The IRS Repair Regulations Storm has Passed, but Big Tax Benefits are Still Available

Yes, I know what you are thinking…  Are we REALLY still talking about the IRS Repair Regulations?  Hasn’t the Repair Regulations ship already sailed?

While the big news of the Repair Regulations hit most taxpayers for the 2014 tax year, there are still many current benefits, including the partial asset disposition election.  Which, is why you and your business SHOULD STILL HAVE THEM ON YOUR RADAR.

One of the most powerful tax savings tools back in 2014 is still one of the most powerful tax savings tools today and going forward: the partial asset disposition election. This election continues to be one of the most taxpayer-favorable aspects of the Repair Regulations.

The partial asset disposition election allows a taxpayer the ability to dispose of part of an asset.  More specifically, this election allows taxpayers to claim a loss on the disposition of a structural component (or a portion of a structural component) of a building, or a component (or a portion thereof) of any other asset.

Prior to the final Repair Regulations, companies could not take a loss for a retired component of a building or asset. Our previous blog post on the partial asset disposition election outlines this in greater detail.

Now, companies are able to claim an IMMEDIATE loss for the retired component which gives them an immediate tax deduction.

The best way to show the benefit is through an example:

As part of a building improvement, a company replaces the escalators.  The original escalators cost $200,000 and were part of the original building placed in service 10 years ago. The original building and escalators are being depreciated over 39 years.

Under the old rules, the original escalators, even though no longer of benefit to the company, would continue to be depreciated for the remaining life of the building.  This would spread the deduction over 29 years.  That’s nearly $149,000 in potential deductions left on the table to be spread out over time.

Now, under the partial disposition rules, the company can take an immediate deduction for the old escalators accelerating the $149,000 into the current year.  That’s a HUGE tax benefit.

While many taxpayers with real estate holdings are realizing very large tax savings from the partial asset disposition election, this election ALSO applies to non-real estate companies.  Manufacturers with large equipment may also see big benefits as well.

Regardless of the industry, the partial asset disposition election applies to the current tax year.  For those taxpayers that have extended their 2015 returns, this means there is still time to take advantage of partial dispositions that occurred during 2015.

For Partnerships, S-Corporations, and C-Corporations, the extended tax deadline for 2015 returns is September 15, 2016.  For individuals with businesses or real estate holdings taxed on their individual tax returns, the extended tax deadline for 2015 returns is October 17, 2016.

The partial asset disposition election is a very POWERFUL tax savings tool.  Many Anders clients have realized significant tax savings from this favorable election included in the Repair Regulations.  For more information on this topic, or to discuss other potential repair regulations benefits for your company, contact an Anders advisor today.