§168 — Accelerated cost recovery system
120 cases·38 followed·9 distinguished·1 criticized·2 overruled·70 cited—32% support
Statute Text — 26 U.S.C. §168
Except as otherwise provided in this section, the depreciation deduction provided by section 167(a) for any tangible property shall be determined by using—
the applicable depreciation method,
the applicable recovery period, and
the applicable convention.
For purposes of this section—
Except as provided in paragraphs (2) and (3), the applicable depreciation method is—
the 200 percent declining balance method,
switching to the straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance.
Paragraph (1) shall be applied by substituting “150 percent” for “200 percent” in the case of—
any 15-year or 20-year property not referred to in paragraph (3),
any property (other than property described in paragraph (3)) which is a qualified smart electric meter or qualified smart electric grid system, or
any property (other than property described in paragraph (3)) with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply.
The applicable depreciation method shall be the straight line method in the case of the following property:
Nonresidential real property.
Residential rental property.
Any railroad grading or tunnel bore.
Property with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply.
Property described in subsection (e)(3)(D)(ii).
Water utility property described in subsection (e)(5).
Qualified improvement property described in subsection (e)(6).
Salvage value shall be treated as zero.
An election under paragraph (2)(D) 11 See References in Text note below. or (3)(D) may be made with respect to 1 or more classes of property for any taxable year and once made with respect to any class shall apply to all property in such class placed in service during such taxable year. Such an election, once made, shall be irrevocable.
For purposes of this section, the applicable recovery period shall be determined in accordance with the following table:
| In the case of: | The applicablerecovery periodis: |
|---|---|
| 3-year property | 3 years |
| 5-year property | 5 years |
| 7-year property | 7 years |
| 10-year property | 10 years |
| 15-year property | 15 years |
| 20-year property | 20 years |
| Water utility property | 25 years |
| Residential rental property | 27.5 years |
| Nonresidential real property | 39 years. |
| Any railroad grading or tunnel bore | 50 years. |
For purposes of this section—
Except as otherwise provided in this subsection, the applicable convention is the half-year convention.
In the case of—
nonresidential real property,
residential rental property, and
any railroad grading or tunnel bore,
the applicable convention is the mid-month convention.
Except as provided in regulations, if during any taxable year—
the aggregate bases of property to which this section applies placed in service during the last 3 months of the taxable year, exceed
40 percent of the aggregate bases of property to which this section applies placed in service during such taxable year,
For purposes of subparagraph (A), there shall not be taken into account—
any nonresidential real property, residential rental property, and railroad grading or tunnel bore, and
any other property placed in service and disposed of during the same taxable year.
the applicable convention for all property to which this section applies placed in service during such taxable year shall be the mid-quarter convention.
The half-year convention is a convention which treats all property placed in service during any taxable year (or disposed of during any taxable year) as placed in service (or disposed of) on the mid-point of such taxable year.
The mid-month convention is a convention which treats all property placed in service during any month (or disposed of during any month) as placed in service (or disposed of) on the mid-point of such month.
The mid-quarter convention is a convention which treats all property placed in service during any quarter of a taxable year (or disposed of during any quarter of a taxable year) as placed in service (or disposed of) on the mid-point of such quarter.
For purposes of this section—
Except as otherwise provided in this subsection, property shall be classified under the following table:
| Property shall be treated as: | If such property has a class life (in years) of: |
|---|---|
| 3-year property | 4 or less |
| 5-year property | More than 4 but less than 10 |
| 7-year property | 10 or more but less than 16 |
| 10-year property | 16 or more but less than 20 |
| 15-year property | 20 or more but less than 25 |
| 20-year property | 25 or more. |
The term “residential rental property” means any building or structure if 80 percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units.
For purposes of clause (i)—
the term “dwelling unit” means a house or apartment used to provide living accommodations in a building or structure, but does not include a unit in a hotel, motel, or other establishment more than one-half of the units in which are used on a transient basis, and
if any portion of the building or structure is occupied by the taxpayer, the gross rental income from such building or structure shall include the rental value of the portion so occupied.
The term “nonresidential real property” means section 1250 property which is not—
residential rental property, or
property with a class life of less than 27.5 years.
The term “3-year property” includes—
any race horse—
which is placed in service before
January 1, 2022
, and
which is placed in service after
December 31, 2021
, and which is more than 2 years old at the time such horse is placed in service by such purchaser,
any horse other than a race horse which is more than 12 years old at the time it is placed in service, and
any qualified rent-to-own property.
The term “5-year property” includes—
any automobile or light general purpose truck,
any semi-conductor manufacturing equipment,
any computer-based telephone central office switching equipment,
any qualified technological equipment,
any section 1245 property used in connection with research and experimentation,
any property which—
is described in paragraph (15) of section 48(
l
) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) and has a power production capacity of not greater than 80 megawatts, or
is described in section 48(
l
)(3)(A)(ix) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990),
any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) which is used in a farming business (as defined in section 263A(e)(4)), the original use of which commences with the taxpayer after
December 31, 2017
, and
any qualified facility (as defined in section 45Y(b)(1)(A)), any qualified property (as defined in subsection (b)(2) of section 48E) which is a qualified investment (as defined in subsection (b)(1) of such section), or any energy storage technology (as defined in subsection (c)(2) of such section).
Nothing in any provision of law shall be construed to treat property as not being described in subclause (I) or (II) of clause (vi)
1
by reason of being public utility property.
The term “7-year property” includes—
any railroad track,
any motorsports entertainment complex,
any Alaska natural gas pipeline,
any natural gas gathering line the original use of which commences with the taxpayer after
April 11, 2005
, and
any property which—
does not have a class life, and
is not otherwise classified under paragraph (2) or this paragraph.
The term “10-year property” includes—
any single purpose agricultural or horticultural structure (within the meaning of subsection (i)(13)),
any tree or vine bearing fruit or nuts,
any qualified smart electric meter, and
any qualified smart electric grid system.
The term “15-year property” includes—
any municipal wastewater treatment plant,
any telephone distribution plant and comparable equipment used for 2-way exchange of voice and data communications,
any section 1250 property which is a retail motor fuels outlet (whether or not food or other convenience items are sold at the outlet),
initial clearing and grading land improvements with respect to gas utility property,
any section 1245 property (as defined in section 1245(a)(3)) used in the transmission at 69 or more kilovolts of electricity for sale and the original use of which commences with the taxpayer after
April 11, 2005
,
any natural gas distribution line the original use of which commences with the taxpayer after
April 11, 2005
, and which is placed in service before
January 1, 2011
, and
any qualified improvement property.
The term “20-year property” means initial clearing and grading land improvements with respect to any electric utility transmission and distribution plant.
The term “railroad grading or tunnel bore” means all improvements resulting from excavations (including tunneling), construction of embankments, clearings, diversions of roads and streams, sodding of slopes, and from similar work necessary to provide, construct, reconstruct, alter, protect, improve, replace, or restore a roadbed or right-of-way for railroad track.
The term “water utility property” means property—
which is an integral part of the gathering, treatment, or commercial distribution of water, and which, without regard to this paragraph, would be 20-year property, and
any municipal sewer.
The term “qualified improvement property” means any improvement made by the taxpayer to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service.
Such term shall not include any improvement for which the expenditure is attributable to—
the enlargement of the building,
any elevator or escalator, or
the internal structural framework of the building.
This section shall not apply to—
Any property if—
the taxpayer elects to exclude such property from the application of this section, and
for the 1st taxable year for which a depreciation deduction would be allowable with respect to such property in the hands of the taxpayer, the property is properly depreciated under the unit-of-production method or any method of depreciation not expressed in a term of years (other than the retirement-replacement-betterment method or similar method).
Any public utility property (within the meaning of subsection (i)(10)) if the taxpayer does not use a normalization method of accounting.
Any motion picture film or video tape.
Any works which result from the fixation of a series of musical, spoken, or other sounds, regardless of the nature of the material (such as discs, tapes, or other phonorecordings) in which such sounds are embodied.
Property—
described in paragraph (4) of section 168(e) (as in effect before the amendments made by the Tax Reform Act of 1986), or
which would be described in such paragraph if such paragraph were applied by substituting “1987” for “1981” and “1986” for “1980” each place such terms appear.
Clause (ii) of subparagraph (A) shall not apply to—
any residential rental property or nonresidential real property,
any property if, for the 1st taxable year in which such property is placed in service—
the amount allowable as a deduction under this section (as in effect before the date of the enactment of this paragraph) with respect to such property is greater than,
the amount allowable as a deduction under this section (as in effect on or after such date and using the half-year convention) for such taxable year, or
any property to which this section (as amended by the Tax Reform Act of 1986) applied in the hands of the transferor.
In the case of any property to which this section would apply but for this paragraph, the depreciation deduction under section 167 shall be determined under the provisions of this section as in effect before the amendments made by section 201 of the Tax Reform Act of 1986.
In the case of—
any tangible property which during the taxable year is used predominantly outside the United States,
any tax-exempt use property,
any tax-exempt bond financed property,
any imported property covered by an Executive order under paragraph (6),
any property to which an election under paragraph (7) applies,
any property described in paragraph (8), and
any property with a recovery period of 10 years or more which is held by an electing farming business (as defined in section 163(j)(7)(C)),
the depreciation deduction provided by section 167(a) shall be determined under the alternative depreciation system.
For purposes of paragraph (1), the alternative depreciation system is depreciation determined by using—
the straight line method (without regard to salvage value),
the applicable convention determined under subsection (d), and
a recovery period determined under the following table:
| In the case of: | The recoveryperiodshall be: |
|---|---|
| (i) Property not described in clause (ii) or (iii) | The class life. |
| (ii) Personal property with no class life | 12 years. |
| (iii) Residential rental property | 30 years |
| (iv) Nonresidential real property | 40 years |
| (v) Any railroad grading or tunnel bore or water utility property | 50 years |
In the case of any tax-exempt use property subject to a lease, the recovery period used for purposes of paragraph (2) shall (notwithstanding any other subparagraph of this paragraph) in no event be less than 125 percent of the lease term.
