26 U.S.C. § 167: Depreciation

§ 1.167(l)-1 Limitations on reasonable allowance in case of property of certain public utilities.§ 1.167(l)-2 Public utility property; election as to post-1969 property representing growth in capacity.§ 1.167(l)-3 Multiple regulation, asset acquisitions, reorganizations, etc.§ 1.167(l)-4 Public utility property; election to use asset depreciation range system.§ 1.167(m)-1 Class lives.Prop. § 1.167(n)-0 Proposed 2002 · Outline of regulation sections for section 167(g).Prop. § 1.167(n)-1 Proposed 2002 · Income forecast method.Prop. § 1.167(n)-2 Proposed 2002 · Basis.Prop. § 1.167(n)-3 Proposed 2002 · Income from the property.Prop. § 1.167(n)-4 Proposed 2002 · Computation of depreciation using the income forecast method.Prop. § 1.167(n)-5 Proposed 2002 · Property for which the income forecast method may be used.Prop. § 1.167(n)-6 Proposed 2002 · Look-back method.Prop. § 1.167(n)-7 Proposed 2002 · Effective date.

Amended 1966, 1969, 1971, 1975, 1976, 1977, 1978, 1980, 1981, 1983, 1984, 1986, 1988, 1989, 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), struck out subsec. (j) which related to special rules for section 1250 property including residential rental property and change in method of depreciation.
1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), struck out subsec. (k) which related to depreciation of expenditures to rehabilitate low-income rental housing.
1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), struck out subsec. (l) which related to reasonable allowance in case of property of certain utilities, pre-1970 public utility property and post-1969 public utility property.
1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), struck out subsec. (m) which related to class lives.
1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), struck out subsec. (p) which related to straight line method for boilers fueled by oil or gas.
1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), struck out subsec. (q) which related to retirement or replacement of certain boilers, etc., fueled by oil or gas.
1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), redesignated subsecs. (r) and (s) as (e) and (f), respectively.
1989 Pub. L. 101-239 Pub. L. 101–239, § 7645(a), added subsec. (r).
1989 Pub. L. 101-239 Pub. L. 101–239, § 7622(b)(1) [(d)(1)], repealed subsec. (r) which provided that trademark or trade name expenditures were not depreciable.
1988 Pub. L. 100-647 Pub. L. 100–647, § 1002(a)(22), substituted “section 168(i)(9)(B)” for “section 168(e)(3)(C)” in last sentence.
1988 Pub. L. 100-647 Pub. L. 100–647, § 1002(i)(1), added subsec. (r) and redesignated former subsec. (r) as (s).
1986 Pub. L. 99-514 Pub. L. 99–514, § 201(d)(1), amended par. (4) generally. Prior to amendment, par. (4) read as follows: “This subsection shall not apply with respect to recovery property (within the meaning of section 168) placed in service after December 31, 1980.”
1986 Pub. L. 99-514 Pub. L. 99–514, § 1511(c)(4), substituted “at the underpayment rate established under section 6621” for “at the rate determined under section 6621”.
1984 Pub. L. 98-369 Pub. L. 98–369 substituted “January 1, 1987” for “January 1, 1984” wherever appearing.
1983 Pub. L. 97-424 Pub. L. 97–424 inserted provision that, for the purposes of this paragraph, rules similar to the rules of section 168(e)(3)(C) of this title shall apply.
1981 Pub. L. 97-34 Pub. L. 97–34, § 264(a), substituted “Except as provided in subparagraph (B), the aggregate amount” for “The aggregate amount” in subpar. (A), added subpar. (B), and redesignated former subpar. (B) as (C).
1981 Pub. L. 97-34 Pub. L. 97–34, § 209(d)(3), inserted “and which is placed in service before January 1, 1981” after “pre-1970 public utility property”.
1981 Pub. L. 97-34 Pub. L. 97–34, § 203(b), added par. (4).
1981 Pub. L. 97-34 Pub. L. 97–34, § 212(d)(1), struck out subsec. (n) which dealt with the use of the straight line method of depreciation in certain cases, and subsec. (o) which dealt with the method of depreciation to be used in the case of substantially rehabilitated historic property.
1981 Pub. L. 97-34 Pub. L. 97–34, § 203(c)(1), redesignated subsec. (s) as (r). Former subsec. (r), relating to the retirement-replacement-betterment method of calculating depreciation, was struck out.
