An Asset Management Study (AMS) provides a greater level of detail on 39 and 27.5-year assets that what would normally be contained in a cost segregation study. In the past, most taxpayers were concerned with accelerated depreciation and therefore the focus was on identifying as much 15, 7 and 5-year assets as possible. While the mechanism to properly cost out all assets in a study needs to be uniform, the output can vary significantly. For example, certain 39 or 27.5-year assets might be priced utilizing cost per square foot models or by completed assembly costs. Since these assets are not accelerated there has been traditionally been little need to expand upon the detail for these assets.
With the introduction of the IRS Tangible Property Regulations, taxpayers now have the opportunity to write down the remaining tax basis of assets that are taken out of service. The challenge is that if these assets are embedded in an overall cost item such as “building”, HVAC, or plumbing, it is extremely difficult, if not impossible to properly price out the remaining tax basis of a building component that is part of a larger single asset.
The AMS is designed for property owners who plan to hold their properties for longer periods of time or for those who plan on making significant upgrades or improvements during the ownership period. Taking into consideration what the property owner’s capital improvement plans will be, Bedford can provide an extremely detailed AMS that will document 39 and 27.5-year assets down to a level that will enable property owners and tax professionals to manage building fixed assets and properly track asset retirement and write downs. Due to the level of detail contained in an AMS, it is not uncommon to see hundreds and sometimes thousands of line items detailed. The AMS can be used as an excellent tax planning tool and is now being used by many taxpayers in conjunction with the requirements contained in the Tangible Property Regulations to support write downs or retired/disposed building assets.