New "mass assets" regulation.

• Author: Shanks, Thomas A.

New Regs. Sec. 1.168(i)-1 allows taxpayers to pool similar assets into general asset accounts, which can be depreciated as if they are single assets under Sec. 168(i)(4). The final regulation is more liberal than the proposed regulation, particularly as to the recovery of basis in certain "qualifying" dispositions.

Basic rules

Asset additions may be grouped into a single general asset account if the assets (1) have the same asset class (2) have the same applicable depreciation method and recovery period, (3) have the same applicable convention and (4) are placed in service in the same year (Regs. Sec. 1.168(i)-1c) (2)). Passenger automobiles for which depreciation is limited under Sec. 280F must be grouped into a separate asset account (Regs. Sec. 1.168(i)-i(c)(2)(D)). Typically, the general asset account group is terminated on disposition of the entire asset group or the last remaining asset.

A general asset account may not include an asset used in both a business (or for production of income) and a personal activity. The final regulations have specific rules for assets qualifying for credit under Sec. 47 or 48. Any basis increase on credit recapture removes the asset from the mass asset account treatment. The amount of tax basis in the general asset account is net of any Sec. 179 expensed amounts.

Dispositions

Although general asset accounting treatment is advantageous because it simplifies recordkeeping, it may be disadvantageous due to the treatment of dispositions.

An asset retired from a general asset account is treated as having a zero basis for determining gain or loss on disposition. As such, no loss is recognized on disposal (until the entire general asset group is terminated)., Moreover, any amount realized on a disposition is recognized as ordinary income, to the extent amounts received do not exceed unadjusted depreciable basis plus expensed amounts under Sec. 179 and less previously recognized ordinary income. Amounts received above this limitation likely qualify for Sec. 1231 treatment.

Unlike the proposed mass asset depreciation regulation, the final regulation allows taxpayers to elect qualifying disposition treatment in certain instances, even though they do not terminate the entire general asset group. Qualifying dispositions include the cessation, termination, curtailment or disposition of a business, manufacturing or other income-producing process, operation, facility, plant or other unit (other than by transfer to a...