1981 Pub. L. 97-34 Pub. L. 97–34, § 203(c)(1), redesignated subsec. (s) as (r).
1980 Pub. L. 96-541 Pub. L. 96–541, § 3, substituted in pars. (1) and (3)(D) “January 1, 1984” for “January 1, 1982” wherever appearing.
1980 Pub. L. 96-541 Pub. L. 96–541, § 2(c), added par. (4).
1980 Pub. L. 96-541 Pub. L. 96–541, § 2(d), added par. (3).
1980 Pub. L. 96-613 Pub. L. 96–613 added subsec. (r) and redesignated former subsec. (r) as (s).
1978 Pub. L. 95-615 Pub. L. 95–615 substituted “January 1, 1979” for “January 1, 1978” wherever appearing.
1978 Pub. L. 95-600 Pub. L. 95–600, § 367, substituted “January 1, 1982” for “January 1, 1979” wherever appearing.
1978 Pub. L. 95-600 Pub. L. 95–600, § 701(f)(4), in par. (1), substituted “occupied by a certified historic structure (or by any structure in a registered historic district) which is demolished or substantially altered after such date” for “occupied by a certified historic structure (as defined in section 191(d)(1)) which is demolished or substantially altered (other than by virtue of a certified rehabilitation as defined in section 191(d)(3) after such date”, inserted “and” preceding subpar. (B), substituted “means” for “shall mean” in subpar. (B), and inserted provision that “The preceding sentence shall not apply if the last substantial alteration of the structure is a certified rehabilitation.”; in par. (2), substituted heading “Exceptions” for “Exception”, designated existing text as subpar. (A), and added subpar. (B); and added par. (3).
1978 Pub. L. 95-600 Pub. L. 95–600, § 701(f)(6), inserted in par. (1) “(other than property with respect to which an amortization deduction has been allowed to the taxpayer under section 191)” after “substantially rehabilitated historic property” and substituted in par. (2) “section 191(d)(4)” for “section 191(d)(3)”.
1978 Pub. L. 95-618 Pub. L. 95–618, § 301(d)(3), added subsec. (p). Former subsec. (p) redesignated (r).
1978 Pub. L. 95-618 Pub. L. 95–618, § 301(e)(1), added subsec. (q).
1978 Pub. L. 95-618 Pub. L. 95–618, § 301(d)(3), redesignated former subsec. (p) as (r).
1977 Pub. L. 95-171 Pub. L. 95–171 substituted “January 1, 1979” for “January 1, 1978” wherever appearing in pars. (1) and (3)(D).
1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out in pars. (1), (4)(B), (5)(C), and (6)(A) “or his delegate” after “Secretary”.
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 203(a)(1), 1906(b)(13)(A), substituted reference to January 1, 1978 for reference to January 1, 1976 and struck out “or his delegate” after “Secretary”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 203(a)(2), substituted “$20,000” for “$15,000”.
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 203(a)(3), 1906(b)(13)(A), substituted “the Leased Housing Program under section 8 of the United States Housing Act of 1937” for “the policies of the Housing and Urban Development Act of 1968” and struck out “or his delegate” after “Secretary”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 203(a)(4), added subpar. (D).
1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1901(a)(27)(C), 1906(b)(13)(A), substituted “before June 29, 1970,” for “within 180 days after the date of the enactment of this subparagraph” and struck out “or his delegate” after “Secretary”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out in pars. (1) and (3) “or his delegate” after “Secretary”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 2124(c)(1), added subsec. (n). Former subsec. (n) redesignated (p).
1976 Pub. L. 94-455 Pub. L. 94–455, § 2124(d)(1), added subsec. (o).
1976 Pub. L. 94-455 Pub. L. 94–455, § 2124(c)(1), redesignated former subsec. (n) as (p).
1975 Pub. L. 93-625 Pub. L. 93–625 substituted “January 1, 1976” for “January 1, 1975”.
1971 Pub. L. 92-178 Pub. L. 92–178 added subsec. (m) and redesignated former subsec. (m) as (n).
1969 Pub. L. 91-172 Pub. L. 91–172, § 521(a), added subsecs. (j) and (k). Former subsec. (j) redesignated (m).
1969 Pub. L. 91-172 Pub. L. 91–172, § 441(a), added subsec. (l).
1969 Pub. L. 91-172 Pub. L. 91–172, § 521(a), redesignated former subsec. (j) as (m).
1966 Pub. L. 89-800 Pub. L. 89–800 added subsec. (i) and redesignated former subsec. (i) as (j).

