underlying asset's remaining economic life; (4) whether the present value of lease payments equals or exceeds substantially all of the fair value of the underlying asset; and (5) whether the underlying asset is so specialized that it has no alternative use to the lessor at lease end. Most commercial real estate leases are classified as operating leases — they don't transfer ownership, don't have purchase options, and are for less than the building's remaining useful life. The distinction matters for income statement presentation: under operating lease accounting, total lease expense is recognized on a straight-line basis; under finance lease accounting, interest expense and amortization are recognized separately, with front-loaded income statement impact.
TI Allowances Under ASC 842: The Mechanics
The Lease Incentive Treatment
Under ASC 842, a TI allowance paid by the landlord to (or on behalf of) the tenant is treated as a lease incentive that reduces the initial measurement of the right-of-use asset. The timing of receipt matters for the accounting treatment:
TI allowance received at or before commencement: If the landlord pays the TI allowance before or at lease commencement, it is included directly in the initial ROU asset measurement as a reduction. The ROU asset is smaller by the amount of the TI allowance received. The leasehold improvement asset is recorded separately at the full cost of the improvements (not reduced by the TI allowance). This creates a disconnect that surprises many accountants encountering it for the first time: the $200,000 TI allowance doesn't reduce the $240,000 leasehold improvement asset to $40,000 — both assets are recorded at their full respective values, and the TI allowance reduces the ROU asset.
TI allowance receivable at commencement (not yet paid): If the TI allowance is committed but not yet paid at commencement, ASC 842 still includes it as a lease incentive in the initial ROU asset measurement — as a reduction. A receivable is recorded for the amount owed, and the ROU asset is reduced by that amount at commencement. When the landlord subsequently pays, the receivable is reduced and cash is received; no additional impact on the ROU asset at that time.
TI allowances received after commencement: If the TI allowance is received after lease commencement (and was not contemplated as a lease incentive in the initial measurement), it is treated as a variable lease payment under ASC 842 and reduces lease expense in the period received. This treatment is less common for traditional TI structures but can arise in situations where additional TI funds are negotiated mid-lease as part of a lease modification or extension.
The Right-of-Use Asset: A Practical Example
Consider a 5,000 sf office lease: 7-year term, $40/sf/year base rent (escalating 3% annually), $200,000 TI allowance payable within 60 days of substantial completion of improvements. The initial measurement of the lease liability is the present value of future minimum lease payments — let's say $1,272,629 at a 5.5% discount rate. The initial ROU asset = $1,272,629 (lease liability) + $15,000 (initial direct costs — capitalized broker fees paid by tenant) − $200,000 (TI allowance, treated as lease incentive) = $1,087,629. The $1,087,629 ROU asset is amortized on a straight-line basis over the 7-year lease term, and the lease liability is reduced as payments are made (with interest expense accrued on the outstanding balance at the 5.5% discount rate). The ROU asset and the lease liability move through the lease term independently — the ROU asset decreases by the same amount each period (straight-line for operating leases), while the lease liability decreases based on actual payments and interest accrual.
The Leasehold Improvement Asset: Recording and Amortization
Recording the Leasehold Improvement Asset
The leasehold improvement (LI) asset is recorded separately from the ROU asset and represents the total cost of improvements made to the leased space. The LI asset includes all capitalized costs associated with building out the space: hard costs (construction, materials, labor), soft costs (architecture fees, permits, project management fees, testing and commissioning costs), and any tenant-funded costs above the TI allowance. The LI asset is recorded at the total cost, regardless of how the construction was funded — the fact that the landlord provided a $200,000 TI allowance doesn't reduce the LI asset; both the landlord-funded and tenant-funded portions of the improvements are capitalized as the LI asset at their full cost.
Amortization Period: Shorter of Useful Life or Lease Term
The LI asset is amortized under ASC 360 (Property, Plant and Equipment) over the shorter of: (1) the useful life of the improvements — the period over which the improvements are expected to provide economic benefit; or (2) the remaining lease term — including any renewal periods that are "reasonably certain" to be exercised. This "shorter of" rule means that in most commercial lease contexts, the LI asset is amortized over the lease term rather than the improvements' useful life — because physical improvements like built-out offices, specialized HVAC, or custom millwork typically have useful lives of 10–20 years, while the lease term is often 5–10 years.
