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Another chance at late partial disposition
As soon as the extended tax filing deadline passed for calendar-year corporate taxpayers, the Internal Revenue Service (IRS) released a Revenue Procedure allowing a taxpayer to obtain an immediate deduction for “disposed” assets still on a taxpayer’s tax books. Taxand USA explains the benefits for corporate taxpayers.
When a group of assets is placed into service in the same period, taxpayers can elect to establish a General Asset Account (GAA), as long as they have the same depreciation method, recovery period and convention. This allows taxpayers to depreciate multiple assets as a single asset. The only way to elect out of GAA treatment is in the event of a “qualifying disposition” — that is, disposal of all assets in a GAA, or disposal of the last asset in the GAA.
Under the final regulations, the disposition of a component of an asset included in a GAA is not considered a disposition, and therefore no gain or loss would be recognised. This is in contrast to the temporary regulations, whereby GAAs would have allowed for the recognition of gains or losses from the disposition of assets. As a result, under the final regulations, the partial disposition election is a taxpayer’s only means of receiving loss treatment on the disposition of a portion of an asset in a GAA.
The latest Revenue Procedure allows taxpayers another year to retroactively adjust recognition of such partial dispositions and elections with respect to established GAAs. Given that there is now a one-year extension to 2014 this added flexibility will allow taxpayers to look back at their 2012 and 2013 tax positions and re-evaluate their current tax positions with respect to tangible depreciable assets.
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Taxpayers should strongly consider making a late partial disposition election for 2014 for assets that have been partially disposed of but are still being depreciated, as this extension provides an opportunity for a potentially significant acceleration of such a tax deduction respect to tangible depreciable assets.