Recently we have performed a number of cost
segregation studies on remodeling/renovation projects. Among the
questions that have arisen in reconciling the cost of the renovation are
those related to the disposition of the cost of assets that have been
removed and those remaining from the previous facility. For the most
part, we have ignored the cost of the existing building and improvements
resulting in their remaining on the client’s books even though some of
the assets have been demolished.
The recent release of the Temporary
Regulations under 263(a) has changed the manner in which the residual
basis of existing assets is handled following removal on a remodeling
project.
In the past, demolished assets had to be carried on the client’s
books until the full cost had been recovered and ultimately retired.
Now, however, the value of the removed assets can be written off as
abandoned components (Note: This only applies to 39-year real property).
Not only does this regulation take effect immediately, but an owner can
also write off removed components from remodeling projects performed
during the past ten years by filing a Form 3115 (Change in Accounting
Method).Read More...
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