Cases: Commissioner v. Idaho Power Co., 418 U.S. 1 (1974); Richmond Television Corp. v. United States, 345 F.2d 901 (4th Cir. 1965)

Forms: Form 1040; Form 3115

Final rules 10

(a) General rule There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence)—

Textual readingANY OF= reasonable depreciation allowance allowed

(1) of property used in the trade or business, or

(2) of property held for the production of income.

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§ 1.167(a)-1 Depreciation in general.§ 1.167(a)-2 Tangible property.§ 1.167(a)-3 Intangibles.§ 1.167(a)-4 Leased property.§ 1.167(a)-5 Apportionment of basis.§ 1.167(a)-5T Application of section 1060 to section 167 (temporary).§ 1.167(a)-6 Depreciation in special cases.§ 1.167(a)-7 Accounting for depreciable property.§ 1.167(a)-8 Retirements.§ 1.167(a)-9 Obsolescence.§ 1.167(a)-10 When depreciation deduction is allowable.§ 1.167(a)-11 Depreciation based on class lives and asset depreciation ranges for property placed in service after December 31, 1970.§ 1.167(a)-12 Depreciation based on class lives for property first placed in service before January 1, 1971.§ 1.167(a)-13T Certain elections for intangible property (temporary).§ 1.167(a)-14 Treatment of certain intangible property excluded from section 197.Prop. § 1.167(a)-13 Proposed 1994 · Certain elections for intangible property.

Amended 1981, 1988

1988 Pub. L. 100-647 Pub. L. 100–647, § 1002(a)(24), struck out at end “In the case of recovery property (within the meaning of section 168), the deduction allowable under section 168 shall be deemed to constitute the reasonable allowance provided by this section, except with respect to that portion of the basis of such property to which subsection (k) applies.”
1981 Pub. L. 97-34 Pub. L. 97–34, § 203(a), inserted provision that, in the case of recovery property (within the meaning of section 168), the deduction allowable under section 168 shall be deemed to constitute the reasonable allowance provided by this section, except with respect to that portion of the basis of such property to which subsection (k) applies.

Cases: Newark Morning Ledger Co. v. United States, 507 U.S. 546 (1993)

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(b) Cross reference For determination of depreciation deduction in case of property to which section 168 applies, see section 168.

§ 1.167(b)-0 Methods of computing depreciation.§ 1.167(b)-1 Straight line method.§ 1.167(b)-2 Declining balance method.§ 1.167(b)-3 Sum of the years-digits method.§ 1.167(b)-4 Other methods.

Amended 1976, 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a), added subsec. (b) and struck out former subsec. (b) “Use of certain methods and rates” which read as follows: “For taxable years ending after December 31, 1953, the term ‘reasonable allowance’ as used in subsection (a) shall include (but shall not be limited to) an allowance computed in accordance with regulations prescribed by the Secretary, under any of the following methods:
“(1) the straight line method,
“(2) the declining balance method, using a rate not exceeding twice the rate which would have been used had the annual allowance been computed under the method described in paragraph (1),
“(3) the sum of the years-digits method, and
“(4) any other consistent method productive of an annual allowance which, when added to all allowances for the period commencing with the taxpayer’s use of the property and including the taxable year, does not, during the first two-thirds of the useful life of the property, exceed the total of such allowances which would have been used had such allowances been computed under the method described in paragraph (2).
Nothing in this subsection shall be construed to limit or reduce an allowance otherwise allowable under subsection (a).”
1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.

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§ 1.167(c)-1 Limitations on methods of computing depreciation under section 167(b) (2), (3), and (4).

Amended 1986, 1990, 1993

1993 Pub. L. 103-66 Pub. L. 103–66, § 13261(b)(2), amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “The basis on which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the adjusted basis provided in section 1011 for the purpose of determining the gain on the sale or other disposition of such property.”
1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), redesignated subsec. (g) as (c) and struck out former subsec. (c) “Limitations on use of certain methods and rates” which read as follows: “Paragraphs (2), (3), and (4) of subsection (b) shall apply only in the case of property (other than intangible property) described in subsection (a) with a useful life of 3 years or more—
“(1) the construction, reconstruction, or erection of which is completed after December 31, 1953, and then only to that portion of the basis which is properly attributable to such construction, reconstruction, or erection after December 31, 1953, or
“(2) acquired after December 31, 1953, if the original use of such property commences with the taxpayer and commences after such date.
Paragraphs (2), (3), and (4) of subsection (b) shall not apply to any motion picture film, video tape, or sound recording.”
1986 Pub. L. 99-514 Pub. L. 99–514, § 1809(d)(1), inserted “Paragraphs (2), (3), and (4) of subsection (b) shall not apply to any motion picture film, video tape, or sound recording.”

