The IRS has formally approved the ability to dispose of the remaining cost basis of assets previously retired, replaced, or demolished. This is outlined in the Tangible Property Regulations (IRC §1.168 (i)-8) and can be a tremendous vehicle for tax savings.
Our process includes a review of the existing depreciation schedules, demolition drawings, and other pertinent information. The team also assesses the scope of recently completed capital work to determine the potential for disposition. When this review identifies assets ripe for disposition—but does not warrant a Standard Cost Segregation Study—we suggest our Partial Asset Disposition (PAD) Analysis.
As defined in the Tangible Property Regulations, a PAD Analysis may be conducted in one of three ways:
- A full engineering-based cost methodology, such as cost segregation
- A pro rata pricing process (if original pricing for a property is available)
- A Producer Price Index calculation as outlined in the Tangible Property Regulations
The outcome of our PAD Analysis is a report that quantifies and presents the value of dispositions, outlines when the assets were placed into and taken out of service, and describes the asset(s) in question. With this information, the client may determine the remaining depreciable basis to support a Partial Asset Disposition election.
A PAD Analysis can also be used to update existing Unit of Property values.