GAAs are a valuable planning option for tangible property depreciation.

• Author: Wood, Christian
• Position: General asset accounts

While unfamiliar to many taxpayers, general asset accounts (GAAs) provide a valuable simplification tool for tracking tangible assets and present some planning opportunities. This item aims to bring clarity to the use of GAAs and provide insight into the benefits and risks of adopting GAA treatment for tangible assets.

GAAs in General

A GAA allows taxpayers to treat multiple assets as a single asset, avoiding the need to track every singular disposition from the GAA. For example, a taxpayer that purchases a set of office furniture (desk, chair, and file storage) and places all of the items in the set into service at the same time can elect to treat the set as one asset for depreciation purposes by placing it into a GAA. The taxpayer would simply continue to depreciate the set as a GAA, whether or not the taxpayer disposes of a piece, or even the entire set, in a future year.

How to Establish a GAA

A taxpayer generally establishes a GAA by capitalizing and placing asset(s) into service and then making an irrevocable election on a timely filed tax return (including extensions) on Form 4562, Depreciation and Amortization, subject to the following general grouping rules:

* Each asset in the GAA must have the same applicable depreciation method (e.g., modified accelerated cost recovery system, accelerated cost recovery system, etc.);

* Each asset in the GAA must have the same applicable recovery period (e.g., three-year, five-year, seven-year, etc.);

* Each asset in the GAA must have the same applicable depreciation convention (i.e., midmonth, mid-quarter, or half-year); and

* Each asset in the GAA must be placed in service in the same tax year.

These general grouping rules are subject to further special grouping rules under Regs. Sec. 1.168(i)-1 (c)(2)(ii):

* Assets subject to the mid-quarter or midmonth convention must be grouped in a GAA with assets placed in service in the same respective quarter or month;

* Passenger automobiles subject to the luxury automobile depreciation limits under Sec. 280F(a) must be grouped into a separate GAA;

* Other listed property under Sec. 280F(d)(4) (aside from passenger automobiles) must be grouped into a separate GAA;

* Assets not eligible for additional first-year depreciation (including assets for which an election to forgo additional first-year depreciation has been made) must be grouped into a separate GAA;

* Assets eligible for additional first-year depreciation (including Sec. 168(k) bonus depreciation) must be grouped into a GAA with assets subject to the same percentage of additional first-year depreciation (i.e., 30%, 50%, or 100%);

* Assets that do not use an optional depreciation table must be grouped into a separate GAA;

* Mass assets must be grouped into a separate GAA; and

* Assets...