The impact of "reasonably certain" renewal: if a tenant has a 7-year lease with a 5-year renewal option that management considers reasonably certain to be exercised, the LI asset is amortized over 12 years rather than 7. The "reasonably certain" bar under ASC 842 is high — it requires more than just an expectation of renewal; it requires economic compulsion, typically evidenced by significant remaining useful life in the improvements, below-market renewal rent, high relocation costs, or strategic importance of the location that makes non-renewal economically irrational.
Accelerated Amortization for Lease Modifications and Terminations
If the lease is modified in a way that shortens the lease term, or if the tenant exercises a termination option, the remaining book value of the LI asset must be amortized over the revised shorter term. This accelerated amortization can have significant income statement impact: a tenant who signs a 10-year lease, builds $300,000 of improvements (amortizing over 10 years at $30,000/year), and then terminates the lease at year 5 would have $150,000 of unamortized LI asset at termination — which would be accelerated and expensed (typically as impairment or accelerated depreciation) in the period of termination. Modeling the cost of early lease termination must always include the accelerated LI amortization impact on the income statement, in addition to any termination fee payable to the landlord.
Landlord vs. Tenant-Owned Improvements at Lease End
How Ownership Is Determined
The ownership of improvements at lease expiration is determined by the lease — specifically by the alteration and restoration provisions. Three common structures: (1) Improvements revert to landlord: All improvements become landlord property at expiration, regardless of funding source. Tenant removes personal property (furniture, equipment) but leaves built improvements. Most landlords prefer this outcome for standard office and retail build-outs — the improvements add value to the space for re-leasing. (2) Tenant must restore: Specific improvements (often identified at approval time, or defined by category — specialized electrical, raised floors, server rooms, food service equipment) must be removed and the space restored to defined baseline condition at tenant's expense. (3) Landlord's election: At lease expiration (or sometimes at alteration approval time), the landlord chooses whether to retain or require removal of each improvement category. This creates post-lease uncertainty that makes budgeting for restoration costs impossible until close to the lease end date.
Asset Retirement Obligations for Mandatory Restoration
If the lease requires removal of improvements at lease end (restoration obligation), ASC 410 requires the tenant to accrue an asset retirement obligation (ARO) — a liability representing the present value of the estimated restoration cost, recorded at the time the obligation is incurred (typically when the improvements are made). The ARO is recorded as: (1) a liability for the present value of estimated restoration costs; and (2) an addition to the leasehold improvement asset (which increases the capitalized cost and, therefore, the future amortization). The ARO is then accreted (unwound at the discount rate) over the lease term, with interest expense recorded as accretion expense. Practically: a tenant who builds a server room knowing it must be removed at lease end should estimate the removal cost (say, $50,000), discount it to present value at lease commencement, record that discounted amount as both an addition to the LI asset and an ARO liability, and accrete the ARO over the lease term until it equals the full estimated removal cost at expiration.
Tax Treatment: §168 Bonus Depreciation on Leasehold Improvements
Qualified Improvement Property (QIP) Definition
For tax purposes, most tenant improvement costs qualify as "Qualified Improvement Property" (QIP) under IRC §168(e)(6). QIP is defined as any improvement made by the taxpayer to an interior portion of a non-residential real property building, provided the improvement is placed in service after the date the building was first placed in service and the improvement is not: the enlargement of the building; an elevator or escalator; or internal structural framework. Most standard office and retail build-out costs qualify: new partition walls, ceilings, flooring, millwork, lighting upgrades, HVAC modifications, electrical distribution, plumbing, and interior finishes. Structural modifications and building additions do not qualify as QIP and are depreciated over 39 years (non-residential real property).
