Take Advantage of This Amazing Tax Opportunity
When a taxpayer disposes of a portion of an asset used for making money, like a building, the disposed components have a taxable value that can be deducted in the year the assets were retired. This is missed by EVERY OTHER cost segregation firm as well as 95% of CPAS. Don’t YOU miss it.
Examples of Partial Asset Dispositions
Example 1.
Mr. Jones has owned an enormous office building with two escalators for five years. In year five, Jones completely replaces one of the escalators for $1,000,000.
Under the Tangible Property Regulations, the escalators serve a discreet and critical function within the building. There are two escalators, and Jones replaced one escalator. This is one-half of all escalators, so the replacement must be capitalized under §263A. The old escalator, per paragraph (c)(4)(ii)(A), is the asset for disposition purposes.
Jones does not make the partial disposition election. So, the replaced escalator’s retirement, which has a remaining depreciable basis of $871,794 (assuming the old escalator also costs $1,000,000 and has been depreciated for five years), is not a disposition. As a result, depreciation on the old escalator, which is now in a dumpster, continues, but so does the depreciation on the new escalator.
The old escalator is called a ghost asset. Ghost assets are very unprofitable! Jones misses the partial asset disposition opportunity, continues to take depreciation on the retired escalator, and only receives an annual deduction of $25,641.
Example 2.
The underlying facts are the same as in Example 1, except Mr. Jones makes the partial disposition election for the old escalator. Depreciation for the retired escalator immediately stops, and Jones expenses the original cost of the elevator (minus any depreciation already taken). The expense reduces his income by $871,794.
Important Note: The partial asset disposition is only available if the new escalator is capitalized. If the facts and circumstances are such that the new escalator can be expensed, a partial asset disposition cannot be used.