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(1) In general The basis on which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the adjusted basis provided in section 1011, for the purpose of determining the gain on the sale or other disposition of such property.

(2) Special rule for property subject to lease If any property is acquired subject to a lease—

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(A) no portion of the adjusted basis shall be allocated to the leasehold interest, and

(B) the entire adjusted basis shall be taken into account in determining the depreciation deduction (if any) with respect to the property subject to the lease.

(d) Life tenants and beneficiaries of trusts and estates In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each. In the case of an estate, the allowable deduction shall be apportioned between the estate and the heirs, legatees, and devisees on the basis of the income of the estate allocable to each.

§ 1.167(d)-1 Agreement as to useful life and rates of depreciation.

Amended 1958, 1976, 1981, 1988, 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), redesignated subsec. (h) as (d) and struck out former subsec. (d) “Agreement as to useful life on which depreciation rate is based” which read as follows: “Where, under regulations prescribed by the Secretary, the taxpayer and the Secretary have, after August 16, 1954, entered into an agreement in writing specifically dealing with the useful life and rate of depreciation of any property, the rate so agreed upon shall be binding on both the taxpayer and the Secretary in the absence of facts or circumstances not taken into consideration in the adoption of such agreement. The responsibility of establishing the existence of such facts and circumstances shall rest with the party initiating the modification. Any change in the agreed rate and useful life specified in the agreement shall not be effective for taxable years before the taxable year in which notice in writing by certified mail or registered mail is served by the party to the agreement initiating such change. This subsection shall not apply with respect to property to which section 168 applies.”
1988 Pub. L. 100-647 Pub. L. 100–647, § 1002(a)(31), substituted “property to which section 168 applies” for “recovery property defined in section 168”.
1981 Pub. L. 97-34 Pub. L. 97–34, § 203(d), provided that subsec. (d) did not apply with respect to recovery property defined in section 168.
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1901(a)(27)(A), 1906(b)(13)(A), substituted “after August 16, 1954” for “after the date of enactment of this title” and struck out “or his delegate” after “Secretary” in first sentence before “shall be binding”.
1958 Pub. L. 85-866 Pub. L. 85–866 inserted “certified mail or” before “registered mail”.

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(e) Certain term interests not depreciable

§ 1.167(e)-1 Change in method.

Amended 1962, 1976, 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), redesignated subsec. (r) as (e) and struck out former subsec. (e) which related to changes in method of depreciation from declining balance method and changes with respect to sections 1245 and 1250 property.
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 202(c)(3), 1906(b)(13)(A), substituted in par. (3) “beginning after December 31, 1975” for “beginning after July 24, 1969” and in pars. (1) to (3) struck out “or his delegate” after “Secretary”.
1962 Pub. L. 87-834 Pub. L. 87–834, § 13(b), designated existing provisions as par. (1) and added par. (2).

Cited by 3

(1) In general No depreciation deduction shall be allowed under this section (and no depreciation or amortization deduction shall be allowed under any other provision of this subtitle) to the taxpayer for any term interest in property for any period during which the remainder interest in such property is held (directly or indirectly) by a related person.

Cited by 2

(2) Coordination with other provisions

Amended 1993

1993 Pub. L. 103-66 Pub. L. 103–66, § 13206(c)(2), amended heading and text of par. (2) generally. Prior to amendment, text read as follows: “This subsection shall not apply to any term interest to which section 273 applies.”

(A) Section 273 This subsection shall not apply to any term interest to which section 273 applies.

(B) Section 305(e) This subsection shall not apply to the holder of the dividend rights which were separated from any stripped preferred stock to which section 305(e)(1) applies.

(3) Basis adjustments If, but for this subsection, a depreciation or amortization deduction would be allowable to the taxpayer with respect to any term interest in property—

Amended 1969

1969 Pub. L. 91-172 Pub. L. 91–172, § 521(d), added par. (3).

Cited by 2

(A) the taxpayer’s basis in such property shall be reduced by any depreciation or amortization deductions disallowed under this subsection, and

(B) the basis of the remainder interest in such property shall be increased by the amount of such disallowed deductions (properly adjusted for any depreciation deductions allowable under subsection (d) to the taxpayer).

Amended 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(b)(1) substituted “(d)” for “(h)”.