For purposes of paragraph (2), in the case of property described in any of the following subparagraphs of subsection (e)(3), the class life shall be determined as follows:
| If property is described in subparagraph: | The classlife is: |
|---|---|
| (A)(iii) | 4 |
| (B)(ii) | 5 |
| (B)(iii) | 9.5 |
| (B)(vii) | 10 |
| (C)(i) | 10 |
| (C)(iii) | 22 |
| (C)(iv) | 14 |
| (D)(i) | 15 |
| (D)(ii) | 20 |
| (E)(i) | 24 |
| (E)(ii) | 24 |
| (E)(iii) | 20 |
| (E)(iv) | 20 |
| (E)(v) | 30 |
| (E)(vi) | 35 |
| (E)(vii) | 20 |
| (F) | 25 |
In the case of any qualified technological equipment, the recovery period used for purposes of paragraph (2) shall be 5 years.
In the case of any automobile or light general purpose truck, the recovery period used for purposes of paragraph (2) shall be 5 years.
In the case of any section 1245 property which is real property with no class life, the recovery period used for purposes of paragraph (2) shall be 40 years.
Subparagraph (A) of paragraph (1) shall not apply to—
any aircraft which is registered by the Administrator of the Federal Aviation Agency and which is operated to and from the United States or is operated under contract with the United States;
rolling stock which is used within and without the United States and which is—
of a rail carrier subject to part A of subtitle IV of title 49, or
of a United States person (other than a corporation described in clause (i)) but only if the rolling stock is not leased to one or more foreign persons for periods aggregating more than 12 months in any 24-month period;
any vessel documented under the laws of the United States which is operated in the foreign or domestic commerce of the United States;
any motor vehicle of a United States person (as defined in section 7701(a)(30)) which is operated to and from the United States;
any container of a United States person which is used in the transportation of property to and from the United States;
any property (other than a vessel or an aircraft) of a United States person which is used for the purpose of exploring for, developing, removing, or transporting resources from the outer Continental Shelf (within the meaning of section 2 of the Outer Continental Shelf Lands Act, as amended and supplemented; (
43 U.S.C. 1331
));
any property which is owned by a domestic corporation or by a United States citizen (other than a citizen entitled to the benefits of section 931 or 933) and which is used predominantly in a possession of the United States by such a corporation or such a citizen, or by a corporation created or organized in, or under the law of, a possession of the United States;
any communications satellite (as defined in section 103(3) of the Communications Satellite Act of 1962,
47 U.S.C. 702(3)
), or any interest therein, of a United States person;
any cable, or any interest therein, of a domestic corporation engaged in furnishing telephone service to which section 168(i)(10)(C) applies (or of a wholly owned domestic subsidiary of such a corporation), if such cable is part of a submarine cable system which constitutes part of a communication link exclusively between the United States and one or more foreign countries;
any property (other than a vessel or an aircraft) of a United States person which is used in international or territorial waters within the northern portion of the Western Hemisphere for the purpose of exploring for, developing, removing, or transporting resources from ocean waters or deposits under such waters;
any property described in section 48(
l
)(3)(A)(ix) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) which is owned by a United States person and which is used in international or territorial waters to generate energy for use in the United States; and
any satellite (not described in subparagraph (H)) or other spacecraft (or any interest therein) held by a United States person if such satellite or other spacecraft was launched from within the United States.
For purposes of subparagraph (J), the term “northern portion of the Western Hemisphere” means the area lying west of the 30th meridian west of Greenwich, east of the international dateline, and north of the Equator, but not including any foreign country which is a country of South America.
For purposes of this subsection—
Except as otherwise provided in this paragraph, the term “tax-exempt bond financed property” means any property to the extent such property is financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103(a).
For purposes of subparagraph (A), the proceeds of any obligation shall be treated as used to finance property acquired in connection with the issuance of such obligation in the order in which such property is placed in service.
The term “tax-exempt bond financed property” shall not include any qualified residential rental project (within the meaning of section 142(a)(7)).
If the President determines that a foreign country—
maintains nontariff trade restrictions, including variable import fees, which substantially burden United States commerce in a manner inconsistent with provisions of trade agreements, or
engages in discriminatory or other acts (including tolerance of international cartels) or policies unjustifiably restricting United States commerce,
the President may by Executive order provide for the application of paragraph (1)(D) to any article or class of articles manufactured or produced in such foreign country for such period as may be provided by such Executive order. Any period specified in the preceding sentence shall not apply to any property ordered before (or the construction, reconstruction, or erection of which began before) the date of the Executive order unless the President determines an earlier date to be in the public interest and specifies such date in the Executive order.
For purposes of this subsection, the term “imported property” means any property if—
such property was completed outside the United States, or
less than 50 percent of the basis of such property is attributable to value added within the United States.
For purposes of this subparagraph, the term “United States” includes the Commonwealth of Puerto Rico and the possessions of the United States.
If the taxpayer makes an election under this paragraph with respect to any class of property for any taxable year, the alternative depreciation system under this subsection shall apply to all property in such class placed in service during such taxable year. Notwithstanding the preceding sentence, in the case of nonresidential real property or residential rental property, such election may be made separately with respect to each property.
An election under subparagraph (A), once made, shall be irrevocable.
The property described in this paragraph shall consist of any nonresidential real property, residential rental property, and qualified improvement property held by an electing real property trade or business (as defined in 163(j)(7)(B)).
For purposes of this section—
Except as otherwise provided in this subsection, the term “tax-exempt use property” means that portion of any tangible property (other than nonresidential real property) leased to a tax-exempt entity.
In the case of nonresidential real property, the term “tax-exempt use property” means that portion of the property leased to a tax-exempt entity in a disqualified lease.
For purposes of this subparagraph, the term “disqualified lease” means any lease of the property to a tax-exempt entity, but only if—
part or all of the property was financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103(a) and such entity (or a related entity) participated in such financing,
under such lease there is a fixed or determinable price purchase or sale option which involves such entity (or a related entity) or there is the equivalent of such an option,
such lease has a lease term in excess of 20 years, or
such lease occurs after a sale (or other transfer) of the property by, or lease of the property from, such entity (or a related entity) and such property has been used by such entity (or a related entity) before such sale (or other transfer) or lease.
Clause (i) shall apply to any property only if the portion of such property leased to tax-exempt entities in disqualified leases is more than 35 percent of the property.
For purposes of this subparagraph, improvements to a property (other than land) shall not be treated as a separate property.
Subclause (IV) of clause (ii) shall not apply to any property which is leased within 3 months after the date such property is first used by the tax-exempt entity (or a related entity).
Property shall not be treated as tax-exempt use property merely by reason of a short-term lease.
For purposes of clause (i), the term “short-term lease” means any lease the term of which is—
less than 3 years, and
less than the greater of 1 year or 30 percent of the property’s present class life.
In the case of nonresidential real property and property with no present class life, subclause (II) shall not apply.
The term “tax-exempt use property” shall not include any portion of a property if such portion is predominantly used by the tax-exempt entity (directly or through a partnership of which such entity is a partner) in an unrelated trade or business the income of which is subject to tax under section 511. For purposes of subparagraph (B)(iii), any portion of a property so used shall not be treated as leased to a tax-exempt entity in a disqualified lease.
For purposes of this paragraph, the term “nonresidential real property” includes residential rental property.
For purposes of this subsection, the term “tax-exempt entity” means—
the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing,
an organization (other than a cooperative described in section 521) which is exempt from tax imposed by this chapter,
any foreign person or entity, and
any Indian tribal government described in section 7701(a)(40).
For purposes of applying this subsection, any Indian tribal government referred to in clause (iv) shall be treated in the same manner as a State.
Clause (iii) of subparagraph (A) shall not apply with respect to any property if more than 50 percent of the gross income for the taxable year derived by the foreign person or entity from the use of such property is—
subject to tax under this chapter, or
included under section 951 in the gross income of a United States shareholder for the taxable year with or within which ends the taxable year of the controlled foreign corporation in which such income was derived.
For purposes of the preceding sentence, any exclusion or exemption shall not apply for purposes of determining the amount of the gross income so derived, but shall apply for purposes of determining the portion of such gross income subject to tax under this chapter.
For purposes of this paragraph, the term “foreign person or entity” means—
any foreign government, any international organization, or any agency or instrumentality of any of the foregoing, and
any person who is not a United States person.
Such term does not include any foreign partnership or other foreign pass-thru entity.
For purposes of this subsection, a corporation shall not be treated as an instrumentality of the United States or of any State or political subdivision thereof if—
all of the activities of such corporation are subject to tax under this chapter, and
a majority of the board of directors of such corporation is not selected by the United States or any State or political subdivision thereof.
For purposes of this subsection, an organization shall be treated as an organization described in subparagraph (A)(ii) with respect to any property (other than property held by such organization) if such organization was an organization (other than a cooperative described in section 521) exempt from tax imposed by this chapter at any time during the 5-year period ending on the date such property was first used by such organization. The preceding sentence and subparagraph (D)(ii) shall not apply to the Federal Home Loan Mortgage Corporation.
In the case of an organization formerly exempt from tax under section 501(a) as an organization described in section 501(c)(12), clause (i) shall not apply to such organization with respect to any property if such organization elects not to be exempt from tax under section 501(a) during the tax-exempt use period with respect to such property.
For purposes of subclause (I), the term “tax-exempt use period” means the period beginning with the taxable year in which the property described in subclause (I) is first used by the organization and ending with the close of the 15th taxable year following the last taxable year of the applicable recovery period of such property.
Any election under subclause (I), once made, shall be irrevocable.
Any organization which is engaged in activities substantially similar to those engaged in by a predecessor organization shall succeed to the treatment under this subparagraph of such predecessor organization.
