The Internal Revenue Service on September 18 issued Rev. Proc. 2014-54, representing what should be the final significant piece of guidance on the far reaching tangible property regulations. Rev. Proc. 2014-54 provides automatic consent procedures for requesting accounting method changes necessary to comply with final regulations issued in August on dispositions of tangible property. All taxpayers that acquire, produce or improve tangible property are required to comply with the tangible property regulations in tax years beginning on or after January 1, 2014.
IRS Issues Implementation Guidance for Final Property Disposition Regulations
1. IRS Issues Implementation
Guidance for Final Property
Disposition Regulations
The Internal Revenue Service on September 18 issued Rev. Proc. 2014-54, representing what
should be the final significant piece of guidance on the far reaching tangible property regulations.
Rev. Proc. 2014-54 provides automatic consent procedures for requesting accounting method
changes necessary to comply with final regulations issued in August on dispositions of tangible
property (see our Federal Tax Alert, IRS Finalizes MACRS Disposition and General Asset Account
Regulations). All taxpayers that acquire, produce or improve tangible property are required to
comply with the tangible property regulations in tax years beginning on or after January 1, 2014.
Historically, when a taxpayer replaced a significant component of an asset — such as the roof of a
building, an elevator, an HVAC unit, etc. — the taxpayer had to continue to depreciate the old asset
as well as the new replacement. The final property disposition regulations allow taxpayers to make
a partial disposition election in the year of replacement to write off the undepreciated cost basis
allocable to the replaced component, presuming the cost of the replacement component is
capitalized.
Rev. Proc. 2014-54 permits taxpayers that disposed of a significant portion of an asset in previous
years to make a late partial disposition election via an automatic accounting method change
request to recover the undepreciated basis. A late partial disposition election can significantly
accelerate substantial tax deductions. Assume, for example, that you replaced a roof two years
ago on a building that you've owned for 10 years. Typically, it would take 29 more years to fully
depreciate the cost allocable to the original roof, even though it no longer exists. By making a late
partial disposition election, however, you can write off the remaining cost basis of that replaced
roof all at once.