Last Chance to File for Late Partial Disposition Election is Coming Soon
As you’re probably aware, under the old rules for tangible property, when replacing a portion of your asset, the replacement was required to be capitalized alongside the original portion of the asset that was disposed. This left you with the original asset and replaced portion on your fixed asset records, creating duplicate assets and depreciation deductions. With the new tangible property regulations (TPR), however, you have an opportunity to eliminate retired or disposed assets from your fixed asset records, and take advantage of a one-time election for partial disposition deductions.
Claiming losses on partial dispositions for previous tax years is only available when filing 2014 tax returns. If the accelerated loss deduction is not claimed on your 2014 tax return, then you must continue to depreciate the duplicate assets over the designated tax life. The deadline for most calendar year businesses to make this election is the extended due date for 2014 tax returns: Tuesday, September 15, 2015. Individuals with sole proprietorships or rental real estate have until October 15, 2015, to make this election. Taxpayers with fiscal years ending after December 31st will have until the extended due date of their tax returns to make this election.
PARTIAL DISPOSITION STUDIES – LAST CHANCE!
Cherry Bekaert has been engaged to help the owners of several buildings determine how much cost should be assigned to various parts of buildings that were disposed in renovation projects. The renovations replaced certain significant components or substantial structural parts of building systems. In one case, the taxpayer owns a commercial building and modernized the elevators system. Our cost segregation engineers determined that 45 percent of the old basis in the elevators (less accumulated depreciation) qualified as a partial disposition, allowing the taxpayer to take an immediate loss deduction.
In another case, the taxpayer replaced a roof on his building. Our cost segregation engineers were able to determine the cost basis of the old roof disposed, and the taxpayer can claim a loss deduction for the undepreciated basis of the old roof.
MORE DEDUCTIONS UNDER TPR
For several client engagements, the initial plan was for our cost segregation engineers to identify partial dispositions caused by a renovation. But under TPR, there are more opportunities to expense renovations and repairs that may have been previously capitalized. This is particularly effective if you are making tenant improvements in retail centers, multi-tenant office complexes, and apartment complexes.
Your future is full of opportunities and we want to help you get ready to make the most of them. We are working with taxpayers and our cost segregation engineers to identify the costs associated with a building’s structure, and with each of eight building systems. Total costs assigned to 39-year non-residential real property are divided up among the appropriate building systems buckets. This analysis is not a full cost segregation study, but the results can help prepare you to claim partial disposition deductions in the future. The analysis can also provide information to help you make decisions about whether expenditures related to a building system are deductible repairs or capital improvements under TPR.
We would be pleased to review your fixed asset records, and discuss the nature of any improvements or renovations to assess whether you have a viable opportunity under these provisions. At no cost to you, we can provide a full scoping report outlining the possible benefits that may be obtained under a Partial Dispositions Study.
For more information, please contact your Cherry Bekaert Tax Professional.