How does each framework classify rental property?
Under IAS 40, investment property is land or a building, or part of one, held by the owner or a lessee to earn rentals, for capital appreciation, or both, rather than for use in the business or for sale in the ordinary course. Under US GAAP, the same property is simply property, plant and equipment, alongside the owner's offices and factories. US investment companies, including many real estate funds, measure their investments at fair value under ASC 946 instead. See IAS 40 investment property.
IAS 40 vs US GAAP: what are the differences?
| Area | IAS 40 | US GAAP |
|---|---|---|
| Measurement after recognition | Choice for all investment property: fair value model or cost model | Cost less depreciation under ASC 360, unless an investment company |
| Fair value changes | In profit or loss under the fair value model, with no depreciation | Not recognized |
| Impairment | Cost model: carrying amount compared with recoverable amount, the higher of value in use and fair value less costs of disposal | Recoverability test against undiscounted cash flows; if it fails, write down to fair value |
| Reversal of impairment | Allowed under the cost model | Not allowed for assets held and used |
| Fair value disclosure | Required under the cost model | Not required |
| Leased property held by a lessee | A right-of-use asset can be investment property, at fair value under the fair value model | Right-of-use asset at cost under ASC 842 |
An example: an office building falls in value
An owner holds an office building for rent with a carrying amount of $40 million under cost-based accounting. Vacancies rise. Its fair value falls to $32 million, or $31.5 million after costs of disposal; its value in use is $33 million; and the undiscounted rental cash flows over its remaining life are $45 million. All amounts are in $ million.
| IFRS, fair value model | IFRS, cost model | US GAAP | |
|---|---|---|---|
| Test | None: remeasure to fair value | Recoverable amount, the higher of 31.5 and 33: 33 | Undiscounted cash flows of 45 exceed 40: recoverable |
| Loss in profit or loss | 8 | 7 | 0 |
| Carrying amount | 32 | 33 | 40 |
| If values recover next year | Gain through profit or loss | Impairment reversed, up to depreciated cost | No reversal; nothing to reverse |
Under US GAAP the building stays at $40 million because its undiscounted cash flows still cover the carrying amount, even though it is worth less. Had those cash flows fallen below $40 million, the write-down would have gone all the way to fair value, $32 million, and could never be reversed. See ASC 360 impairment and IAS 36 impairment.
How do transfers and sales differ?
IAS 40 has specific rules for transfers into and out of investment property, made only when there is evidence of a change in use, with fair value differences on owner-occupied property moving to investment property treated like a revaluation. US GAAP has no such transfers, because the category does not exist; property to be sold is classified as held for sale under ASC 360 when the criteria are met, and stops being depreciated. See IFRS 5 held for sale.
Which IFRS model do real estate companies choose?
Most listed property companies reporting under IFRS use the fair value model, so their profit includes valuation gains and losses and they usually present an adjusted earnings measure excluding them. The choice must be applied to all investment property. See fair value or cost for investment property and property valuations under IFRS 13.
Where to go next
See IFRS vs US GAAP key differences.
Keep going
Our free Excel models work through the examples in these guides, and the comparisons show where IFRS and US GAAP part ways. Every guide names the Chartered Accountant who wrote it and the one who reviewed it.
Questions people ask
Does US GAAP have investment property?
No. Rental real estate is property, plant and equipment under ASC 360, carried at cost less depreciation, unless the owner is an investment company.
Can investment property be carried at fair value under US GAAP?
Only by investment companies measuring their investments at fair value; other owners use cost less depreciation.
How does impairment of rental property differ under IFRS and US GAAP?
IFRS compares the carrying amount with the recoverable amount and allows reversals; US GAAP first tests against undiscounted cash flows, writes down to fair value only if that fails, and never reverses.
Must the fair value of investment property be disclosed?
Under IAS 40's cost model, yes. US GAAP does not require fair value disclosure for real estate held and used.
Sources
The standards, updates and other documents this guide draws on.
- IFRS Foundation: IAS 40 Investment Property
- FASB Accounting Standards Codification: Topic 360, Property, Plant, and Equipment
- Financial Accounting Standards Board
Rules and fees change. If you are reading this long after October 24, 2026, confirm the figures with the source before you rely on them.
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This guide is general information. It is not tax or legal advice for your situation.