For purposes of this subparagraph, property shall be treated as first used by the organization—
when the property is first placed in service under a lease to such organization, or
in the case of property leased to (or held by) a partnership (or other pass-thru entity) in which the organization is a member, the later of when such property is first used by such partnership or pass-thru entity or when such organization is first a member of such partnership or pass-thru entity.
For purposes of this section, the term “tax-exempt use property” shall not include any qualified technological equipment if the lease to the tax-exempt entity has a lease term of 5 years or less. Notwithstanding subsection (i)(3)(A)(i), in determining a lease term for purposes of the preceding sentence, there shall not be taken into account any option of the lessee to renew at the fair market value rent determined at the time of renewal; except that the aggregate period not taken into account by reason of this sentence shall not exceed 24 months.
For purposes of subparagraph (A), the term “qualified technological equipment” shall not include any property leased to a tax-exempt entity if—
part or all of the property was financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103(a),
such lease occurs after a sale (or other transfer) of the property by, or lease of such property from, such entity (or related entity) and such property has been used by such entity (or a related entity) before such sale (or other transfer) or lease, or
such tax-exempt entity is the United States or any agency or instrumentality of the United States.
Subclause (II) of clause (i) shall not apply to any property which is leased within 3 months after the date such property is first used by the tax-exempt entity (or a related entity).
For purposes of this subsection—
Each governmental unit and each agency or instrumentality of a governmental unit is related to each other such unit, agency, or instrumentality which directly or indirectly derives its powers, rights, and duties in whole or in part from the same sovereign authority.
For purposes of clause (i), the United States, each State, and each possession of the United States shall be treated as a separate sovereign authority.
Any entity not described in subparagraph (A)(i) is related to any other entity if the 2 entities have—
significant common purposes and substantial common membership, or
directly or indirectly substantial common direction or control.
An entity is related to another entity if either entity owns (directly or through 1 or more entities) a 50 percent or greater interest in the capital or profits of the other entity.
For purposes of clause (i), entities treated as related under subparagraph (A) or (B) shall be treated as 1 entity.
An entity is related to another entity with respect to a transaction if such transaction is part of an attempt by such entities to avoid the application of this subsection.
For purposes of this subsection—
In the case of any property which is leased to a partnership, the determination of whether any portion of such property is tax-exempt use property shall be made by treating each tax-exempt entity partner’s proportionate share (determined under paragraph (6)(C)) of such property as being leased to such partner.
Rules similar to the rules of subparagraph (A) shall also apply in the case of any pass-thru entity other than a partnership and in the case of tiered partnerships and other entities.
Unless it is otherwise established to the satisfaction of the Secretary, it shall be presumed that the partners of a foreign partnership (and the beneficiaries of any other foreign pass-thru entity) are persons who are not United States persons.
For purposes of this subsection, if—
any property which (but for this subparagraph) is not tax-exempt use property is owned by a partnership which has both a tax-exempt entity and a person who is not a tax-exempt entity as partners, and
any allocation to the tax-exempt entity of partnership items is not a qualified allocation,
an amount equal to such tax-exempt entity’s proportionate share of such property shall (except as provided in paragraph (1)(D)) be treated as tax-exempt use property.
For purposes of subparagraph (A), the term “qualified allocation” means any allocation to a tax-exempt entity which—
is consistent with such entity’s being allocated the same distributive share of each item of income, gain, loss, deduction, credit, and basis and such share remains the same during the entire period the entity is a partner in the partnership, and
has substantial economic effect within the meaning of section 704(b)(2).
For purposes of this subparagraph, items allocated under section 704(c) shall not be taken into account.
For purposes of subparagraph (A), a tax-exempt entity’s proportionate share of any property owned by a partnership shall be determined on the basis of such entity’s share of partnership items of income or gain (excluding gain allocated under section 704(c)), whichever results in the largest proportionate share.
For purposes of clause (i), if a tax-exempt entity’s share of partnership items of income or gain (excluding gain allocated under section 704(c)) may vary during the period such entity is a partner in the partnership, such share shall be the highest share such entity may receive.
For purposes of this subsection, in the case of any property which is owned by a partnership which has both a tax-exempt entity and a person who is not a tax-exempt entity as partners, the determination of whether such property is used in an unrelated trade or business of such an entity shall be made without regard to section 514.
Rules similar to the rules of subparagraphs (A), (B), (C), and (D) shall also apply in the case of any pass-thru entity other than a partnership and in the case of tiered partnerships and other entities.
For purposes of this paragraph and paragraph (5), except as otherwise provided in this subparagraph, any tax-exempt controlled entity shall be treated as a tax-exempt entity.
If a tax-exempt controlled entity makes an election under this clause—
such entity shall not be treated as a tax-exempt entity for purposes of this paragraph and paragraph (5), and
any gain recognized by a tax-exempt entity on any disposition of an interest in such entity (and any dividend or interest received or accrued by a tax-exempt entity from such tax-exempt controlled entity) shall be treated as unrelated business taxable income for purposes of section 511.
The term “tax-exempt controlled entity” means any corporation (which is not a tax-exempt entity determined without regard to this subparagraph and paragraph (2)(E)) if 50 percent or more (in value) of the stock in such corporation is held by 1 or more tax-exempt entities (other than a foreign person or entity).
For purposes of subclause (I), in the case of a corporation the stock of which is publicly traded on an established securities market, stock held by a tax-exempt entity shall not be taken into account unless such entity holds at least 5 percent (in value) of the stock in such corporation. For purposes of this subclause, related entities (within the meaning of paragraph (4)) shall be treated as 1 entity.
For purposes of this clause, a tax-exempt entity shall be treated as holding stock which it holds through application of section 318 (determined without regard to the 50-percent limitation contained in subsection (a)(2)(C) thereof).
Any such election shall be irrevocable and shall bind all tax-exempt entities holding interests in such tax-exempt controlled entity. For purposes of subclause (II), there shall only be taken into account dividends which are properly allocable to income of the tax-exempt controlled entity which was not subject to tax under this chapter.
For purposes of determining whether there is a qualified allocation under subparagraph (B), the regulations prescribed under paragraph (8) for purposes of this paragraph—
shall set forth the proper treatment for partnership guaranteed payments, and
may provide for the exclusion or segregation of items.
For purposes of this subsection, the term “lease” includes any grant of a right to use property.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
For purposes of this section—
Except as provided in this section, the term “class life” means the class life (if any) which would be applicable with respect to any property as of January 1, 1986, under subsection (m) of section 167 (determined without regard to paragraph (4) and as if the taxpayer had made an election under such subsection). The Secretary, through an office established in the Treasury, shall monitor and analyze actual experience with respect to all depreciable assets. The reference in this paragraph to subsection (m) of section 167 shall be treated as a reference to such subsection as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990.
The term “qualified technological equipment” means—
any computer or peripheral equipment,
any high technology telephone station equipment installed on the customer’s premises, and
any high technology medical equipment.
For purposes of this paragraph—
The term “computer or peripheral equipment” means—
any computer, and
any related peripheral equipment.
The term “computer” means a programmable electronically activated device which—
is capable of accepting information, applying prescribed processes to the information, and supplying the results of these processes with or without human intervention, and
consists of a central processing unit containing extensive storage, logic, arithmetic, and control capabilities.
The term “related peripheral equipment” means any auxiliary machine (whether on-line or off-line) which is designed to be placed under the control of the central processing unit of a computer.
The term “computer or peripheral equipment” shall not include—
any equipment which is an integral part of other property which is not a computer,
typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment, and
equipment of a kind used primarily for amusement or entertainment of the user.
For purposes of this paragraph, the term “high technology medical equipment” means any electronic, electromechanical, or computer-based high technology equipment used in the screening, monitoring, observation, diagnosis, or treatment of patients in a laboratory, medical, or hospital environment.
In determining a lease term—
there shall be taken into account options to renew,
the term of a lease shall include the term of any service contract or similar arrangement (whether or not treated as a lease under section 7701(e))—
which is part of the same transaction (or series of related transactions) which includes the lease, and
which is with respect to the property subject to the lease or substantially similar property, and
2 or more successive leases which are part of the same transaction (or a series of related transactions) with respect to the same or substantially similar property shall be treated as 1 lease.
For purposes of clause (i) of subparagraph (A), in the case of nonresidential real property or residential rental property, there shall not be taken into account any option to renew at fair market value, determined at the time of renewal.
Under regulations, a taxpayer may maintain 1 or more general asset accounts for any property to which this section applies. Except as provided in regulations, all proceeds realized on any disposition of property in a general asset account shall be included in income as ordinary income.
The Secretary shall, by regulations, provide for the method of determining the deduction allowable under section 167(a) with respect to any tangible property for any taxable year (and the succeeding taxable years) during which such property changes status under this section but continues to be held by the same person.
In the case of any addition to (or improvement of) any property—
any deduction under subsection (a) for such addition or improvement shall be computed in the same manner as the deduction for such property would be computed if such property had been placed in service at the same time as such addition or improvement, and
the applicable recovery period for such addition or improvement shall begin on the later of—
the date on which such addition (or improvement) is placed in service, or
the date on which the property with respect to which such addition (or improvement) was made is placed in service.
In the case of any property transferred in a transaction described in subparagraph (B), the transferee shall be treated as the transferor for purposes of computing the depreciation deduction determined under this section with respect to so much of the basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor. In any case where this section as in effect before the amendments made by section 201 of the Tax Reform Act of 1986 applied to the property in the hands of the transferor, the reference in the preceding sentence to this section shall be treated as a reference to this section as so in effect.
The transactions described in this subparagraph are—
any transaction described in section 332, 351, 361, 721, or 731, and
any transaction between members of the same affiliated group during any taxable year for which a consolidated return is made by such group.
Under regulations, property which is disposed of and then reacquired by the taxpayer shall be treated for purposes of computing the deduction allowable under subsection (a) as if such property had not been disposed of.
In the case of any building erected (or improvements made) on leased property, if such building or improvement is property to which this section applies, the depreciation deduction shall be determined under the provisions of this section.
