Fixed Asset Tax Review Services

​Rödl & Partner Tax Matters Vol 2014 – 9, published in June 2014

Summary of the Service

A Fixed Asset Tax Review analyzes capital expenditures during the current year to determine the appropriate tax treatment while seeking to maximize current year tax deductions and credits.

Areas of Focus: 

• Placed in Service Dates: The definition of "placed in service" differs between the tax rules and accounting rules. Our service examines when properties were placed in service for tax purposes to accelerate deductions for year-end or quarter-end.
• Fixed Asset Classification: Particularly for the construction of buildings, we will examine descriptions of components to determine if they can be classified into a shorter class life. For clients in certain industries, analysis would include the calculation of any benefit of electing the general asset class rather than the industry class.

• Soft Cost Analysis: In addition to tangible property, construction projects include "soft costs" such as permit fees, brokers' fees, and architectural and engineering fees. Our analysis will examine these soft costs in relation to the following:
  • Investigatory vs. Facilitative: Our analysis will determine the amount of any deductible investigatory costs.
  • §174 R&D Costs: To the extent that architectural & engineering costs are incurred to eliminate uncertainty in the design of an asset used in a trade or business, they can be deducted under §174. Our analysis includes examination of architectural and engineering fees to determine if any can be deducted as R&D expense.
  • Allocation of "soft costs": Even where soft costs are required to be capitalized, they can be allocated to the tangible costs to which they relate. Our analysis will perform appropriate allocations of soft costs to include in shorter class lives where appropriate.
• New Tangible Property Regulations: New regulations in the area of tangible property provide some clarity to some long-standing fixed asset controversies. Our analysis reviews all fixed assets in light of these new regulations to look for opportunities regarding materials & supplies, repairs & maintenance, the application of de minimis exception, deductions for replaced assets, and elections for safe harbor deductions for small businesses. Opportunities for benefits of early adoption and change in accounting method issues are examined.
• §263A: §263A calculations, if applicable, will be reviewed to determine whether the change in treatment resulting from our fixed asset tax review alters the §263A calculation.​

• Other Areas of Tax:
  • Section §179D Deductions: Some costs for energy-efficient components in commercial buildings which are placed in service prior to January 1, 2014 can be deducted in full. Our analysis ensures that all costs are taken into account in the calculation in order to maximize the deduction.
  • Property Taxes: For companies not sensitive to capitalizing costs for book purposes, our analysis includes determining the benefit, if any, to keeping books and records on a tax basis to lower property tax burdens.
  • Sales and Use Taxes: Many exemptions from sales & use tax may apply to manufacturing or construction materials. Our analysis will include examining the state law in this area to determine if all available exemptions are utilized.

Documentation Needed for Review

To determine whether or not a full analysis is beneficial, we would request a copy of the company's written accounting policy for capitalization, fixed asset details including additions and dispositions, and accounting detail for repairs and maintenance and materials and supplies.

Optimal Fixed Asset Scenario

Although this service can be performed for any capital-intensive company, the analysis is best leveraged for the following minimum cost for construction:

Manufacturing Facilities:      $   2,500,000

Medical Office:                    $   6,000,000

Retail Outdoor Mall              $ 10,000,000

If you have any questions, please contact your Rödl & Partner office.

We have made reasonable efforts to ensure the accuracy of the information contained in this publication, however this cannot be guaranteed. Neither Rödl Langford de Kock LP nor any of its subsidiaries nor any affiliate thereof or other related entity shall have any liability to any person or entity which relies on the information contained in this publication, including incidental or consequential damages arising from errors or omissions. Any such reliance is solely at user's risk.

Any tax and/or accounting advice contained herein is based on our understanding of the facts, assumptions we have been asked to make, and on the tax laws and/or accounting principles in effect as of the date of this advice. No assurance is given that the conclusions would be the same if the facts or assumptions change, or are not as we understand them, or that the tax laws and/or accounting principles will not change subsequent to the issuance of these conclusions. In addition, we do not undertake any continuing obligation to advise on future changes in the tax laws and/or accounting principles, or of the impact on the conclusions herein.

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