When is the “substantial improvement” test for non-original use property not done on an asset-by-asset basis?
Under the final regulations, there's a framework for an aggregate approach. This works best for hotel projects and new construction on large parcels with existing buildings. In the aggregate approach, the property can be aggregated roughly if it forms a logical whole with other properties.
There are options for taxpayers allowed in the regulations to select either an aggregation approach or to aggregate certain properties together in that determination.
The final regulations provide for the substantial improvement to be done on an aggregate basis.
The final regulations allow for aggregation in this arena if certain factors are met. This includes proximity and interrelation between the assets.
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