Sale of a fixed asset before the end of the year - tax consequences

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Usually, assets used in the conducted business activity are classified as fixed assets. This allows for the recognition of depreciation write-offs based on their initial value in tax costs. By design, the fixed asset is to be used in business for a longer period of time. However, there may be such situations, when it is necessary to sell a fixed asset within one year from the date of its entry into the records. Below we present a tax analysis of such a situation.

Definition of a fixed asset

The definition of a fixed asset can be found in Art. 22a of the PIT Act. According to this provision, these are owned or jointly owned by the taxpayer, acquired or manufactured on their own, complete and fit for use on the date of acceptance for use:

  • structures, buildings and premises owned separately,
  • machines, devices and means of transport,
  • Other items

- with an expected period of use longer than one year, used by the taxpayer for the purposes related to his business activity or put into use on the basis of a lease, tenancy or similar agreement.

In the above definition, it is crucial to say that fixed assets are things with an expected period of more than one year. This criterion is one of the conditions for recognizing an asset as a fixed asset.

A subjective element in the definition of a fixed asset

It should be noted, however, that the described prediction of using a given item for more than a year is a subjective criterion that depends solely on the taxpayer's planning. Neither the provisions of the PIT Act, nor any other regulations explain how this prediction should proceed. There are also no guidelines or guidelines in this regard. As a result, anticipating the use of a fixed asset for more than a year is completely dependent on the will of the taxpayer and, importantly, such qualification may change.

As a result, a subjective recognition by a taxpayer that a specific asset will be used for more than one year allows for depreciation write-offs of such an asset in accordance with statutory provisions. Pursuant to Art. 22h of the PIT Act, depreciation write-offs are made from the initial value of fixed assets or intangible assets, starting from the first month following the month in which this asset or value was entered into the register (list) until the end of the month in which the sum of depreciation charges is equalized with their initial value or in which they were put into liquidation, disposed of or found to be deficient.

Sale of a fixed asset before the end of the year and tax consequences

First of all, it should be pointed out that the sale of a fixed asset before the end of the year does not cause negative tax consequences for the entrepreneur.

The indicated period of one year is in no way binding in this case. In addition, since it is the taxpayer's responsibility to decide how to use a given item, he may decide to dispose of the fixed asset much earlier. Moreover, also in this respect there is no provision in the Personal Income Tax Act that would prohibit the sale of a fixed asset before the end of one year from the entry into the register of fixed assets.

The above means that regardless of whether the sale of the fixed asset takes place before or after the end of the year, we apply the same taxation rules. In this case, the revenue from the sale will be the price for which the fixed asset will be sold. The cost of obtaining income in this respect will be expenses for the acquisition of a fixed asset, less the sum of depreciation write-offs.

Moreover, it should be emphasized that the sale of the fixed asset before the end of the year does not necessitate the correction of the current depreciation write-offs. Such write-offs were made in accordance with the law and there is no need to correct them.

The above issues are confirmed, among others, by in the individual interpretation of the Director of the Tax Chamber in Bydgoszcz of December 22, 2015, file ref. ITPB1 / 4511-1031 / 15 / PSZ:
"(...) The expected useful life of more than one year is one of the conditions for which the asset is considered a fixed asset. The decision on how long the asset will be used by the taxpayer for business purposes is taxpayer.

The provisions of the Personal Income Tax Act do not indicate which criteria the taxpayer should take into account when predicting the period of use. This assessment may be based on subjective predictions. If you assume that an asset (provided it is complete and serviceable) will be used in business for more than one year, this asset should be considered a fixed asset. Such qualification is not changed by the sale of an asset within one year of its acquisition.

Taking into account the regulations contained in the cited Personal Income Tax Act and the presented future event, it should be stated that the revenues obtained from the sale of the hotel building described in the application constitute for you revenues from the source referred to in Art. 10 sec. 1 point 3 of the Act, i.e. from non-agricultural economic activity. (...) "

To sum up, there are no contraindications for the taxpayer to sell a fixed asset several months after its entry into the fixed assets register. The sale of the fixed asset before the end of the year will not result in the obligation to correct the current depreciation write-offs, as they were made in accordance with the regulations.