The Bonus Depreciation Phase-Down Schedule
Under the Tax Cuts and Jobs Act of 2017, 100% bonus depreciation was available for QIP placed in service between September 27, 2017 and December 31, 2022. The rate phases down thereafter: 80% (2023), 60% (2024), 40% (2025), 20% (2026), 0% (2027 and after, under current law). Congress has periodically extended or modified bonus depreciation rates, and legislation pending as of 2026 may restore higher rates retroactively — tenants and their tax advisors should confirm the applicable rate at the time improvements are placed in service. For improvements placed in service in 2026, the 20% bonus depreciation rate means that $200,000 of QIP generates a $40,000 first-year deduction from bonus depreciation plus additional MACRS depreciation on the remaining basis. At a 21% corporate tax rate, the year-1 cash tax benefit is approximately $8,400 for the bonus depreciation component alone.
The Strategic Tax Planning Opportunity
The most important tax planning insight for TI allowances: engage your tax advisor before finalizing lease terms, not after. The structuring of the TI allowance — how it's documented, when it's paid, what costs it funds — can affect the available tax treatment. Specific planning considerations: Cost segregation study — a formal engineering study that reclassifies portions of leasehold improvement costs from 15-year QIP (or 39-year real property) to 5-year or 7-year personal property, potentially qualifying for even faster depreciation. Cost segregation is most cost-effective for construction projects above $500,000. Section 179 expensing — an alternative to bonus depreciation that allows up to $1.16 million (2026 limit) of qualifying property to be expensed in the year placed in service; subject to taxable income limitations and phaseouts above $2.89 million in qualifying property placed in service (2026). Timing of improvement placement in service — improvements must be placed in service (substantially complete and available for use) in the tax year to claim the applicable bonus depreciation rate; planning construction timelines around tax year-end can optimize the rate available for large improvement projects.
Accounting Treatment Comparison: Pre-ASC 842 vs. Post-ASC 842 vs. Tax
| Treatment Aspect | Pre-ASC 842 (ASC 840) | Post-ASC 842 | Tax Treatment (Federal) |
|---|---|---|---|
| Operating lease balance sheet | Off-balance-sheet; no ROU asset or lease liability for operating leases | On-balance-sheet; ROU asset + lease liability for all leases >12 months | Not applicable; tax follows cash/accrual basis, not ASC 842 |
| TI allowance received from landlord | Recorded as lease incentive liability; amortized as reduction of rent expense over lease term | Reduces initial ROU asset at commencement; not a separate liability for incentives received at/before commencement | Generally taxable income to tenant when received, unless structured as landlord-funded improvements (landlord owns improvements) |
| Leasehold improvement asset | Capitalized at full construction cost; amortized over shorter of useful life or lease term (same principle as ASC 842) | Capitalized at full construction cost; amortized over shorter of useful life or lease term including reasonably certain renewals | Qualifies as QIP; 15-year MACRS; eligible for bonus depreciation (20% in 2026, subject to phase-down) |
| Rent expense recognition | Straight-line over lease term; lease incentive liability amortized as reduction of rent expense | Operating lease: straight-line lease cost; finance lease: interest + amortization (front-loaded) | Cash or accrual basis; bonus depreciation on improvements creates large year-1 deduction separate from rent expense |
| Renewal option impact on amortization | Include option periods "likely" to be exercised in amortization period | Include option periods "reasonably certain" to be exercised — higher threshold than "likely" | Tax amortization period is minimum lease term (renewal options not typically assumed unless exercised) |
| Asset retirement obligation (restoration) | ARO recorded under ASC 410 when obligation is incurred; added to LI asset basis | ARO recorded under ASC 410; same treatment as pre-842; ARO increases LI asset at inception | Restoration costs deductible when incurred; not capitalized for tax purposes |
| Landlord-owned improvements (TI funded by landlord, improvements owned by landlord) | No asset recorded by tenant; TI allowance treated as lease incentive only | Same; no leasehold improvement asset if landlord owns improvements; TI reduces ROU asset | No depreciation deduction for tenant on landlord-owned improvements; landlord depreciates |
6 Red Flags in TI Allowance Accounting and Tax Treatment
🛑 Red Flag 1: Recording TI Allowance as Revenue or Income
Under ASC 842, a TI allowance received from the landlord at or before lease commencement is not income — it is a lease incentive that reduces the ROU asset. Recording it as revenue or other income is a material accounting error that inflates the income statement and understates the ROU asset. The confusion arises because the TI allowance arrives as cash, which looks like revenue in the bank account. But the accounting treatment is clear: lease incentives received from the landlord reduce the initial measurement of the right-of-use asset. The only exception where the TI allowance may create taxable income is in the federal tax context (discussed below) — but even then, the GAAP treatment is a balance sheet adjustment, not an income recognition event. Ensure your finance team understands the distinction between cash receipt and GAAP income recognition before closing the books on a new lease commencement period.
