Indiana Administrative Code
Title 50 - DEPARTMENT OF LOCAL GOVERNMENT FINANCE
Article 4.2 - ASSESSMENT OF TANGIBLE PERSONAL PROPERTY
Rule 4 - Valuation of Depreciable Tangible Personal Property
Section 4-8 - Adjustment for obsolescence
Current through September 18, 2024
Authority: IC 6-1.1-31-1
Affected: IC 6-1.1-3
Sec. 8.
(a) A taxpayer may claim an adjustment for abnormal obsolescence as defined in 50 IAC 4.2-9-3, on business personal property provided that such taxpayer follows the procedures and meets the requirements regarding an adjustment for abnormal obsolescence contained in 50 IAC 4.2-9. It includes the impairment of desirability and usefulness brought about by new inventions and improved processes for production, or the impairment of functional capacity or efficiency if the inadequacy or overadequacy causes a loss in value and has made the property incapable of continued use for a prolonged period during the assessment year.
(b) No adjustment will be allowed for normal obsolescence as defined in 50 IAC 4.2-9. The table to determine true tax value, as provided in section 7(b) of this rule, automatically makes allowance for this type of obsolescence. The values arrived at as a result of this table reflect the application of the double declining balance depreciation method to the point where straight line depreciation would be more beneficial to the taxpayer. This accelerated depreciation, and use of a short useful life and historical cost reflect any physical, functional, or economic obsolescence except to the extent that these items qualify for abnormal obsolescence as defined.
(c) The term "abnormal obsolescence" will be strictly construed and be limited to a situation where unforeseen changes in market values, exceptional technological obsolescence, or destruction by catastrophe occurs, providing that such events have a direct effect upon the valuation of the depreciable personal property of the taxpayer on a going concern basis at the tax situs in question.
(d) The dollar amount of the adjustment for the depreciable personal property pursuant to this section in no event can exceed the tentative true tax value as computed in section 7 of this rule, for the specific unit or units of depreciable personal property on which the taxpayer claims the adjustment. If the property has been incapable of continued use for a prolonged period during the assessment year, for a reason identified as qualifying for abnormal obsolescence, it will be eligible for an adjustment to be computed as follows:
EXAMPLE 1
Taxpayer ABC has depreciable personal property qualifying for an adjustment for abnormal obsolescence. The cost-to-cure the cause of the abnormal obsolescence is eight hundred thousand dollars ($800,000) and is less than the anticipated benefits to be obtained from the use of the affected asset. The depreciable asset has an adjusted basis of six million five hundred thousand dollars ($6,500,000) and an acquisition date and depreciable life that result in a true tax value factor of twenty percent (20%) (the total true tax value, of all of ABC's depreciable personal property in this taxing district, computed by the application of the prescribed pool percentages is greater than thirty percent (30%) of the total adjusted cost). The taxpayer should compute the abnormal obsolescence adjustment as follows:
| Reported basis of asset qualifying for abnormal obsolescence adjustment | $6,500,000 |
| Prescribed true tax valuation factor | x 20% |
| True tax value of item prior to adjustment for abnormal obsolescence | $1,300,000 |
| Less: cost-to-cure cause of abnormal obsolescence | $800,000 |
| Prescribed true tax valuation factor | x 20% |
| Allowable adjustment for abnormal obsolescence-to Line 61, Schedule A, Form 103 | - $160,000 |
| True tax value of item | $1,140,000 |
In no instance may the adjustment for abnormal obsolescence exceed the true tax value of the affected item prior to such adjustment or result in a true tax value less than the scrap or net realizable value of the affected asset.
EXAMPLE 2
Taxpayer XYZ has depreciable personal property qualifying for an adjustment for abnormal obsolescence. The cost-to-cure the cause of the abnormal obsolescence is four hundred sixty thousand dollars ($460,000) and exceeds the benefits expected from any further use of the affected asset. The depreciable asset has an adjusted basis of two million three hundred thousand dollars ($2,300,000) and an acquisition date and depreciable life that result in a tentative true tax value factor of twelve percent (12%) (the total true tax value, of all of XYZ's depreciable personal property in this taxing district, computed by the application of the prescribed pool percentages is less than thirty percent (30%) of the total adjusted cost). The taxpayer is able to demonstrate that the salvage value of the affected item is seventy-two thousand dollars ($72,000). The taxpayer should compute the adjustment as follows:
| Reported basis of asset qualifying for abnormal obsolescence adjustment | $2,300,000 |
| Prescribed true tax valuation factor | x 30% |
| True tax value of item prior to adjustment for abnormal obsolescence | $690,000 |
| Less: documented net realizable value | - 72,000 |
| Allowable adjustment for abnormal obsolescence | $618,000 |
