26 U.S.C. § 167 — Depreciation

Page 774 TITLE 26—INTERNAL REVENUE CODE § 167 EFFECTIVE DATE OF 1969 AMENDMENT Amendment by Pub. L. 91–172 applicable to taxable years beginning after July 11, 1969, see section 431(d) of Pub. L. 91–172, set out as an Effective Date note under section 585 of this title. EFFECTIVE DATE OF 1966 AMENDMENT Pub. L. 89–722, § 2, Nov. 2, 1966, 80 Stat. 1152, as amend- ed by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, pro- vided that: ‘‘(a) Except as provided in subsections (b) and (c), the amendments made by the first section of this Act [amending this section and section 81 of this title] shall apply to taxable years ending after October 21, 1965. ‘‘(b) If— ‘‘(1) the taxpayer before October 22, 1965, claimed a deduction, for a taxable year ending before such date, under section 166(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] for an addition to a reserve for bad debts on account of debt obligations described in section 166(g)(1)(A) of such Code (as amended by the first section of this Act), and ‘‘(2) the assessment of a deficiency of the tax im- posed by chapter 1 of such Code for such taxable year and each subsequent taxable year ending before Octo- ber 22, 1965, is not prevented on December 31, 1966, by the operation of any law or rule of law, then such deduction on account of such debt obliga- tions shall be allowed for each such taxable year under such section 166(c) to the extent that the deduction would have been allowable under the provisions of such section 166(g)(1)(A) if such provisions applied to such taxable years. ‘‘(c) Section 166(g)(2) of the Internal Revenue Code of 1986 (as amended by the first section of this Act) shall apply to taxable years beginning after December 31, 1953, and ending after August 16, 1954.’’ EFFECTIVE DATE OF 1958 AMENDMENT Amendment by Pub. L. 85–866 applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c)(1) of Pub. L. 85–866, set out as a note under section 165 of this title. ESTABLISHMENT OF RESERVE FOR TAXABLE YEAR END- ING AFTER OCT. 21, 1965, AND BEGINNING BEFORE AUG. 2, 1966 Pub. L. 89–722, § 1(c), Nov. 2, 1966, 80 Stat. 1152, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘If the taxpayer establishes a re- serve described in section 166(g)(1) of the Internal Rev- enue Code of 1986 [formerly I.R.C. 1954] (as amended by subsection (a) of this section) for a taxable year ending after October 21, 1965, and beginning before August 2, 1966, the establishment of such reserve shall not be con- sidered as a change in method of accounting for pur- poses of section 446(e) of such Code.’’ § 167. Depreciation (a) General rule There shall be allowed as a depreciation de- duction a reasonable allowance for the exhaus- tion, wear and tear (including a reasonable al- lowance for obsolescence)— (1) of property used in the trade or business, or (2) of property held for the production of in- come. (b) Cross reference For determination of depreciation deduction in case of property to which section 168 applies, see section 168. (c) Basis for depreciation (1) In general The basis on which exhaustion, wear and tear, and obsolescence are to be allowed in re- spect 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— (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 deprecia- tion 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 de- duction 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 bene- ficiaries 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 de- duction shall be apportioned between the estate and the heirs, legatees, and devisees on the basis of the income of the estate allocable to each. (e) Certain term interests not depreciable (1) In general No depreciation deduction shall be allowed under this section (and no depreciation or am- ortization 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 inter- est in such property is held (directly or indi- rectly) by a related person. (2) Coordination with other provisions (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 sep- arated 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— (A) the taxpayer’s basis in such property shall be reduced by any depreciation or am- ortization 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 (prop- erly adjusted for any depreciation deduc- tions allowable under subsection (d) to the taxpayer). Page 775 TITLE 26—INTERNAL REVENUE CODE § 167 (4) Special rules (A) Denial of increase in basis of remain- derman No increase in the basis of the remainder interest shall be made under paragraph (3)(B) for any disallowed deductions attrib- utable to periods during which the term in- terest 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 allow- able to any person with respect to any term interest in property, the principles of sub- section (d) shall apply to such person with respect to such term interest. (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 per- son bearing a relationship to the taxpayer described in subsection (b) or (e) of section 267. (6) Regulations The Secretary shall prescribe such regula- tions as may be necessary to carry out the purposes of this subsection, including regula- tions preventing avoidance of this subsection through cross-ownership arrangements or oth- erwise. (f) Treatment of certain property excluded from section 197 (1) Computer software (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. (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. (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 sec- tion applied to computer software, the use- ful life under subparagraph (A) shall not be less than 125 percent of the lease term (with- in the meaning of section 168(i)(3)). (2) Certain interests or rights acquired sepa- rately If a depreciation deduction is allowable under subsection (a) with respect to any prop- erty described in subparagraph (B), (C), or (D) of section 197(e)(4), such deduction shall be computed in accordance with regulations pre- scribed 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 per- cent of the lease term (within the meaning of section 168(i)(3)). (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. (g) Depreciation under income forecast method (1) In general If the depreciation deduction allowable under this section to any taxpayer with re- spect to any property is determined under the income forecast method or any similar meth- od— (A) the income from the property to be taken into account in determining the de- preciation deduction under such method shall be equal to the amount of income earned in connection with the property be- fore the close of the 10th taxable year fol- lowing the taxable year in which the prop- erty was placed in service, (B) the adjusted basis of the property shall only include amounts with respect to which the requirements of section 461(h) are satis- fied, (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 be- ginning 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. (2) Look-back method The interest computed under the look-back method of this paragraph for any recomputa- tion year shall be determined by— (A) first determining the depreciation de- ductions under this section with respect to such property which would have been allow- able for prior taxable years if the determina- tion of the amounts so allowable had been made on the basis of the sum of the fol- lowing (instead of the estimated income from such property)— (i) the actual income earned in connec- tion 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 prop- erty for periods after the recomputation year and before the close of the 10th tax- Page 776 TITLE 26—INTERNAL REVENUE CODE § 167 able year following the taxable year in which the property was placed in service, (B) second, determining (solely for pur- poses of computing such interest) the over- payment or underpayment of tax for each such prior taxable year which would result solely from the application of subparagraph (A), and (C) then using the adjusted overpayment rate (as defined in section 460(b)(7)), com- pounded daily, on the overpayment or under- payment 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 prop- erty 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 ‘‘recomputa- tion year’’ means, with respect to any prop- erty, the 3d and the 10th taxable years begin- ning after the taxable year in which the prop- erty was placed in service, unless the actual income earned in connection with the prop- erty 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 prop- erty for such period which was taken into ac- count under paragraph (1)(A). (5) Special rules (A) Certain costs treated as separate prop- erty For purposes of this subsection, the fol- lowing 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 sub- section 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 in- come 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 merchan- dise 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 sec- tions 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 in- come with respect to any property shall be the taxpayer’s gross income from such prop- erty. (F) Determinations For purposes of paragraph (2), determina- tions of the amount of income earned in con- nection 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. (G) Treatment of pass-thru entities Rules similar to the rules of section 460(b)(4) shall apply for purposes of this sub- section. (6) Limitation on property for which income forecast method may be used The depreciation deduction allowable under this section may be determined under the in- come forecast method or any similar method only with respect to— (A) property described in paragraph (3) or (4) of section 168(f), (B) copyrights, (C) books, (D) patents, and (E) other property specified in regulations. Such methods may not be used with respect to any amortizable section 197 intangible (as de- fined in section 197(c)). (7) Treatment of participations and residuals (A) In general For purposes of determining the deprecia- tion 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 Page 777 TITLE 26—INTERNAL REVENUE CODE § 167 1 See References in Text note below. 