🛑 Red Flag 2: Using the Same Amortization Period for GAAP and Tax
The amortization period for leasehold improvements under GAAP (ASC 842 + ASC 360) and for tax depreciation (§168) are different — and using the same period for both is an error that results in incorrect financial statements and incorrect tax returns. Under GAAP, leasehold improvements are amortized over the shorter of useful life or lease term (including reasonably certain renewals). Under tax, QIP is depreciated over 15 years under MACRS (regardless of lease term) with optional bonus depreciation in the first year. A 5-year lease generates a GAAP amortization period of 5 years (straight-line = 20%/year) but a tax depreciation period of 15 years with an accelerated MACRS schedule plus any bonus depreciation. The difference creates a timing temporary difference and a related deferred tax asset that must be tracked on the tax provision schedule. Maintain separate fixed asset subledgers for book (GAAP) and tax depreciation to correctly calculate these differences.
🛑 Red Flag 3: Missing the QIP Tax Deduction Because Construction Timing Was Unplanned
The §168 bonus depreciation deduction is available for QIP in the year it is "placed in service" — meaning the year construction is substantially complete and the space is available for use. A tenant who completes construction in January of Year 2 rather than December of Year 1 loses the entire year's bonus depreciation benefit for Year 1, potentially deferring $42,000+ in tax savings for 12 months. For large construction projects (over $500,000), the timing difference between a December and January completion date has a meaningful present value of tax benefit at stake. Work with your tax advisor during construction planning — not after — to identify any project management adjustments (accelerating final inspections, certificate of occupancy timing, equipment installation sequencing) that could bring the placed-in-service date within the target tax year.
🛑 Red Flag 4: Not Recording an Asset Retirement Obligation for Mandatory Restoration Requirements
If the lease requires the tenant to remove improvements at lease expiration and restore the space to a defined baseline condition, ASC 410 requires recording an ARO — a liability for the present value of the estimated restoration cost — at the time the improvements are installed. Failing to record the ARO understates liabilities, understates the LI asset (which should include the capitalized ARO), and creates a large unexpected expense at lease expiration when the restoration obligation comes due. Many tenants discover the restoration requirement (and the absence of any ARO accrual) only when the landlord sends a restoration demand at lease end — at which point the financial statement impact is a one-time expense surprise rather than an appropriately amortized cost. Review restoration provisions in every lease and establish whether an ARO should be recorded for each significant build-out.
🛑 Red Flag 5: Failing to Update the Lease Liability and ROU Asset When Lease Is Modified
Under ASC 842, when a lease is modified (amendment that changes the scope, term, or economics of the lease) or when a previously uncertain renewal option becomes "reasonably certain," the lease liability and ROU asset must be remeasured using the updated facts and the revised discount rate. Common triggers: lease extension amendment (new term → new lease liability calculation); rent modification (new payment stream → remeasured ROU asset); exercise of renewal option (longer term → remeasured both assets and liability); addition of space (increased rent → new or modified lease accounting). Failing to remeasure after modifications results in a balance sheet that doesn't reflect current obligations — a significant issue for companies whose lenders or investors rely on accurate lease liability reporting under covenant calculations.
🛑 Red Flag 6: Treating Tenant-Owned vs. Landlord-Owned Improvements the Same for Tax
From a tax perspective, the critical question is not who paid for the improvements but who owns them — because depreciation follows ownership. If the lease is structured so that the landlord owns improvements that the landlord funded with a TI allowance (i.e., the landlord contracted directly with contractors, improvements revert to landlord from day one), the tenant has no depreciable asset — and the TI allowance may be taxable income to the tenant (the landlord made improvements to landlord property for the tenant's benefit, potentially a taxable benefit received). If, instead, the lease is structured so that the tenant owns the improvements (tenant contracted with contractors, tenant's leasehold interest includes the improvements), the tenant has a depreciable leasehold improvement asset and the TI allowance is a reimbursement of construction costs (generally not taxable income). The ownership structure has significant tax consequences — get a tax opinion on the ownership classification before filing depreciation on TI-funded improvements.
