Revenue procedure · 2014
Rev. Proc. 2014-54
2014-41 I.R.B. 675
IRS revenue procedure
What it holds
Gives the steps for making a partial disposition election under Treas. Reg. §1.168(i)-8(d), so you can write off the leftover value of a part you tear out and replace.
Why it matters for your study: It lets an owner claim a loss on, say, an old roof when a new one goes in, instead of depreciating both at once. A study that breaks the building into parts is what makes this election practical.
Where this comes from
Before the final disposition regulations, building owners had a problem. When they replaced a roof or an HVAC unit, they often kept depreciating the old one inside the building's cost because there was no clean way to remove it. They paid for one roof but carried two on the books.
Treasury fixed the substance in Treas. Reg. 1.168(i)-8, which allows a partial disposition election. Revenue Procedure 2014-54, issued in 2014, supplied the procedure. It modified the method change rules so taxpayers could get automatic IRS consent to adopt the new disposition rules, and it updated the change list for elections tied to them.
What it established
The procedure gave taxpayers automatic consent paths for accounting method changes under Treas. Reg. 1.168(i)-1, 1.168(i)-7, and 1.168(i)-8, the regulations that govern general asset accounts, item accounting, and dispositions of MACRS property.
Its most talked-about feature was the late partial disposition election. Normally the partial disposition election must be made on the return for the year the component is removed. For a transition period, this procedure let owners reach back and claim losses on parts they had removed in earlier years, treated as a method change with a catch-up adjustment. That window covered tax years beginning on or after January 1, 2012 and before January 1, 2015, and it has closed.
How it shows up in a study
A cost segregation study is what makes the partial disposition election practical. To write off the old roof, you need to know what the roof cost inside the building's total. A study that has already separated the structure into components, or a focused valuation done at replacement time, supplies that number.
In ongoing work, the pattern is simple. A capital replacement goes in, the repair regulations confirm it must be capitalized, and the partial disposition election clears the old part off the books in the same year. The owner stops depreciating a part that no longer exists and takes the remaining basis as a loss.
What it does not mean
The late election window is over. You cannot use this procedure today to reach back and claim a partial disposition loss for a roof you replaced years ago. Missing the election year generally means the remaining cost stays in the building and keeps depreciating.
The election is also optional, not required, and it is not always the best move. Taking a disposition loss converts that basis from future depreciation into a current loss, which interacts with the repair rules and with how the removal costs are treated. The election needs a deliberate decision each time, not a default.
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