By: Heidi Henderson
“If there was a ever a year to extend your return…this is it.”
Over the past six months, the IRS has finalized the tangible property regulations in relation to the acquisition, repair and/or disposition of tangible property (T-Regs), along with further guidance. This guidance has clarified partial disposition elections (Revenue Procedure 014-17) along with automatic consents for accounting method changes and elections under the final regs.
One of the key areas of opportunity for taxpayers lies in the ability to write off the undepreciated basis of “ghost assets”, or assets which remain on a taxpayers books but have physically been disposed of, removed, or are no longer in service.
Historically, taxpayers were required to continue depreciating a unit of property or asset even after it was removed or destroyed. However, the final t-regs address a taxpayer's ability to claim a loss on those components via partial disposition elections. This allows for an immediate write-off and the accurate accounting of building components and machinery in accordance with actual activities.
Why is there a limited window of opportunity? The temporary regulations effective for tax years 2012 and 2013 allow for retroactive application of the partial disposition election. Thereby allowing taxpayers to historically identify disposed assets with undepreciated basis and file an accounting method change on their 2013 tax return to write off that remaining basis.
The final regulations also allow for the disposition of assets when removed, however, the election is allowed only in the current year, on a timely filed return. Therefore, many taxpayers have the opportunity on their 2013 tax return to make a one-time adjustment to accurately reflect the status of their tangible property and to comply with these tangible property regulations.
If you feel that this may benefit you or you have additional questions, please feel free to contact Heidi Henderson at Engineered Tax Services at (801) 689-3232 or email at hhenderson@engineeredtaxservices.com
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HEIDI HENDERSON | Director of Business Development
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