An improvement—
which is made by the lessor of leased property for the lessee of such property, and
which is irrevocably disposed of or abandoned by the lessor at the termination of the lease by such lessee,
shall be treated for purposes of determining gain or loss under this title as disposed of by the lessor when so disposed of or abandoned.
For treatment of qualified long-term real property constructed or improved in connection with cash or rent reduction from lessor to lessee, see section 110(b).
In order to use a normalization method of accounting with respect to any public utility property for purposes of subsection (f)(2)—
the taxpayer must, in computing its tax expense for purposes of establishing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account, use a method of depreciation with respect to such property that is the same as, and a depreciation period for such property that is no shorter than, the method and period used to compute its depreciation expense for such purposes; and
if the amount allowable as a deduction under this section with respect to such property (respecting all elections made by the taxpayer under this section) differs from the amount that would be allowable as a deduction under section 167 using the method (including the period, first and last year convention, and salvage value) used to compute regulated tax expense under clause (i), the taxpayer must make adjustments to a reserve to reflect the deferral of taxes resulting from such difference.
One way in which the requirements of subparagraph (A) are not met is if the taxpayer, for ratemaking purposes, uses a procedure or adjustment which is inconsistent with the requirements of subparagraph (A).
The procedures and adjustments which are to be treated as inconsistent for purposes of clause (i) shall include any procedure or adjustment for ratemaking purposes which uses an estimate or projection of the taxpayer’s tax expense, depreciation expense, or reserve for deferred taxes under subparagraph (A)(ii) unless such estimate or projection is also used, for ratemaking purposes, with respect to the other 2 such items and with respect to the rate base.
The Secretary may by regulations prescribe procedures and adjustments (in addition to those specified in clause (ii)) which are to be treated as inconsistent for purposes of clause (i).
In the case of any public utility property to which this section does not apply by reason of subsection (f)(2), the allowance for depreciation under section 167(a) shall be an amount computed using the method and period referred to in subparagraph (A)(i).
The term “public utility property” means property used predominantly in the trade or business of the furnishing or sale of—
electrical energy, water, or sewage disposal services,
gas or steam through a local distribution system,
telephone services, or other communication services if furnished or sold by the Communications Satellite Corporation for purposes authorized by the Communications Satellite Act of 1962 (
47 U.S.C. 701
), or
transportation of gas or steam by pipeline,
if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof.
The term “research and experimentation” has the same meaning as the term research and experimental has under section 174.
The terms “section 1245 property” and “section 1250 property” have the meanings given such terms by sections 1245(a)(3) and 1250(c), respectively.
The term “single purpose agricultural or horticultural structure” means—
a single purpose livestock structure, and
a single purpose horticultural structure.
For purposes of this paragraph—
The term “single purpose livestock structure” means any enclosure or structure specifically designed, constructed, and used—
for housing, raising, and feeding a particular type of livestock and their produce, and
for housing the equipment (including any replacements) necessary for the housing, raising, and feeding referred to in subclause (I).
The term “single purpose horticultural structure” means—
a greenhouse specifically designed, constructed, and used for the commercial production of plants, and
a structure specifically designed, constructed, and used for the commercial production of mushrooms.
An enclosure or structure which provides work space shall be treated as a single purpose agricultural or horticultural structure only if such work space is solely for—
the stocking, caring for, or collecting of livestock or plants (as the case may be) or their produce,
the maintenance of the enclosure or structure, and
the maintenance or replacement of the equipment or stock enclosed or housed therein.
The term “livestock” includes poultry.
The term “qualified rent-to-own property” means property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract.
The term “rent-to-own dealer” means a person that, in the ordinary course of business, regularly enters into rent-to-own contracts with customers for the use of consumer property, if a substantial portion of those contracts terminate and the property is returned to such person before the receipt of all payments required to transfer ownership of the property from such person to the customer.
The term “consumer property” means tangible personal property of a type generally used within the home for personal use.
The term “rent-to-own contract” means any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which—
is titled “Rent-to-Own Agreement” or “Lease Agreement with Ownership Option,” or uses other similar language,
provides for level (or decreasing where no payment is less than 40 percent of the largest payment), regular periodic payments (for a payment period which is a week or month),
provides that legal title to such property remains with the rent-to-own dealer until the customer makes all the payments described in clause (ii) or early purchase payments required under the contract to acquire legal title to the item of property,
provides a beginning date and a maximum period of time for which the contract may be in effect that does not exceed 156 weeks or 36 months from such beginning date (including renewals or options to extend),
provides for payments within the 156-week or 36-month period that, in the aggregate, generally exceed the normal retail price of the consumer property plus interest,
provides for payments under the contract that, in the aggregate, do not exceed $10,000 per item of consumer property,
provides that the customer does not have any legal obligation to make all the payments referred to in clause (ii) set forth under the contract, and that at the end of each payment period the customer may either continue to use the consumer property by making the payment for the next payment period or return such property to the rent-to-own dealer in good working order, in which case the customer does not incur any further obligations under the contract and is not entitled to a return of any payments previously made under the contract, and
provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, encumber, or otherwise dispose of the consumer property until all the payments stated in the contract have been made.
The term “motorsports entertainment complex” means a racing track facility which—
is permanently situated on land, and
during the 36-month period following the first day of the month in which the asset is placed in service, hosts 1 or more racing events for automobiles (of any type), trucks, or motorcycles which are open to the public for the price of admission.
Such term shall include, if owned by the taxpayer who owns the complex and provided for the benefit of patrons of the complex—
ancillary facilities and land improvements in support of the complex’s activities (including parking lots, sidewalks, waterways, bridges, fences, and landscaping),
support facilities (including food and beverage retailing, souvenir vending, and other nonlodging accommodations), and
appurtenances associated with such facilities and related attractions and amusements (including ticket booths, race track surfaces, suites and hospitality facilities, grandstands and viewing structures, props, walls, facilities that support the delivery of entertainment services, other special purpose structures, facades, shop interiors, and buildings).
Such term shall not include any transportation equipment, administrative services assets, warehouses, administrative buildings, hotels, or motels.
Such term shall not include any property placed in service after December 31, 2025.
The term “Alaska natural gas pipeline” means the natural gas pipeline system located in the State of Alaska which—
has a capacity of more than 500,000,000,000 Btu of natural gas per day, and
is—
placed in service after
December 31, 2013
, or
treated as placed in service on
January 1, 2014
, if the taxpayer who places such system in service before
January 1, 2014
, elects such treatment.
Such term includes the pipe, trunk lines, related equipment, and appurtenances used to carry natural gas, but does not include any gas processing plant.
The term “natural gas gathering line” means—
the pipe, equipment, and appurtenances determined to be a gathering line by the Federal Energy Regulatory Commission, and
the pipe, equipment, and appurtenances used to deliver natural gas from the wellhead or a commonpoint to the point at which such gas first reaches—
a gas processing plant,
an interconnection with a transmission pipeline for which a certificate as an interstate transmission pipeline has been issued by the Federal Energy Regulatory Commission,
an interconnection with an intrastate transmission pipeline, or
a direct interconnection with a local distribution company, a gas storage facility, or an industrial consumer.
The term “qualified smart electric meter” means any smart electric meter which—
is placed in service by a taxpayer who is a supplier of electric energy or a provider of electric energy services, and
does not have a class life (determined without regard to subsection (e)) of less than 16 years.
For purposes of subparagraph (A), the term “smart electric meter” means any time-based meter and related communication equipment which is capable of being used by the taxpayer as part of a system that—
measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day,
provides for the exchange of information between supplier or provider and the customer’s electric meter in support of time-based rates or other forms of demand response,
provides data to such supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and
provides net metering.
The term “qualified smart electric grid system” means any smart grid property which—
is used as part of a system for electric distribution grid communications, monitoring, and management placed in service by a taxpayer who is a supplier of electric energy or a provider of electric energy services, and
does not have a class life (determined without regard to subsection (e)) of less than 16 years.
For the purposes of subparagraph (A), the term “smart grid property” means electronics and related equipment that is capable of—
sensing, collecting, and monitoring data of or from all portions of a utility’s electric distribution grid,
providing real-time, two-way communications to monitor or manage such grid, and
providing real time analysis of and event prediction based upon collected data that can be used to improve electric distribution system reliability, quality, and performance.
For purposes of subsection (a), the applicable recovery period for qualified Indian reservation property shall be determined in accordance with the table contained in paragraph (2) in lieu of the table contained in subsection (c).
For purposes of paragraph (1)—
| In the case of: | Theapplicablerecoveryperiod is: |
|---|---|
| 3-year property | 2 years |
| 5-year property | 3 years |
| 7-year property | 4 years |
| 10-year property | 6 years |
| 15-year property | 9 years |
| 20-year property | 12 years |
| Nonresidential real property | 22 years. |
For purposes of determining alternative minimum taxable income under section 55, the deduction under subsection (a) for qualified Indian reservation property shall be determined under this section without regard to any adjustment under section 56.
For purposes of this subsection—
The term “qualified Indian reservation property” means property which is property described in the table in paragraph (2) and which is—
used by the taxpayer predominantly in the active conduct of a trade or business within an Indian reservation,
not used or located outside the Indian reservation on a regular basis,
not acquired (directly or indirectly) by the taxpayer from a person who is related to the taxpayer (within the meaning of section 465(b)(3)(C)), and
not property (or any portion thereof) placed in service for purposes of conducting or housing class I, II, or III gaming (as defined in section 4 of the Indian Regulatory Act (
25 U.S.C. 2703
)).
The term “qualified Indian reservation property” does not include any property to which the alternative depreciation system under subsection (g) applies, determined—
without regard to subsection (g)(7) (relating to election to use alternative depreciation system), and
after the application of section 280F(b) (relating to listed property with limited business use).
Subparagraph (A)(ii) shall not apply to qualified infrastructure property located outside of the Indian reservation if the purpose of such property is to connect with qualified infrastructure property located within the Indian reservation.
