If a tenant makes a capital improvement to a leased property, is that income to the landlord?
For example, let's say I am renting a house to a family and at their own expense they build an addition onto the house and I do not pay them any compensation. They build it for their own use so long as they lease the house with the understanding that it is a betterment of my property.
Is this considered income to me as the landlord? In other words, let's say they spent $10,000 building the addition. Do I have to report that as $10,000 in income to myself? If so, do I report it when the addition is complete, or after they move out and it becomes "mine"? If I report it as income when they move out, then do I depreciate it first and only report say $7,500 in income? If so, how do I calculate the depreciation?