California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 7 - Net Income › Article 1 - Deductions › Section 24349(h) - * Retirements

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(1)
					 Gains and Losses on Retirements. For the purposes of this regulation the term
					 "retirement" means the permanent withdrawal of depreciable property from use in
					 the trade or business. The withdrawal may be made in one of several ways. For
					 example, the withdrawal may be made by selling or exchanging the asset, or by
					 actual abandonment. In addition, the asset may be withdrawn from such
					 productive use without disposition as, for example, by being placed in a
					 supplies or scrap account. The tax consequences of a retirement depend upon the
					 form of the transaction, the reason therefor, the timing of the retirement, the
					 estimated useful life used in computing depreciation, and whether the asset is
					 accounted for in a separate or multiple asset account. Upon the retirement of
					 assets, the rules in this regulation apply in determining whether gain or loss
					 will be recognized, the amount of such gain or loss, and the basis for
					 determining gain or loss:
(a) Where an asset
					 is retired by sale at arm's length, recognition of gain or loss will be subject
					 to the provisions of Sections
					 24901,
					 24902, and other applicable
					 provisions of law.
(b) Where an
					 asset is retired by exchange, the recognition of gain or loss will be subject
					 to the provisions of sections
					 24901,
					 24902,
					 24941, and other applicable
					 provisions of law.
(c) Where an
					 asset is permanently retired from use in the trade or business but is not
					 disposed of by the taxpayer or physically abandoned (as, for example, when the
					 asset is transferred to a supplies or scrap account), gain will not be
					 recognized. In such a case loss will be recognized measured by the excess of
					 the adjusted basis of the asset at the time of retirement over the estimated
					 salvage value or over the fair market value at the time of such retirement if
					 greater, but only if--
(i) The retirement is
					 an abnormal retirement, or
(ii) The
					 retirement is a normal retirement from a single asset account (but see
					 paragraph (4) of this regulation for special rule for item accounts),
					 or
(iii) The retirement is a normal
					 retirement from a multiple asset account in which the depreciation rate was
					 based on the maximum expected life of the longest lived asset contained in the
					 account.
(d) Where an
					 asset is retired by actual physical abandonment (as, for example, in the case
					 of a building condemned as unfit for further occupancy or other use), loss will
					 be recognized measured by the amount of the adjusted basis of the asset
					 abandoned at the time of such abandonment. In order to qualify for the
					 recognition of loss from physical abandonment, the intent of the taxpayer must
					 be irrevocably to discard the asset so that it will neither be used again by it
					 nor retrieved by it for sale, exchange, or other disposition. Experience with
					 assets which have attained an exceptional or unusual age shall, with respect to
					 similar assets, be disregarded in determining the maximum expected useful life
					 of the longest lived asset in a multiple asset account. For example, if a
					 manufacturer establishes a proper multiple asset account for 50 assets which
					 are expected to have an average life of 30 years but which will remain useful
					 to him for varying periods between 20 and 40 years, the maximum expected useful
					 life will be 40 years, even though an occasional asset of this kind may last 60
					 years.