For purposes of this subparagraph, the term “qualified infrastructure property” means qualified Indian reservation property (determined without regard to subparagraph (A)(ii)) which—
benefits the tribal infrastructure,
is available to the general public, and
is placed in service in connection with the taxpayer’s active conduct of a trade or business within an Indian reservation.
Such term includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities.
For purposes of this subsection, the rental to others of real property located within an Indian reservation shall be treated as the active conduct of a trade or business within an Indian reservation.
For purposes of this subsection, the term “Indian reservation” means a reservation, as defined in—
section 3(d) of the Indian Financing Act of 1974 (
25 U.S.C. 1452(d)
), or
section 4(10) of the Indian Child Welfare Act of 1978 (
25 U.S.C. 1903(10)
).
For purposes of the preceding sentence, such section 3(d) shall be applied by treating the term “former Indian reservations in Oklahoma” as including only lands which are within the jurisdictional area of an Oklahoma Indian tribe (as determined by the Secretary of the Interior) and are recognized by such Secretary as eligible for trust land status under 25 CFR Part 151 (as in effect on the date of the enactment of this sentence).
Any reference in this subsection to a provision not contained in this title shall be treated for purposes of this subsection as a reference to such provision as in effect on the date of the enactment of this paragraph.
If a taxpayer makes an election under this paragraph with respect to any class of property for any taxable year, paragraph (1) shall not apply to all property in such class placed in service during such taxable year. Such election, once made, shall be irrevocable.
This subsection shall not apply to property placed in service after December 31, 2021.
In the case of any qualified property—
the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to 100 percent of the adjusted basis of the qualified property, and
the adjusted basis of the qualified property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.
For purposes of this subsection—
The term “qualified property” means property—
to which this section applies which has a recovery period of 20 years or less,
which is computer software (as defined in section 167(f)(1)(B)) for which a deduction is allowable under section 167(a) without regard to this subsection,
which is water utility property, or
2
2 So in original. The word “or” probably should not appear.
which is a qualified film or television production (as defined in subsection (d) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (h) of such section or this subsection,
which is a qualified live theatrical production (as defined in subsection (e) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (h) of such section or this subsection, and or
3
3 So in original.
which is a qualified sound recording production (as defined in subsection (f) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (h) of such section or this subsection, and
the original use of which begins with the taxpayer or the acquisition of which by the taxpayer meets the requirements of clause (i) of subparagraph (E).
The term “qualified property” includes any property if such property—
meets the requirements of clauses (i) and (ii) of subparagraph (A),
has a recovery period of at least 10 years or is transportation property,
is subject to section 263A, and
meets the requirements of clause (iii) of section 263A(f)(1)(B) (determined as if such clause also applies to property which has a long useful life (within the meaning of section 263A(f))).
For purposes of this subparagraph, the term “transportation property” means tangible personal property used in the trade or business of transporting persons or property.
This subparagraph shall not apply to any property which is described in subparagraph (C).
The term “qualified property” includes property—
which meets the requirements of subparagraph (A)(ii),
which is an aircraft which is not a transportation property (as defined in subparagraph (B)(ii)) other than for agricultural or firefighting purposes,
which is purchased and on which such purchaser, at the time of the contract for purchase, has made a nonrefundable deposit of the lesser of—
10 percent of the cost, or
$100,000, and
which has—
an estimated production period exceeding 4 months, and
a cost exceeding $200,000.
The term “qualified property” shall not include any property to which the alternative depreciation system under subsection (g) applies, determined—
without regard to paragraph (7) of subsection (g) (relating to election to have system apply), and
after application of section 280F(b) (relating to listed property with limited business use).
An acquisition of property meets the requirements of this clause if—
such property was not used by the taxpayer at any time prior to such acquisition, and
the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of section 179(d).
For purposes of subparagraph (A)(ii), if—
property is used by a lessor of such property and such use is the lessor’s first use of such property,
such property is sold by such lessor or any subsequent purchaser within 3 months after the date such property was originally placed in service (or, in the case of multiple units of property subject to the same lease, within 3 months after the date the final unit is placed in service, so long as the period between the time the first unit is placed in service and the time the last unit is placed in service does not exceed 12 months), and
the user of such property after the last sale during such 3-month period remains the same as when such property was originally placed in service,
such property shall be treated as originally placed in service not earlier than the date of such last sale.
For purposes of section 280F—
In the case of a passenger automobile (as defined in section 280F(d)(5)) which is qualified property, the Secretary shall increase the limitation under section 280F(a)(1)(A)(i) by $8,000.
The deduction allowable under paragraph (1) shall be taken into account in computing any recapture amount under section 280F(b)(2).
In the case of a passenger automobile acquired by the taxpayer before
September 28, 2017
, and placed in service by the taxpayer after
September 27, 2017
, clause (i) shall be applied by substituting for “$8,000”—
in the case of an automobile placed in service during 2018, $6,400, and
in the case of an automobile placed in service during 2019, $4,800.
For purposes of determining alternative minimum taxable income under section 55, the deduction under section 167 for qualified property shall be determined without regard to any adjustment under section 56.
For purposes of subparagraph (A)—
a qualified film or television production shall be considered to be placed in service at the time of initial release or broadcast,
a qualified live theatrical production shall be considered to be placed in service at the time of the initial live staged performance, and
a qualified sound recording production shall be considered to be placed in service at the time of initial release or broadcast.
In the case of any specified plant which is planted or grafted by the taxpayer in the ordinary course of the taxpayer’s farming business (as defined in section 263A(e)(4)) during a taxable year for which the taxpayer has elected the application of this paragraph—
a depreciation deduction equal to 100 percent of the adjusted basis of such specified plant shall be allowed under section 167(a) for the taxable year in which such specified plant is so planted or grafted, and
the adjusted basis of such specified plant shall be reduced by the amount of such deduction.
For purposes of this paragraph, the term “specified plant” means—
any tree or vine which bears fruits or nuts, and
any other plant which will have more than one crop or yield of fruits or nuts and which generally has a pre-productive period of more than 2 years from the time of planting or grafting to the time at which such plant begins bearing a marketable crop or yield of fruits or nuts.
Such term shall not include any property which is planted or grafted outside of the United States.
An election under this paragraph may be revoked only with the consent of the Secretary.
If this paragraph applies to any specified plant, such specified plant shall not be treated as qualified property in the taxable year in which placed in service.
Rules similar to the rules of paragraph (2)(G) shall apply for purposes of this paragraph.
If a taxpayer makes an election under this paragraph with respect to any class of property for any taxable year, paragraphs (1) and (2)(F) shall not apply to any qualified property in such class placed in service during such taxable year. An election under this paragraph may be revoked only with the consent of the Secretary.
The term “qualified property” shall not include—
any property which is primarily used in a trade or business described in clause (iv) of section 163(j)(7)(A), or
any property used in a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section.
In the case of qualified property placed in service by the taxpayer during the first taxable year ending after
January 19, 2025
, if the taxpayer elects to have this paragraph apply for such taxable year, paragraph (1)(A) shall be applied—
in the case of property which is not described in clause (ii), by substituting “40 percent” for “100 percent”, or
in the case of property which is described in subparagraph (B) or (C) of paragraph (2), by substituting “60 percent” for “100 percent”.
In the case of any specified plant planted or grafted by the taxpayer during the first taxable year ending after January 19, 2025, if the taxpayer elects to have this paragraph apply for such taxable year, paragraph (5)(A)(i) shall be applied by substituting “40 percent” for “100 percent”.
Any election under this paragraph shall be made at such time and in such form and manner as the Secretary may prescribe.
In the case of any qualified second generation biofuel plant property—
the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to 50 percent of the adjusted basis of such property, and
the adjusted basis of such property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.
The term “qualified second generation biofuel plant property” means property of a character subject to the allowance for depreciation—
which is used in the United States solely to produce second generation biofuel (as defined in section 40(b)(6)(E)),
the original use of which commences with the taxpayer after the date of the enactment of this subsection,
which is acquired by the taxpayer by purchase (as defined in section 179(d)) after the date of the enactment of this subsection, but only if no written binding contract for the acquisition was in effect on or before the date of the enactment of this subsection, and
which is placed in service by the taxpayer before
January 1, 2021
.
Such term shall not include any property to which subsection (k) applies.
Such term shall not include any property described in subsection (k)(2)(D).
Such term shall not include any property any portion of which is financed with the proceeds of any obligation the interest on which is exempt from tax under section 103.
If a taxpayer makes an election under this subparagraph with respect to any class of property for any taxable year, this subsection shall not apply to all property in such class placed in service during such taxable year.
For purposes of this subsection, rules similar to the rules of subsection (k)(2)(E) shall apply.
For purposes of this subsection, rules similar to the rules of subsection (k)(2)(G) shall apply.
For purposes of this subsection, rules similar to the rules under section 179(d)(10) shall apply with respect to any qualified second generation biofuel plant property which ceases to be qualified second generation biofuel plant property.
Paragraph (1) shall not apply to any qualified second generation biofuel plant property with respect to which an election has been made under section 179C (relating to election to expense certain refineries).
In the case of any qualified reuse and recycling property—
the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to 50 percent of the adjusted basis of the qualified reuse and recycling property, and
the adjusted basis of the qualified reuse and recycling property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.
For purposes of this subsection—
The term “qualified reuse and recycling property” means any reuse and recycling property—
to which this section applies,
which has a useful life of at least 5 years,
the original use of which commences with the taxpayer after
August 31, 2008
, and
which is—
acquired by purchase (as defined in section 179(d)(2)) by the taxpayer after
August 31, 2008
, but only if no written binding contract for the acquisition was in effect before
September 1, 2008
, or
acquired by the taxpayer pursuant to a written binding contract which was entered into after
August 31, 2008
.
The term “qualified reuse and recycling property” shall not include any property to which subsection (k) (determined without regard to paragraph (4) thereof) applies.