Cited by 1

(4) Special rules

(A) Denial of increase in basis of remainderman No increase in the basis of the remainder interest shall be made under paragraph (3)(B) for any disallowed deductions attributable to periods during which the term interest was held—

(i) by an organization exempt from tax under this subtitle, or

(ii) by a nonresident alien individual or foreign corporation but only if income from the term interest is not effectively connected with the conduct of a trade or business in the United States.

(B) Coordination with subsection (d) If, but for this subsection, a depreciation or amortization deduction would be allowable to any person with respect to any term interest in property, the principles of subsection (d) shall apply to such person with respect to such term interest.

Amended 1990

1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(b)(1), substituted “(d)” for “(h)” in heading and text.

(5) Definitions For purposes of this subsection—

(A) Term interest in property The term “term interest in property” has the meaning given such term by section 1001(e)(2).

(B) Related person The term “related person” means any person bearing a relationship to the taxpayer described in subsection (b) or (e) of section 267.

(6) Regulations The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations preventing avoidance of this subsection through cross-ownership arrangements or otherwise.

(f) Treatment of certain property excluded from section 197

§ 1.167(f)-1 Reduction of salvage value taken into account for certain personal property.

Amended 1962, 1990, 1993

1993 Pub. L. 103-66 Pub. L. 103–66, § 13261(b)(1), added subsec. (f). Former subsec. (f) redesignated (g).
1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), redesignated subsec. (s) as (f) and struck out former subsec. (f) “Salvage value” which read as follows:
1990 “(1) General rule.—Under regulations prescribed by the Secretary, a taxpayer may, for purposes of computing the allowance under subsection (a) with respect to personal property, reduce the amount taken into account as salvage value by an amount which does not exceed 10 percent of the basis of such property (as determined under subsection (g) as of the time as of which such salvage value is required to be determined).
1990 “(2) Personal property defined.—For purposes of this subsection, the term ‘personal property’ means depreciable personal property (other than livestock) with a useful life of 3 years or more acquired after October 16, 1962.”
1962 Pub. L. 87-834 Pub. L. 87–834, § 13(c)(1), added subsec. (f) and redesignated former subsecs. (f), (g), and (h) as (g), (h), and (i), respectively.

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(1) Computer software

Amended 1976

1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.

Cited by 15

(A) In general If a depreciation deduction is allowable under subsection (a) with respect to any computer software, such deduction shall be computed by using the straight line method and a useful life of 36 months.

Cited by 1

(B) Computer software For purposes of this section, the term “computer software” has the meaning given to such term by section 197(e)(3)(B); except that such term shall not include any such software which is an amortizable section 197 intangible.

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(C) Tax-exempt use property subject to lease In the case of computer software which would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to computer software, the useful life under subparagraph (A) shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3)).

Amended 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 847(b)(1), added subpar. (C).

(2) Certain interests or rights acquired separately If a depreciation deduction is allowable under subsection (a) with respect to any property described in subparagraph (B), (C), or (D) of section 197(e)(4), such deduction shall be computed in accordance with regulations prescribed by the Secretary. If such property would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to such property, the useful life under such regulations shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3)).

Amended 1976, 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 847(b)(2), inserted at end “If such property would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to such property, the useful life under such regulations shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3)).”
1976 Pub. L. 94-455 Pub. L. 94–455, § 1901(a)(27)(B), substituted “October 16, 1962” for “the date of enactment of the Revenue Act of 1962”.

Cited by 12

(3) Mortgage servicing rights If a depreciation deduction is allowable under subsection (a) with respect to any right described in section 197(e)(6), such deduction shall be computed by using the straight line method and a useful life of 108 months.

Amended 2005

2005 Pub. L. 109-135 Pub. L. 109–135 substituted “section 197(e)(6)” for “section 197(e)(7)”.

Cited by 1

(g) Depreciation under income forecast method

§ 1.167(g)-1 Basis for depreciation.

Amended 1962, 1990, 1993, 1996

1996 Pub. L. 104-188 Pub. L. 104–188 added subsec. (g) and redesignated former subsec. (g) as (h).
1993 Pub. L. 103-66 Pub. L. 103–66, § 13261(b)(1), (f)(1), redesignated subsec. (f) as (g) and amended heading and text generally, designating existing provisions of text as par. (1) and adding par. (2).
1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), redesignated subsecs. (g) and (h) as (c) and (d), respectively.
1962 Pub. L. 87-834 Pub. L. 87–834, § 13(c)(1), added subsec. (f) and redesignated former subsecs. (f), (g), and (h) as (g), (h), and (i), respectively.

