Final guidance related to tangible property regulations provides time-limited opportunities.

• Author: Kay, Sharon A.

Concluding a process that began more than 10 years ago, the IRS released the final set of guidance last summer related to the tangible property regulations.

The IRS published the final regulations (T.D. 9689) regarding depreciation and dispositions, including partial dispositions, of tangible depreciable property, and related Rev. Proc. 2014-54 that provides rules for filing method changes related to certain provisions of the final regulations.

These regulations finalize reproposed regulations (REG-110732-13) that were published simultaneously in September 2013 with the final tangible property regulations (T.D. 9636) regarding when costs incurred to acquire, produce, or improve tangible property must be capitalized or may be deducted. Together with Rev. Proc. 2014-16 and Rev. Proc. 2014-17, the two regulation packages and three revenue procedures provided taxpayers and their advisers with a lot of material to wade through to determine what changes they must make to conform to the new rules and the effort required to do so.

The disposition final regulations apply to tangible property subject to modified accelerated cost recovery system (MACRS) depreciation under Sec. 168. They provide:

* A definition of "disposition" as including the sale, exchange, retirement, physical abandonment, or destruction of an asset;

* Rules for determining the asset disposed of, including a specific provision that improvements and additions to an asset made after the asset is placed in service are separate assets for disposition purposes from the property improved;

* An election for taxpayers to apply the disposition rules to most partial dispositions of an asset (e.g., the disposition of a building's roof or a portion of a roof);

* Mandatory application of the partial disposition rule to certain partial dispositions including casualty losses;

* A special partial disposition rule to address the effect of the IRS's disallowance of a repair deduction;

* How to determine the year in which a disposed asset was placed in service and its basis, particularly if the asset is in a multiple asset account or is disposed of in a partial disposition and it is impractical to specifically identify the asset or portion;

* That whether and to what extent gain or loss is recognized is subject to other applicable provisions, including Sec. 280B (demolition); and

* Rules for establishing general asset accounts (GAAs) and treatment of dispositions of assets from a GAA. One significant...