The term “qualified reuse and recycling property” shall not include any property to which the alternative depreciation system under subsection (g) applies, determined without regard to paragraph (7) of subsection (g) (relating to election to have system apply).
If a taxpayer makes an election under this clause with respect to any class of property for any taxable year, this subsection shall not apply to all property in such class placed in service during such taxable year.
In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer’s own use, the requirements of clause (iv) of subparagraph (A) shall be treated as met if the taxpayer begins manufacturing, constructing, or producing the property after August 31, 2008.
For purposes of determining alternative minimum taxable income under section 55, the deduction under subsection (a) for qualified reuse and recycling property shall be determined under this section without regard to any adjustment under section 56.
For purposes of this subsection—
The term “reuse and recycling property” means any machinery and equipment (not including buildings or real estate), along with all appurtenances thereto, including software necessary to operate such equipment, which is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials.
Such term does not include rolling stock or other equipment used to transport reuse and recyclable materials.
The term “qualified reuse and recyclable materials” means scrap plastic, scrap glass, scrap textiles, scrap rubber, scrap packaging, recovered fiber, scrap ferrous and nonferrous metals, or electronic scrap generated by an individual or business.
For purposes of clause (i), the term “electronic scrap” means—
any cathode ray tube, flat panel screen, or similar video display device with a screen size greater than 4 inches measured diagonally, or
any central processing unit.
The term “recycling” or “recycle” means that process (including sorting) by which worn or superfluous materials are manufactured or processed into specification grade commodities that are suitable for use as a replacement or substitute for virgin materials in manufacturing tangible consumer and commercial products, including packaging.
In the case of any qualified production property of a taxpayer making an election under this subsection—
the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to 100 percent of the adjusted basis of the qualified production property, and
the adjusted basis of the qualified production property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.
For purposes of this subsection—
The term “qualified production property” means that portion of any nonresidential real property—
to which this section applies,
which is used by the taxpayer as an integral part of a qualified production activity,
which is placed in service in the United States or any possession of the United States,
the original use of which commences with the taxpayer,
the construction of which begins after
January 19, 2025
, and before
January 1, 2029
,
which is designated by the taxpayer in the election made under this subsection, and
which is placed in service before
January 1, 2031
.
For purposes of clause (ii), in the case of property with respect to which the taxpayer is a lessor, property used by a lessee shall not be considered to be used by the taxpayer as part of a qualified production activity.
In the case of property acquired by the taxpayer during the period described in subparagraph (A)(v), the requirements of clauses (iv) and (v) of subparagraph (A) shall be treated as satisfied if—
such property was not used in a qualified production activity (determined without regard to the second sentence of subparagraph (D)) by any person at any time during the period beginning on
January 1, 2021
, and ending on
May 12, 2025
,
such property was not used by the taxpayer at any time prior to such acquisition, and
the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of section 179(d).
For purposes of determining under clause (i)—
whether such property is acquired before the period described in subparagraph (A)(v), such property shall be treated as acquired not later than the date on which the taxpayer enters into a written binding contract for such acquisition, and
whether such property is acquired after such period, such property shall be treated as acquired not earlier than such date.
The term “qualified production property” shall not include that portion of any nonresidential real property which is used for offices, administrative services, lodging, parking, sales activities, research activities, software development or engineering activities, or other functions unrelated to the manufacturing, production, or refining of tangible personal property.
The term “qualified production activity” means the manufacturing, production, or refining of a qualified product. The activities of any taxpayer do not constitute manufacturing, production, or refining of a qualified product unless the activities of such taxpayer result in a substantial transformation of the property comprising the product.
The term “production” shall not include activities other than agricultural production and chemical production.
The term “qualified product” means any tangible personal property if such property is not a food or beverage prepared in the same building as a retail establishment in which such property is sold.
For purposes of subparagraph (A)(iv), rules similar to the rules of subsection (k)(2)(E)(iii) shall apply.
The Secretary may extend the date under subparagraph (A)(vii) with respect to any property that meets the requirements of clauses (i) through (vi) of subparagraph (A) if the Secretary determines that an act of God (as defined in section 101(1) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980) prevents the taxpayer from placing such property in service before such date.
For purposes of determining alternative minimum taxable income under section 55, the deduction under section 167 for qualified production property shall be determined under this section without regard to any adjustment under section 56.
For purposes of subsections (k)(7), (
l
)(3)(D), and (m)(2)(B)(iii)—
qualified production property shall be treated as a separate class of property, and
the taxpayer shall be treated as having made an election under such subsections with respect to such class.
The term “qualified production property” shall not include any property to which the alternative depreciation system under subsection (g) applies. For purposes of subsection (g)(7)(A), qualified production property to which this subsection applies shall be treated as separate nonresidential real property.
If, at any time during the 10-year period beginning on the date that any qualified production property is placed in service by the taxpayer, such property ceases to be used as described in paragraph (2)(A)(ii) and is used by the taxpayer in a productive use not described in paragraph (2)(A)(ii)—
section 1245 shall be applied—
by treating such property as having been disposed of by the taxpayer as of the first time such property is so used in a productive use not described in paragraph (2)(A)(ii), and
by treating the amount described in subparagraph (B) of section 1245(a)(1) with respect to such disposition as being not less than the amount described in subparagraph (A) of such section, and
the basis of the taxpayer in such property, and the taxpayer’s allowance for depreciation with respect to such property, shall be appropriately adjusted to take into account amounts recognized by reason of subparagraph (A).
An election under this subsection for any taxable year shall—
specify the nonresidential real property subject to the election and the portion of such property designated under paragraph (2)(A)(vi), and
except as otherwise provided by the Secretary, be made on the taxpayer’s return of the tax imposed by this chapter for the taxable year.
Such election shall be made in such manner as the Secretary may prescribe by regulations or other guidance.
Any election made under this subsection, and any specification contained in any such election, may not be revoked except with the consent of the Secretary (and the Secretary shall provide such consent only in extraordinary circumstances).
The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance—
providing rules for regarding what constitutes substantial transformation of property which are consistent with guidance provided under section 954(d), and
providing for the application of paragraph (5) with respect to a change in use described in such paragraph by a transferee following a fully or partially tax free transfer of qualified production property.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.168-5 Special rules
- Treas. Reg. §Treas. Reg. §1.168-5(a) Retirement-replacement-betterment (RRB) property—(1) RRB replacement property placed in service before January 1, 1985.
- Treas. Reg. §Treas. Reg. §1.168-5(b) §1.168-5(b)
- Treas. Reg. §Treas. Reg. §1.168-5(i) The replacement is made pursuant to a scheduled program for replacement.
120 Citing Cases
The fact that petitioners could have performed the same work with other tractors, as respondent argues, is inapposite to the question of deductibility, provided that the requirements of sections 167 and 168 are satisfied.
Section 179 property includes tangible property to which section 168 applies.
Section 179 property includes tangible property to which section 168 applies.
The businesses computed their depreciation included in COGS for 2012 using the accelerated cost recovery method detailed in section 168(a); they also claimed bonus depreciation for 2012 pursuant to section 168(k).
Section 179 property includes section 1245 property which is acquired by purchase for use in the active conduct ofa trade or business that is either (1) tangible propertyto which section 168 applies or (2) computer software.
Qualified business property must be: (1) tangible property to which section 168 applies; (2) section 1245 property; and (3) property "acquired by purchase for use in the active con- - 21 - [*21] duct ofa trade or business." Sec.
Section 179 property includes section 1245 property which is acquired by purchase for use in the active conduct ofa trade or business that is either (1) tangible property to which section 168 applies or (2) computer software.
Section 179 property includes section 1245 property which is acquired by purchase for use in the active conduct ofa trade or business that is either (1) tangible property to which section 168 applies or (2) computer software.
Section 168 provides that except as otherwise provided therein, the depreciation deduction authorized by section 167(a) ' for any tangible property shall be determined by using (1) the applicable depreciation method, (2) the applicable recovery period, and (3) the applicable convention.
Pursuant to section 168(a), taxpayers determine the depreciation deduction by using the applicable depreciation method, applicable convention, and the applicable recovery" period .
Pursuant to section 168(c) and (e), the recovery period for property is based upon (but, generally, is shorter than) its “class life”.
Section 179 property is tangible property to which section 168 applies and which is section 1245 property.7 Sec.
___ (1997), we hold today that the software loads in issue constitute tangible personal property for purposes of the investment tax credit (ITC) and tangible property for purposes of the accelerated cost recovery system (ACRS).