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(1) In general If the depreciation deduction allowable under this section to any taxpayer with respect to any property is determined under the income forecast method or any similar method—

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(A) the income from the property to be taken into account in determining the depreciation deduction under such method shall be equal to the amount of income earned in connection with the property before the close of the 10th taxable year following the taxable year in which the property was placed in service,

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(B) the adjusted basis of the property shall only include amounts with respect to which the requirements of section 461(h) are satisfied,

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(C) the depreciation deduction under such method for the 10th taxable year beginning after the taxable year in which the property was placed in service shall be equal to the adjusted basis of such property as of the beginning of such 10th taxable year, and

(D) such taxpayer shall pay (or be entitled to receive) interest computed under the look-back method of paragraph (2) for any recomputation year.

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(2) Look-back method The interest computed under the look-back method of this paragraph for any recomputation year shall be determined by—

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(A) first determining the depreciation deductions under this section with respect to such property which would have been allowable for prior taxable years if the determination of the amounts so allowable had been made on the basis of the sum of the following (instead of the estimated income from such property)—

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(i) the actual income earned in connection with such property for periods before the close of the recomputation year, and

(ii) an estimate of the future income to be earned in connection with such property for periods after the recomputation year and before the close of the 10th taxable year following the taxable year in which the property was placed in service,

(B) second, determining (solely for purposes of computing such interest) the overpayment or underpayment of tax for each such prior taxable year which would result solely from the application of subparagraph (A), and

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(C) then using the adjusted overpayment rate (as defined in section 460(b)(7)), compounded daily, on the overpayment or underpayment determined under subparagraph (B).

For purposes of the preceding sentence, any cost incurred after the property is placed in service (which is not treated as a separate property under paragraph (5)) shall be taken into account by discounting (using the Federal mid-term rate determined under section 1274(d) as of the time such cost is incurred) such cost to its value as of the date the property is placed in service. The taxpayer may elect with respect to any property to have the preceding sentence not apply to such property.

(3) Exception from look-back method Paragraph (1)(D) shall not apply with respect to any property which had a cost basis of $100,000 or less.

(4) Recomputation year For purposes of this subsection, except as provided in regulations, the term “recomputation year” means, with respect to any property, the 3d and the 10th taxable years beginning after the taxable year in which the property was placed in service, unless the actual income earned in connection with the property for the period before the close of such 3d or 10th taxable year is within 10 percent of the income earned in connection with the property for such period which was taken into account under paragraph (1)(A).

NOT“except as provided in regulations,” Opening words

Textual readingALL OF= a recomputation year

“with respect to any property, the 3d and the 10th taxable years beginning after the taxable year in which the property was placed in service”

NOT“unless the actual income earned in connection with the property for the period before the close of such 3d or 10th taxable year is within 10 percent of the income earned in connection with the property for such period which was taken into account under paragraph (1)(A)”

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(5) Special rules

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(A) Certain costs treated as separate property For purposes of this subsection, the following costs shall be treated as separate properties:

(i) Any costs incurred with respect to any property after the 10th taxable year beginning after the taxable year in which the property was placed in service.

(ii) Any costs incurred after the property is placed in service and before the close of such 10th taxable year if such costs are significant and give rise to a significant increase in the income from the property which was not included in the estimated income from the property.

(B) Syndication income from television series In the case of property which is 1 or more episodes in a television series, income from syndicating such series shall not be required to be taken into account under this subsection before the earlier of—

(i) the 4th taxable year beginning after the date the first episode in such series is placed in service, or

(ii) the earliest taxable year in which the taxpayer has an arrangement relating to the future syndication of such series.

(C) Special rules for financial exploitation of characters, etc. For purposes of this subsection, in the case of television and motion picture films, the income from the property shall include income from the exploitation of characters, designs, scripts, scores, and other incidental income associated with such films, but only to the extent that such income is earned in connection with the ultimate use of such items by, or the ultimate sale of merchandise to, persons who are not related persons (within the meaning of section 267(b)) to the taxpayer.

(D) Collection of interest For purposes of subtitle F (other than sections 6654 and 6655), any interest required to be paid by the taxpayer under paragraph (1) for any recomputation year shall be treated as an increase in the tax imposed by this chapter for such year.

(E) Treatment of distribution costs For purposes of this subsection, the income with respect to any property shall be the taxpayer’s gross income from such property.

