An Update on the Latest News Affecting Fixed Assets Management

3 minute read time.

When I was thinking about what to write for this month’s blog, I realized that quite a lot has been in the news lately about fixed assets.

 Political platforms and fixed assets: As to what is happening in Congress that could affect fixed assets management, it is important to remember that at this time of year often bills will be introduced that have very little chance of enactment. This is done in the weeks leading up to November’s congressional elections and is primarily done to call attention to the difference in the platforms of the two political parties. For example, House Majority Leader, Kevin McCarthy (R-Calif.) is planning on introducing an energy package in September that would approve the Keystone pipeline, open federal land to energy extraction, and will also include various other provisions, including one to make bonus depreciation permanent (H.R. 4718). The truth is the legislation cannot possibly be passed if for no other reason than there will be no time to do so before Congress adjourns for its fall campaigning break before the elections.

Winnebago - fixed assets managmentClaiming (or not) depreciation on a Winnebago: In a recent Tax Court case, Jackson v. Commissioner, the court disallowed depreciation expense claimed on a Winnebago. The motor home was driven by insurance sellers to recreational vehicle rallies in order to sell RV insurance. Since that is the taxpayer’s target audience, it may have seemed like a logical business expense. However, the depreciation deduction claimed on it was disallowed because first, the vehicle is considered to be a dwelling unit, and second, no portion is used exclusively for business purposes.

decreaseA HUGE decrease in Section 179 expensing: Unless legislation gets passed to extend or increase the current Section 179 expensing election, starting with the 2014 tax year, the maximum amount of Section 179 expense allowed will drop from the previous $500,000 to only $25,000 a year. The threshold limit will drop as well: from $2 million to $200,000.

 R&D expenses: The IRS has issued a final regulation to amend the definition of research and development expenditures under IRS Code Section 174. The final regulation generally adopts the proposed changes from last year and makes a minor adjustment to them. The proposed regulations:

  • Provide that the ultimate success or failure of the R&D property is not relevant when determining its eligibility under Section 174 (thus avoiding the possibility of a subsequent event changing the property’s eligibility).
  • Defines the term “pilot model.”
  • Includes a “shrinking-back” rule, which the final regulation renames while retaining the provision that research or experimental expenditures may relate only to one of the components of a larger product.

 General asset account dispositions: The IRS also issued final regulations relating to MACRS property dispositions in general asset accounts. The temporary regs issued in 2011 established MACRS multiple asset accounts, expanded the MACRS general asset account rules, and included rules for dispositions. In 2013, the IRS issued proposed regs which made some changes to the temporary regs, including providing that:

  • A building is considered to be a single asset for disposition purposes, and
  • The disposition rules apply to the partial disposition of an asset (thus allowing a loss to be claimed on the disposition of a structural component of a building or a component of an asset).

The final regulations retain the rules in the proposed regs with a few changes such as:

  • If either the election to terminate a general asset account or a qualifying disposition election is made, the taxpayer must apply IRS Code Section 280B to determine the amount of gain or loss recognized. Under Section 280B, the costs of demolishing a building cannot be expensed but must be added to the basis of the land.
  • If the basis of a disposed asset in a multiple asset account is unknown, the taxpayer may use any reasonable method that is consistently applied to all assets in the same multiple asset account.

Fixed assets management

Fascinating Fixed Assets Fact: Now that the final regulations governing the costs to acquire, produce, and improve tangible property (aka, “the repair regulations”) have been published, the IRS may soon resume auditing the costs related to such property.