ting buildings or making permanent improvements on property of which he is the lessee is a capital investment, and is not deductible as a business expense. * * * [Emphasis added.] The balance of this provision has been superseded by the enactment of sec. 168, in particular, sec. 168(i)(8)(A). However, the statutory language does not affect the continued validity of that part of the regulation set forth in this note. For an example of this continued validity, see Nelson v. Commissioner, T.C. Memo
The "useful life" exception is expressly made inapplicable ifa taxpayer is changing to or from "a recovery period * * * that is - 18 - [*18] specifically assigned by the Internal Revenue Code (for example, * * * section 168(c) * * *)." M The 5-year, 27.5-year, and 39-year recovery periods at issue with respect to the condo unit are specifically assigned by section 168(c). An example to the regulations confirms that reallocations ofbasis to MACRS classes with different recovery periods are chang
ion 168(k) for 2002 For 2002 Weekend Warrior claimed a special depreciation deduction of $160,000 under section 168(k) with respect to the airplane. Respondent contends that Weekend Warrior was not eligible for a special depreciation deduction under section 168 (k). - 61 - As discussed above, Weekend Warrior is not entitled to the disputed depreciation deduction because it did not satisfy the substantiation requirements of section 274(d). However, even if Weekend Warrior had met the section 274(
ion 168(k) for 2002 For 2002 Weekend Warrior claimed a special depreciation deduction of $160,000 under section 168(k) with respect to the airplane. Respondent contends that Weekend Warrior was not eligible for a special depreciation deduction under section 168 (k). - 61 - As discussed above, Weekend Warrior is not entitled to the disputed depreciation deduction because it did not satisfy the substantiation requirements of section 274(d). However, even if Weekend Warrior had met the section 274(
itioner's cash expenditures for purposes of reconstructing her income, the parties stipulated that petitioner spent $5,893 on property improvements to the house, and that therefore petitioner is entitled to an additional depreciation deduction under section 168. We do not agree with petitioner. Respondent allowed petitioner a 1993 depreciation deduction for the house that is $618 greater than what she claimed on Schedule E. Although the record does not disclose how this increase was computed in
nd wear and tear ofproperty used in a trade or business or for the production ofincome. To determine the annual depreciation deduction for the property, taxpayers are required to use the modified accelerated cost recovery system (MACRS) outlined in section 168. See Tax Reform Act of 1986, Pub. L. No. 99-514, secs. 201, 203, 100 Stat. at 2121, 2143. MACRS dictates the applicable depreciation method, recovery period, and convention to use in calculating a depreciation deduction. Sec. 168(a). For r
riod that S must use to calculate its annual depreciation deduction for the wireless cellular assets. Wireless cellular assets include antenna support structures, cell site equipment and leased digital equipment. Held: We apply the plain language of sec. 168, I.R.C., in interpreting classification issues of first impression. The plain language of Rev. Proc. 87-56, 1987-2 C.B. 674, the revenue procedure in effect for the years at issue, is unambiguous as it applies to S's wireless cellular assets
In 1981 Congress added section 168, entitled "Accelerated Cost RecoveNy Sy(cid:0)541tem"(ACRS), which simplified the rules and allowed taxpayefs to take greater depreciation deductions over fewei years.
In the case of tangible property, the rules of section 168 will determine the proper depreciation deduction.
Thus, under section 168 petitioner is entitled to a depreciation deduction of $1,373 for each taxable year in issue.
Section 167(b) references section 168 for determination of the depreciation deduction in the case of property to which section 168 applies.
onal $10,000 “first-year depreciation” pursuant to section 179. Respondent concedes that petitioner is entitled to a 1991 depreciation deduction of $32,153 with respect to the King Air, based on a 7-year class life and the half-year convention under section 168. Section 167(a)(1) allows as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear of property used in a trade or business. Depreciation on tangible - 19 - assets placed in service after December 31, 1980 (as t
he early 1990’s, P constructed, placed into service, and began depreciating gas station properties. P, an accrual method taxpayer, calculated its depreciation deductions for tax purposes using the modified accelerated cost recovery system (MACRS) of sec. 168, I.R.C. On its returns for the years ended in 1993, 1994, and 1995, P classified and depreciated the gas stations as nonresidential real property, with a 31.5- or 39-year recovery period. Subsequently, P filed amended returns for those years
In the late 1980's, after - 12 - the enactment of section 168, the IRS continued to follow its initial revenue ruling and extended the income forecast method to videocassettes.
For purposes of section 168, the applicable recovery period in the case of 3-year property is 3 years, and the applicable recovery period in the case of 5-year property is 5 years.
Under section 168, depreciation for an agricultural or horticultural structure is calculated using a 10-year recovery period. Sec. 168(e)(3)(D)(i). Under the straight-line method, the cost or other basis of the property less its estimated salvage value is deductible in equal annual amounts over the period of the estimated useful life of the property. Sec
Respondent's position is that the cost of the computer is generally not deductible because it is subject to the section 168 depreciation rules.
is entitled to additional recovery deductions pursuant to section 168, which were not included in the notice of deficiency.
roperties therefore must be depreciated over the same recovery periods as those buildings. Held: For purposes of assigning appropriate recovery classes or recovery periods to the properties to determine allowable depreciation deductions pursuant to sec. 168, I.R.C., tests developed under prior law for purposes of the investment tax credit are applicable to decide whether the property constitutes tangible personal property. - 2 - Held further: The prohibition contained in sec. 168, I.R.C., agains
Section 168, in relevant part, provides: SEC. 168. ACCELERATED COST RECOVERY SYSTEM. (a) Allowance of Deduction. — There shall be allowed as a deduction for any taxable year the amount determined under this section with respect to recovery property. í¡í i|i # ‡ ^ (c) Recovery Property. — For purposes of this title— (1) Recovery property defined. —
establish that respondent's depreciation calculations based on a shorter recovery period were incorrect, taxpayer did not overcome the presumption of correctness of those adjustments); Barron v. Commissioner, T.C. Memo. 1992-598 (where the record 5 Sec. 168 as amended by the Tax Reform Act of 1986, Pub. L. 99-514, sec. 201, 100 Stat. 2085, 2121, for property placed in service after Dec. 31, 1986, and in taxable years ending thereafter. - 25 - contained no evidence that a shorter recovery period
Also, they do not dispute any aspect of applying section 168 to the exotic automobiles if we conclude that section 168 is applicable to the exotic automobiles.
With respect to the section 1250 leasehold improvements placed in service on or after January 1, 1981, petitioner claimed depreciation deductions under section 168, the accelerated cost recovery system (ACRS), using a useful life of 10 years pursuant to section 168(c)(2)(C)(ii).
The building is eligible for the modified accelerated cost recovery system (MACRS) of section 168 (as amended in 8 Sec.
798, 876. 16 See International Organizations Immunities Act of 1945, ch. 652, § 203, 59 Stat. 669, 673 (excluding Saturdays as the 90th day). 17 See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 3463, 112 Stat. 685, 767. 19 D. Section 7459(d) confirms the jurisdictional nature of the 90-day d
For example, section 168 makes clear that the amount of allowable depreciation is determined for each taxable year and is therefore a deduction for an item incurred during that year.
For example, section 168 makes clear that the amount of allowable depreciation is determined for each taxable year and is therefore a deduction for an item incurred during that year.
For example, section 168 makes clear that the amount of allowable depreciation is determined for each taxable year and is therefore a deduction for an item incurred during that year.
nd wear and tear ofproperty used in a trade or business or for the production ofincome. To determine the annual depreciation deduction for the property, taxpayers are required to use the modified accelerated cost recovery system (MACRS) outlined in section 168. See Tax Reform Act of 1986, Pub. L. No. 99-514, secs. 201, 203, 100 Stat. at 2121, 2143. MACRS dictates the applicable depreciation method, recovery period, and convention to use in calculating a depreciation deduction. Sec. 168(a). For r
iness (including the trade or business ofbeing an employee, see Rutledge v. Commissioner, T.C. Memo. 1993-613, 66 T.C.M. (CCH) 1696, 1697 (l993)). For tangible property, the amount ofthe deduction under section 167(a) is determined using the rules ofsection 168. See sec. 167(b). These rules set forth the applicable depreciation method, the applicable recovery period, and the applicable convention. Sec. 168(a). To be entitled to a depreciation deduction, the taxpayer must establish the property's
The authority for deducting an allowance for depreciation is section 168, and therefore it is not treated as trade or business expense.
r of property used in a trade or business or held for the production ofincome." To determine the annual wear and tear oftangible property, the Code generally requires taxpayers to use the modified accelerated cost recovery system (MACRS) outlined in section 168. Under section 168(k)(1)(A), the depreciation deduction provided by section 167 includes a special allowance for qualified property "for the taxable year in which such property is placed in service". The special allowance is a percentage
The authority for deducting an allowance for depreciation is section 168, and therefore it is not treated as trade or business expense.
section 162(a). Section 167(a) provides a depreciation deduction for a reasonable allowance for wear and tear, and for obsolescence, ofproperty. For tangible property, the amount ofthe deduction under section 167(a) is determined using the rules of section 168. These rules set forth the applicable depreciation method, the applicable recovery period, and the applicable convention. Sec. 168(a). Prior versions ofthe Internal Revenue Code had been interpreted to preclude a depreciation deduction for
According to respondent, petitioner is - 97 - not entitled to depreciation deductions under section 168, interest deductions under section 467, or transaction cost deductions under section 162.
According to respondent, petitioner is - 97 - not entitled to depreciation deductions under section 168, interest deductions under section 467, or transaction cost deductions under section 162.
To substantiate entitlementto a depreciation deduction under the modified accelerated cost recovery system (MACRS) ofsection 168, a taxpayer must show that the property was used in a trade or business and establish its depreciable basis.
used in a trade or business, sec. 167(a). This allows taxes to more closely reflect economic profit. To determine the annual wear-and-tear, the Code generally requires taxpayers to use the modified accelerated cost recovery system (MACRS) set up in section 168. Enacted as part ofthe Economic Recovery Tax Act of 1981, Pub. L. No. 97- 34, sec. 201(a), 95 Stat. At 203--and substantially amended by the Tax Reform Act - 22 - [*22] of 1986, Pub. L. No. 99-514, secs. 201, 203, 100 Stat. at 2121, 2143 (
Section 168 pròvides the general rule that the depreciation deduction authorized by section 167(a) for any tangible property shall be determined by using (1) the applicable depreciation method, (2) the applicable recovery period, and (3) the applicable convention. There is no evidence in the record ofan expenditure in respect ofa depreciable asset
Qualifying section 179 property includes tañgible property that is depreciable under section 168 and:is described in section 1245(a)(3), but only ifthe property is acquired for use in the "active conduct,0fa trade or business." Sec.
