Fixed Asset Review
What is Fixed Asset Review?
Similar to a cost segregation study, the goal of a fixed asset review is to take fixed assets and reclassify them to a shorter depreciable life. This acceleration of the depreciation expense makes the client eligible for a Section 481(a) or “catch-up” adjustment. However, as a cost segregation study typically focuses on specific real estate investments, a study for fixed assets includes all of the assets a client owns. Fixed asset studies combine a more detailed invoice review of the client’s documentation with the engineering review included in a cost segregation study. A fixed asset study may include multiple cost segregation studies on specific assets placed in services since Jan. 1, 1987.
Benefits of a Fixed Asset Review
The issuance of the Tangible Property Regulations have made fixed asset studies even more beneficial. The regulations allow a portion of a larger capital asset to be written off when it is removed as part of a new capital project. This partial disposition allows the taxpayer to write off the remaining basis in the current tax year instead of deprecating over the remaining useful life. It is important to note that the replacement needs to be a capital replacement and not a repair. If the replacement is done as a repair there is no offsetting capital project and the original depreciable asset will remain on the books.
Much like cost segregation, a fixed asset review can increase cash flow by accelerating deprecation. A fixed asset study may include multiple cost segregation studies in order to maximize depreciation deductions. For companies with significant quantity of assets on the books, a fixed asset study may generate a much higher current year adjustment to taxable income as compared to a cost segregation study.
For more information watch the webinar titled: Scrubbing a Fixed Asset Listing for Repair Regulation Opportunities
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Additional Fixed Asset Resources
As tax season gets into full swing, McGuire Sponsel wanted to take a moment to remind our partners and clients that this is the time to take advantage of the opportunities created by the Protecting Americans from Tax Hikes (PATH) […] Read More
Dave McGuire is featured in Accounting Today as he discusses how the IRS’s recent Audit Techniques Guide for the Tangible Property Regulations can help business taxpayers avoid problems with IRS examiners in interpreting the 2014 regulations on how to treat […] Read More