✅ 12-Item TI Allowance Accounting Checklist
- Record TI allowance as a reduction of the ROU asset at commencement, not as income: Under ASC 842, lease incentives received from the landlord reduce the initial measurement of the right-of-use asset. This is a balance sheet adjustment, not an income recognition event. Confirm this treatment is reflected in your lease commencement journal entries.
- Record the leasehold improvement asset at full construction cost, not net of TI allowance: The LI asset and the ROU asset are separate — the TI allowance reduces the ROU asset, not the LI asset. Capitalize the full $240,000 construction cost as the LI asset even if $200,000 was funded by the landlord's TI allowance.
- Determine the correct amortization period: shorter of useful life or lease term (including reasonably certain renewals): Document your analysis of whether any renewal options are "reasonably certain" — this determination directly affects the amortization period and annual amortization expense. Revisit if circumstances change (improved tenant credit, below-market renewal rent, major new improvements that extend the useful life horizon).
- Engage a tax advisor at lease signing, not after construction completion: QIP bonus depreciation elections, cost segregation opportunities, and tax ownership structure decisions must be made before or during construction — not after. A tax advisor engaged at the term sheet stage can structure the TI negotiation to maximize available deductions.
- Commission a cost segregation study for improvements exceeding $500,000: Cost segregation reclassifies portions of improvement costs from 15-year or 39-year property to 5-year or 7-year personal property, accelerating depreciation. The cost ($5,000–$15,000 for a standard study) is typically recovered many times over in accelerated tax deductions on large projects.
- Record an ARO for any mandatory restoration obligation at the time improvements are made: If the lease requires restoration at expiration, estimate the removal cost, discount it to present value, and record both an ARO liability and an addition to the LI asset at the time of construction. Accrete the ARO over the lease term so the financial statements reflect the obligation throughout the tenancy, not as a surprise at lease end.
- Maintain separate GAAP and tax depreciation schedules for leasehold improvements: GAAP amortizes over the lease term (5–10 years); tax depreciates over 15 years with bonus depreciation. These produce different period-by-period deductions and create temporary differences requiring deferred tax accounting. Your fixed asset subledger should track both schedules independently.
- Remeasure the ROU asset and lease liability when the lease is modified: Any amendment that changes the scope, term, or payment structure of the lease triggers remeasurement of the lease liability and ROU asset under ASC 842. Establish a process to flag every lease amendment for accounting team review.
- Confirm the tax ownership of improvements before claiming depreciation deductions: Depreciation follows ownership. Confirm that the lease structure and improvement contracts support the tenant's position that it owns the improvements for tax purposes. If there is uncertainty, obtain a tax opinion before filing depreciation deductions on TI-funded improvements.
- Plan construction timelines around the target placed-in-service tax year for bonus depreciation: Large improvement projects should coordinate construction completion (specifically: the date the space is substantially complete and available for use) with the target tax year for the bonus depreciation deduction. A December vs. January completion date can shift six-figure tax deductions by one full year.
- Confirm the correct discount rate (incremental borrowing rate) for the ROU asset calculation: The incremental borrowing rate — the rate the tenant would pay to borrow funds over a similar term, with similar collateral, in a similar economic environment — directly determines the lease liability and ROU asset amounts. An incorrect discount rate creates a systematic error in both the asset and liability that compounds over the lease term. For private companies, FASB provides a risk-free rate practical expedient that simplifies this calculation.
- Review the ASC 840 to ASC 842 transition treatment for any pre-adoption leases that received TI allowances: If your company adopted ASC 842 with existing leases that had TI allowances recorded under the old standard (as deferred rent liabilities), confirm that the transition entries correctly reflected those lease incentives in the opening ROU asset balance. Errors in the transition calculation can persist for the entire remaining lease term.
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