The failure to satisfy both steps requires a finding that the aircraft was not predominantly used in a qualified business and therefore that the allowable depreciation deduction under section 168 is determined under the alternative depreciation system ofsection 168(g).
used in a trade or business, sec. 167(a). This allows taxes to more closely reflect economic profit. To determine the annual wear-and-tear, the Code generally requires taxpayers to use the modified accelerated cost recovery system (MACRS) set up in section 168. Enacted as part ofthe Economic Recovery Tax Act of 1981, Pub. L. No. 97- 34, sec. 201(a), 95 Stat. At 203--and substantially amended by the Tax Reform Act - 22 - [*22] of 1986, Pub. L. No. 99-514, secs. 201, 203, 100 Stat. at 2121, 2143 (
used in a trade or business, sec. 167(a). This allows taxes to more closely reflect economic profit. To determine the annual wear-and-tear, the Code generally requires taxpayers to use the modified accelerated cost recovery system (MACRS) set up in section 168. Enacted as part ofthe Economic Recovery Tax Act of 1981, Pub. L. No. 97- 34, sec. 201(a), 95 Stat. At 203--and substantially amended by the Tax Reform Act - 22 - [*22] of 1986, Pub. L. No. 99-514, secs. 201, 203, 100 Stat. at 2121, 2143 (
e the "basis" ofan asset (usuallyits cost, at least initially), see secs. 1011, 1012, 1016, as well as the asset's "class life"--a range ofyears reflecting the anticipateduseful life ofthat type ofpropertyto a particular industry or other group, see sec. 168. Then the method ofdepreciation determines the amount he can deduct ea h year. For proþertyplaced into service after 1986 (and all property in this case), the Code gene ally requires the use ofthe Modified Accelerated Cost Recovery System.(M
Qualifying section 179 property includes tangible property that is depreciable under.section 168 and is described - 8 - in section 1245(a) (3) and computer software that is depreciable under section 167 and described in section 1245(a) (3), but only if the property is acquired for use in the "active conduct of a trade or business." Sec.
274(d) (4) (disallowing unsubstantiated deductions for listed property as defined in section 280F(d) (4)); sec.
Depreciation of Mustang Section 168 (k) (4) provides -for ian additional depreciatio n deduction (bonus depreciation) `of 50 percent of =the adjusted,,' basis of qualified property.' Qualified property is defined as property that meets the following requirements : (1) -The property was MACRS property with j'an applicable recovery per-iod of~ 20 year s or less, unless it w
Neither section 168 nor the regulations thereunder define additions to, or improvements of, property .
divided it by 39 years--the recovery 2 ;Unless otherwise noted, all section references are to the Internal Revenue Code; all Rule references are to the Tax Court Rules of Practice and "Procedure. - 9 - period for nonresidential real property under section 168. From that calculation he concluded that the depreciation allowed per year under a straight-line method was $5,128. He then multiplied $5,128 by the number of years the Daouds owned the Irvine franchise, coming to $38,848. Because $38,848
280F(b) provides that if listed property is not used predominantly in a qualified business use, then the depreciation deduction for the property is determined under sec .
1995), suggesting that in Simon the Court interpreted the phrase property "of a character subject to the allowance for depreciation" (in the context of section 168) to mean property of a type which is subject to wear and tear, exhaustion, or obsolescence .
We therefore conclude that the legal fees allocated to fixed assets are amortizable over seven years under section 168 and thos e attributable to goodwill are amortizable over 15 years under section 197 .
, Tax Regs . In addition, the deduction allowable under section 179(a) with respect to any listed property is subject to the limitations of section 28OF (a),' (b) I and (d) ( 3) in the same manner as if it were a recovery deduction allowable under section 168 . Sec . 280F ( d)(1) ; sec .(cid:127) 1 .280F- 2T(b), Temporary . Income Tax Regs . , 49 Fed . Reg . 42701 ( Oct . 24, 1984) . The term "listed property" is defined to include passenger automobiles and any other property used as a means of
1995), suggesting that in Simon the Court interpreted the phrase property “of a character subject to the allowance for depreciation” (in the context of section 168) to mean property of a type which is subject to wear and tear, exhaustion, or obsolescence.
If the property was 18-year property, a taxpayer could elect to depreciate the property over a period of 18, 35, or 45 years using the straight-line method under section -14- 168(b)(3) or over 18 years using a 175-percent declining balance method under section 168 (b) (2) .
The recovery period is based on the “class life” of the property. Sec. 168(c), (e). There is no question in this case about whether the subject assets are depreciable. For purposes of this case, “class life” is the asset guideline class in which such property is classified under Rev. Proc. 83-35, 1983-1 C.B. 745, and restated in Rev. Proc
The recovery period is based on the “class life” of the property. Sec. 168(c), (e). There is no question in this case about whether the subject assets are depreciable. For purposes of this case, “class life” is the asset guideline class in which such property is classified under Rev. Proc. 83-35, 1983-1 C.B. 745, and restated in Rev. Proc
he office furniture was a small fraction of the value of the assets he leased to the law firm. - 7 - Petitioner generally took depreciation deductions on the equipment he leased the law firm using the modified accelerated cost recovery system under section 168. Respondent denied the deductions only in 1998 and 1999, years in which petitioner experienced losses. Respondent argued that the leasing activity losses were passive and not deductible without passive income. Respondent later asserted, in
Section 168 describes a specific depreciation system for tangible property. As part of the Tax Reform Act of 1986, Pub. L. 99-514, secs. 201, 203, 100 Stat. 2122, 2143, Congress replaced the accelerated cost recovery system with MACRS, effective generally for property placed in service after December 31, 1986, and section 168 was amended accordingl
Section 168 establishes the appropriate depreciation method, recovery period, and convention for tangible property. (The depreciation deduction allows a taxpayer to recover the cost of the property used in a trade or business or for the production of income. United States v. Ludey, 274 U.S. 295, 300-301 (1927); Durkin v. Commissioner, 872 F.2d 1271
ot in the business of selling goods, but rather is in the business of renting assets, the assets, the Cost of Goods Sold will be adjusted to reflect this. The cost of acquiring the rental assets will be capitalized and depreciated in accordance with Section 168. The basis of goods sold or disposed of will be currently deductible. Any period costs will also be allowed as a current deduction. * * * * * * * In order to determine the amount of assets that were 3 year assets (Garments) from assets wh
ot in the business of selling goods, but rather is in the business of renting assets, the assets, the Cost of Goods Sold will be adjusted to reflect this. The cost of acquiring the rental assets will be capitalized and depreciated in accordance with Section 168. The basis of goods sold or disposed of will be currently deductible. Any period costs will also be allowed as a current deduction. * * * * * * * In order to determine the amount of assets that were 3 year assets (Garments) from assets wh
ction 1277. Compare TRA 1986 sec. 1271(a) (“such possession”), sec. 1271(b) (“such possession”), sec. 1272(a) (“specified possession”), and sec. 1277(b) (“such possession”), with, e.g., TRA 1986 sec. 201(a), 100 Stat. 2121, 2127, 2131, amending Code sec. 168 (Code sec. 168(g)(6)(B): “For purposes of this subparagraph, the term ‘United States’ includes the Commonwealth of Puerto Rico and the possessions of the United States” (emphasis added), and Code sec. 168(h)(4)(A)(ii): “For purposes of claus
ction 1277. Compare TRA 1986 sec. 1271(a) (“such possession”), sec. 1271(b) (“such possession”), sec. 1272(a) (“specified possession”), and sec. 1277(b) (“such possession”), with, e.g., TRA 1986 sec. 201(a), 100 Stat. 2121, 2127, 2131, amending Code sec. 168 (Code sec. 168(g)(6)(B): “For purposes of this subparagraph, the term ‘United States’ includes the Commonwealth of Puerto Rico and the possessions of the United States” (emphasis added), and Code sec. 168(h)(4)(A)(ii): “For purposes of claus
f the facilities. This election caused the salvage value of each ADR vintage account to be reduced to zero. For 1981 and 1982, the PBU depreciated assets - 23 - placed in service in 1981 and 1982 under the Accelerated Cost Recovery System (ACRS) of section 168. Exxon’s Financial Reporting Relating to Estimated Prudhoe Bay DRR Costs In 1977, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 19, “Financial Accounting and Reporting by Oil and Gas
basis of the facilities. This election caused the salvage value of each ADR vintage account to be reduced to zero. For 1981 and 1982, the PBU depreciated assets placed in service in 1981 and 1982 under the accelerated cost recovery system (ACRS) of section 168. Exxon’s Financial Reporting Relating to Estimated Prudhoe Bay DRR Costs In 1977, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 19, “Financial Accounting and Reporting by Oil and Ga
- 14 - deduction of $1,829 for travel expenses. Petitioner provided no evidence at the trial; he was given additional time after the trial to provide documentary evidence and he failed to do so. Respondent's determination on this issue is sustained in full. 7. Meals and Entertainment Expenses of $942, Less the 20 Percent Limitation ($188
preciation purposes. The Court has made a finding that the Florida condo constitutes residential rental property. Therefore, the applicable depreciation method, recovery period, and convention shall be determined in accordance with the finding under sec. 168. - 20 - confused about the nature and extent of his legal activities in 1991. Petitioner occasionally appeared in court in connection with his rental real estate activity, as well as with respect to rental houses owned by his children (which
roperties therefore must be depreciated over the same recovery periods as those buildings. Held: For purposes of assigning appropriate recovery classes or recovery periods to the properties to determine allowable depreciation deductions pursuant to sec. 168, I.R.C., tests developed under prior law for purposes of the investment tax credit are applicable to decide whether the property constitutes tangible personal property. - 2 - Held further: The prohibition contained in sec. 168, I.R.C., agains
Section 168, added to the Internal Revenue Code (Code) by the Economic Recovery Tax Act of 1981 (ERTA), Pub. L. 97-34, 95 Stat. 172, describes a specific depreciation system, entitled “Accelerated Cost Recovery System” (ACRS), applicable generally for tangible, depreciable property placed in service after December 31, 1980. ERTA secs. 201(a), 209(a
The term "section 38 property" "includes only recovery property (within the meaning of section 168 * * *) and any other property with respect to which depreciation * * * is allowable and having a useful life * * * of 3 years or more." Sec.
Under section 168, the depreciation allowed under section 167(a), with respect to property placed in service after 1986, is generally referred to as the "modified accelerated cost recovery system" (MACRS), which was introduced into law by the Tax Reform Act of 1986, Pub. L. 99-514, sec. 201(a), 100 Stat. 2085, 2121-2137. Under section 1.167(g)-1, Income