Amended 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 242(b), added subpar. (E) and redesignated former subpars. (E) and (F) as (F) and (G), respectively.

(F) Determinations For purposes of paragraph (2), determinations of the amount of income earned in connection with any property shall be made in the same manner as for purposes of applying the income forecast method; except that any income from the disposition of such property shall be taken into account.

Amended 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 242(b), added subpar. (E) and redesignated former subpars. (E) and (F) as (F) and (G), respectively.

(G) Treatment of pass-thru entities Rules similar to the rules of section 460(b)(4) shall apply for purposes of this subsection.

Amended 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 242(b), added subpar. (E) and redesignated former subpars. (E) and (F) as (F) and (G), respectively.

(6) Limitation on property for which income forecast method may be used The depreciation deduction allowable under this section may be determined under the income forecast method or any similar method only with respect to—

Amended 1997

1997 Pub. L. 105-34 Pub. L. 105–34 added par. (6).

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(A) property described in paragraph (3) or (4) of section 168(f),

(B) copyrights,

(D) patents, and

(E) other property specified in regulations.

Such methods may not be used with respect to any amortizable section 197 intangible (as defined in section 197(c)).

(7) Treatment of participations and residuals

Amended 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 242(a), added par. (7).

(A) In general For purposes of determining the depreciation deduction allowable with respect to a property under this subsection, the taxpayer may include participations and residuals with respect to such property in the adjusted basis of such property for the taxable year in which the property is placed in service, but only to the extent that such participations and residuals relate to income estimated (for purposes of this subsection) to be earned in connection with the property before the close of the 10th taxable year referred to in paragraph (1)(A).

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(B) Participations and residuals For purposes of this paragraph, the term “participations and residuals” means, with respect to any property, costs the amount of which by contract varies with the amount of income earned in connection with such property.

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(C) Special rules relating to recomputation years If the adjusted basis of any property is determined under this paragraph, paragraph (4) shall be applied by substituting “for each taxable year in such period” for “for such period”.

(D) Other special rules

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(i) Participations and residuals Notwithstanding subparagraph (A), the taxpayer may exclude participations and residuals from the adjusted basis of such property and deduct such participations and residuals in the taxable year that such participations and residuals are paid.

(ii) Coordination with other rules Deductions computed in accordance with this paragraph shall be allowable notwithstanding paragraph (1)(B), section 263, 263A, 404, 419, or 461(h).

(E) Authority to make adjustments The Secretary shall prescribe appropriate adjustments to the basis of property and to the look-back method for the additional amounts allowable as a deduction solely by reason of this paragraph.

(8) Special rules for certain musical works and copyrights

Amended 2006

2006 Pub. L. 109-222 Pub. L. 109–222, § 207(a), added par. (8).

(A) In general If an election is in effect under this paragraph for any taxable year, then, notwithstanding paragraph (1), any expense which—

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(i) is paid or incurred by the taxpayer in creating or acquiring any applicable musical property placed in service during the taxable year, and

(ii) is otherwise properly chargeable to capital account,

shall be amortized ratably over the 5-year period beginning with the month in which the property was placed in service. The preceding sentence shall not apply to any expense which, without regard to this paragraph, would not be allowable as a deduction.

(B) Exclusive method Except as provided in this paragraph, no depreciation or amortization deduction shall be allowed with respect to any expense to which subparagraph (A) applies.

(i) In general The term “applicable musical property” means any musical composition (including any accompanying words), or any copyright with respect to a musical composition, which is property to which this subsection applies without regard to this paragraph.

Textual readingALL OF= applicable musical property

“any musical composition (including any accompanying words), or any copyright with respect to a musical composition”

“which is property to which this subsection applies without regard to this paragraph”

(ii) Exceptions Such term shall not include any property—

(I) with respect to which expenses are treated as qualified creative expenses to which section 263A(h) applies,

(II) to which a simplified procedure established under section 263A(i)(2) [OLRC note: See References in Text note below.] applies, or

Amended 2007

2007 Pub. L. 110-172 Pub. L. 110–172 substituted “section 263A(i)(2)” for “section 263A(j)(2)”.

(III) which is an amortizable section 197 intangible (as defined in section 197(c)).

(D) Election An election under this paragraph shall be made at such time and in such form as the Secretary may prescribe and shall apply to all applicable musical property placed in service during the taxable year for which the election applies.

(E) Termination An election may not be made under this paragraph for any taxable year beginning after December 31, 2010.

