By now you’ve likely heard us talking about the new repair regulations that were adopted for the 2014 tax year. Indeed, it adds a wrinkle or two to the process, but with planning and preparation, there are some tax saving opportunities to be found.
The regulations include a new rule permitting the taxpayer to deduct amounts attributable to partial dispositions of building components. A good example of a partial disposition would be replacement of an HVAC system.
Let’s say you purchased a building in 2005, and in 2010 you had to replace the HVAC system. In 2010, the old system continued to be depreciated as part of the building over 39 years, and the new system acquired in 2010 was added to the building and depreciated over 39 years, beginning in 2010. Effectively, there are two HVAC systems being depreciated – one from the original purchase of the building and one from the newly purchased system.
In 2014 only, you will be able to expense the remaining un-depreciated portion of the building from an early year, that relates to the old system, or in this case the “partial disposition.” On a $30,000 system, for the building purchased in 2005, this could increase deductions for 2014 by over $20,000.
Going forward, this rule will apply to partial dispositions in the year they are made. In 2014 only, you can look at prior year partial dispositions.
This opportunity can be identified by reviewing your depreciation property records this year to identify partial dispositions. For more information, contact your SDK tax professional or Ryan Churness.