As we head into the final month of 2014, it’s a good time to make sure you are taking advantage of any tax-saving opportunities available to you. One of these potential savings applies to the IRS issued Revenue Procedure 2014-15 related to the disposition of assets (assets that are no longer in use).
Taxpayers who disposed of tangible property (roof, windows, HVAC, etc.) in the past through abandonments, renovations and retirements, but continue to depreciate these assets can now write them off for tax purposes.
Although asset dispositions will be available going forward, 2014 is the last year to take advantage of the late partial asset disposition – where the IRS allows you to look back to the year an asset was purchased/constructed, and write off any component where two or more of the same component are simultaneously depreciated.
If you plan to take advantage of late partial asset dispositions, you will need to ensure a Form 3115 – Change in Accounting Method is filed with your business tax return.
Here is an example of someone who would want to take advantage of partial asset disposition:
- The taxpayer buys a building in 2002
- In 2012, the taxpayer replaces the original roof and capitalizes the replaced roof
- The taxpayer has been depreciating two roofs since 2012
- In 2014, the taxpayer can file a change in accounting method and write off the original roof purchased with the building in 2002
Here are three simple steps that you should discuss with your tax advisor to take advantage of this expiring opportunity tax savings:
- Review your fixed asset listings and determine if there are two of the same assets being depreciated simultaneously.
- Determine the adjusted cost basis of the initial asset placed into service by using any reasonable method including:
o Discounting the cost of the replacement property using the Producer Price Index
o A pro-rata allocation
o A cost segregation study
- File Form 3115 with your timely filed 2014 tax return and take the deduction disposing of the initial asset.
If you’d like to discuss partial asset disposition in more detail, or to find out if there are other opportunities to save on your 2014 tax return, please contact Denny Murphy at 440-449-7124 or firstname.lastname@example.org.