As anticipated, the IRS has issued a revenue procedure which extends by one year the period for taxpayers to make a late partial disposition election — giving owners of commercial or rental real estate more time to prepare for and reap the tax savings.
Under the previous revenue procedure, which was issued when the regulations were in proposed form, a late partial disposition election had to be made on a timely-filed 2013 tax return. The latest pronouncement1 was issued in September, after the regulations had gone final, and allows the late partial disposition election to be made on a timely-filed 2014 return.
As noted in the article New Tax Rules Call for Quick Action to Reap Serious Tax Savings, the new partial disposition election in the final regulations potentially provides significant tax benefit by allowing a loss in the year of disposition for the remaining undepreciated basis of portions of buildings and other assets that are replaced or otherwise disposed.
The recent revenue procedure provides a mechanism to claim a loss for dispositions occurring prior to 2012 by filing a change in accounting method with the 2014 return to make a late partial disposition election for these earlier years. The extension of the period by one year gives taxpayers additional time to identify these prior year dispositions, and to do the necessary work to quantify the amount of the loss.
1Revenue Procedure 2014-54
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