Cost of removing old assets currently deductible.

* IRC sections 263(a) and 263A generally require taxpayers to capitalize all costs related to the installation or production of an asset. However, newly issued revenue ruling 2000-7 (IRB 2000-9) allows businesses to currently deduct the costs of retiring and removing old assets even though the costs were incurred while installing replacement assets.

In the ruling, a telephone company removed two old poles. It replaced an old pole on the company's property with a new pole in the same location. It removed the second from private property and replaced it with a new telephone pole in a different location.

The service found that the company incurred the removal costs for the purpose of retiring the old poles, not for installing the new poles. Therefore, the company did not have to capitalize the costs of removal. Instead, it could write off the costs in the year they were incurred and not over the life of the pole.

Businesses that want to change accounting methods for assets, whether located on public or private property, to conform to this ruling must follow the guidelines in revenue procedure 99-49 (1999-52 IRB 725).

--Michael Lynch, CPA, Esq., professor of tax accounting at Bryant College, Smithfield, Rhode Island.