I am a bookkeeper for a partnership where one partner (partner #1) owns the property where the business activity takes place. The other partner (partner #2) runs and operates the business by himself. Except for the bookkeeping, and a helper that works only 1 day a week during season, partner #2 does everything. In order for the business to compete in the market the company has made several costly improvements on the property. Since the business only rents the property from Partner #1 (the owner), the improvements are considered expenses to the Partnership. Is the cost of the improvements to be considered income to Partner #1? If so, is it dollar for dollar? Does he need to come up with personal expenses to offset this income?

When you say 'rental' property, do you mean it is a rental lease?

Leasehold improvements? The Partners account would not be credited. The arrangements regarding the rental are according to the agreement between the partners but if the business made the expenditure then it is a business expense unless otherwise agreed. If significant in value the improvements might be capitalised and amortised over their useful life