Full Asset Disposition Study

Assuming the results of the diagnostic indicate that it would be beneficial to conduct a full disposition study, the focus turns to what a full asset disposition study entails and what information is required. The key aspects of a full disposition study include:

Analysis of past renovations and repairs, focusing on the specific costs incurred and the nature of the renovations and repairs;
Identification of the assets that have been disposed of but are still being depreciated on the tax fixed asset ledger;
Estimation of the carrying value of the assets that have been disposed of, and thus can be deducted for tax purposes; and
Preparation of a narrative report and schedules that provide supporting documentation for the deduction associated with assets that are still being depreciated but have been disposed of. To ensure an efficient approach, the following steps should be implemented when conducting a disposition analysis for each building: Conduct a site inspection;
Review construction drawings, cost information and available blueprint sets;
Analyze the history and nature of the various renovations and repairs at the property;
Review and categorize contractor and supplier invoices to determine detailed cost schedules associated with renovations and repairs. This is used in preparing the appropriate documentation for identifying assets that were replaced and thus disposed of previously;
Estimate the cost to reconstruct the building that was part of the original acquired property, as well as the cost of all replacements and renovations. This provides an estimate of the portion of the original property that was replaced and thus disposed of; and
Estimate the carrying value of assets currently being depreciated that should instead be deducted.

Example: Full Asset Disposition Study

For illustrative purposes, consider the following example of a university that was able to deduct the carrying value of assets that were disposed of previously. The university made numerous renovations over the years, including work on the roof, central areas, classrooms, etc. In each case while they capitalized the costs associated with the new assets, they did not remove the assets that were replaced from the tax fixed asset ledgers. The assets that were disposed of as part of the renovation were identified.

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Using your university buildings to generate a tax cash benefit

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