(h) Amortization of geological and geophysical expenditures

§ 1.167(h)-1 Life tenants and beneficiaries of trusts and estates.

Amended 1962, 1990, 1996, 2005

2005 Pub. L. 109-58 Pub. L. 109–58 added subsec. (h) and redesignated former subsec. (h) as (i).
1996 Pub. L. 104-188 Pub. L. 104–188 added subsec. (g) and redesignated former subsec. (g) as (h).
1990 Pub. L. 101-508 Pub. L. 101–508, § 11812(a)(1), redesignated subsecs. (g) and (h) as (c) and (d), respectively.
1962 Pub. L. 87-834 Pub. L. 87–834, § 13(c)(1), added subsec. (f) and redesignated former subsecs. (f), (g), and (h) as (g), (h), and (i), respectively.

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(1) In general Any geological and geophysical expenses paid or incurred in connection with the exploration for, or development of, oil or gas within the United States (as defined in section 638) shall be allowed as a deduction ratably over the 24-month period beginning on the date that such expense was paid or incurred.

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(2) Half-year convention For purposes of paragraph (1), any payment paid or incurred during the taxable year shall be treated as paid or incurred on the mid-point of such taxable year.

(3) Exclusive method Except as provided in this subsection, no depreciation or amortization deduction shall be allowed with respect to such payments.

(4) Treatment upon abandonment If any property with respect to which geological and geophysical expenses are paid or incurred is retired or abandoned during the 24-month period described in paragraph (1), no deduction shall be allowed on account of such retirement or abandonment and the amortization deduction under this subsection shall continue with respect to such payment.

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(5) Special rule for major integrated oil companies

Amended 2006

2006 Pub. L. 109-222 Pub. L. 109–222, § 503(a), added par. (5).

(A) In general In the case of a major integrated oil company, paragraphs (1) and (4) shall be applied by substituting “7-year” for “24 month”.

Amended 2007

2007 Pub. L. 110-140 Pub. L. 110–140 substituted “7-year” for “5-year”.

(B) Major integrated oil company For purposes of this paragraph, the term “major integrated oil company” means, with respect to any taxable year, a producer of crude oil—

(i) which has an average daily worldwide production of crude oil of at least 500,000 barrels for the taxable year,

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(ii) which had gross receipts in excess of $1,000,000,000 for its last taxable year ending during calendar year 2005, and

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(iii) to which subsection (c) of section 613A does not apply by reason of paragraph (4) of section 613A(d), determined—

(I) by substituting “15 percent” for “5 percent” each place it occurs in paragraph (3) of section 613A(d), and

(II) without regard to whether subsection (c) of section 613A does not apply by reason of paragraph (2) of section 613A(d).

For purposes of clauses (i) and (ii), all persons treated as a single employer under subsections (a) and (b) of section 52 shall be treated as 1 person and, in case of a short taxable year, the rule under section 448(c)(3)(B) shall apply.

(i) Cross references

§ 1.167(i)-1 Depreciation of improvements in the case of mines, etc.

Amended 1962, 1966, 1967, 1976, 1978, 2005

2005 Pub. L. 109-58 Pub. L. 109–58 added subsec. (h) and redesignated former subsec. (h) as (i).
1978 Pub. L. 95-600 Pub. L. 95–600, § 312(c)(4), struck out subsec. (i) which related to a limitation in the case of property constructed or acquired during the suspension period.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out in pars. (1) and (2) “or his delegate” after “Secretary”.
1967 Pub. L. 90-26 Pub. L. 90–26, § 1, substituted “March 9, 1967” for “December 31, 1967”.
1966 Pub. L. 89-800 Pub. L. 89–800 added subsec. (i) and redesignated former subsec. (i) as (j).
1962 Pub. L. 87-834 Pub. L. 87–834, § 13(c)(1), added subsec. (f) and redesignated former subsecs. (f), (g), and (h) as (g), (h), and (i), respectively.

(1) For additional rule applicable to depreciation of improvements in the case of mines, oil and gas wells, other natural deposits, and timber, see section 611.

Amended 1967

1967 Pub. L. 90-26 Pub. L. 90–26, § 2(b), provided that accelerated depreciation was not to apply if the physical construction, reconstruction or erection by any person was begun during the suspension period or begun, pursuant to an order placed during such period, before May 24, 1967, subject to the proviso that only that portion of the basis which was properly attributable to construction, reconstruction or erection before May 24, 1967, shall be affected by the applicability of the suspension period.

(2) For amortization of goodwill and certain other intangibles, see section 197.