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). (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 prop- erty. (C) Special rules relating to recomputation years If the adjusted basis of any property is de- termined 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 (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 notwith- standing 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 (A) In general If an election is in effect under this para- graph for any taxable year, then, notwith- standing paragraph (1), any expense which— (i) is paid or incurred by the taxpayer in creating or acquiring any applicable musi- cal 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 pre- ceding sentence shall not apply to any ex- pense which, without regard to this para- graph, would not be allowable as a deduc- tion. (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. (C) Applicable musical property For purposes of this paragraph— (i) In general The term ‘‘applicable musical property’’ means any musical composition (including any accompanying words), or any copy- right with respect to a musical composi- tion, which is property to which this sub- section applies without regard to this paragraph. (ii) Exceptions Such term shall not include any prop- erty— (I) with respect to which expenses are treated as qualified creative expenses to which section 263A(h) applies, (II) to which a simplified procedure es- tablished under section 263A(i)(2) 1 ap- plies, or (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) In general Any geological and geophysical expenses paid or incurred in connection with the explo- ration 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. (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 de- preciation or amortization deduction shall be allowed with respect to such payments. (4) Treatment upon abandonment If any property with respect to which geo- logical 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 amortiza- tion deduction under this subsection shall con- tinue with respect to such payment. (5) Special rule for major integrated oil compa- nies (A) In general In the case of a major integrated oil com- pany, paragraphs (1) and (4) shall be applied by substituting ‘‘7-year’’ for ‘‘24 month’’. (B) Major integrated oil company For purposes of this paragraph, the term ‘‘major integrated oil company’’ means, Page 778 TITLE 26—INTERNAL REVENUE CODE § 167 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, (ii) which had gross receipts in excess of $1,000,000,000 for its last taxable year end- ing during calendar year 2005, and (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 para- graph (3) of section 613A(d), and (II) without regard to whether sub- section (c) of section 613A does not apply by reason of paragraph (2) of section 613A(d). For purposes of clauses (i) and (ii), all per- sons treated as a single employer under sub- sections (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) For additional rule applicable to depreciation of improvements in the case of mines, oil and gas wells, other natural deposits, and timber, see sec- tion 611. (2) For amortization of goodwill and certain other intangibles, see section 197. (Aug. 16, 1954, ch. 736, 68A Stat. 51; Pub. L. 85–866, title I, § 89(b), Sept. 2, 1958, 72 Stat. 1665; Pub. L. 87–834, § 13(b), (c)(1), Oct. 16, 1962, 76 Stat. 1034; Pub. L. 89–800, § 2, Nov. 8, 1966, 80 Stat. 1513; Pub. L. 90–26, §§ 1, 2(b), June 13, 1967, 81 Stat. 57, 58; Pub. L. 91–172, title IV, § 441(a), title V, § 521(a), (d), Dec. 30, 1969, 83 Stat. 625, 649, 653; Pub. L. 92–178, title I, § 109(a), Dec. 10, 1971, 85 Stat. 508; Pub. L. 93–625, § 3(c), Jan. 3, 1975, 88 Stat. 2109; Pub. L. 94–455, title II, §§ 202(c)(3), 203(a), title XIX, §§ 1901(a)(27), 1906(b)(13)(A), title XXI, § 2124(c)(1), (d)(1), Oct. 4, 1976, 90 Stat. 1530, 1768, 1834, 1918; Pub. L. 95–171, § 4(a), Nov. 12, 1977, 91 Stat. 1355; Pub. L. 95–600, title III, §§ 312(c)(4), 367, title VII, § 701(f)(4), (6), Nov. 6, 1978, 92 Stat. 2826, 2857, 2901, 2902; Pub. L. 95–615, § 7(a), Nov. 8, 1978, 92 Stat. 3098; Pub. L. 95–618, title III, § 301(d)(3), (e)(1), Nov. 9, 1978, 92 Stat. 3200, 3201; Pub. L. 96–541, §§ 2(c), (d), 3, Dec. 17, 1980, 94 Stat. 3204, 3205; Pub. L. 96–613, § 2(a), Dec. 28, 1980, 94 Stat. 3579; Pub. L. 97–34, title II, §§ 203(a)–(c)(1), (d), 209(d)(3), 212(d)(1), 264(a), Aug. 13, 1981, 95 Stat. 221, 222, 227, 239, 264; Pub. L. 97–424, title V, § 541(a)(2), Jan. 6, 1983, 96 Stat. 2192; Pub. L. 98–369, div. A, title X, § 1064, July 18, 1984, 98 Stat. 1047; Pub. L. 99–514, title II, § 201(d)(1), title XV, § 1511(c)(4), title XVIII, § 1809(d)(1), Oct. 22, 1986, 100 Stat. 2139, 2745, 2821; Pub. L. 100–647, title I, § 1002(a)(22), (24), (31), (i)(1), Nov. 10, 1988, 102 Stat. 3356, 3357, 3370; Pub. L. 101–239, title VII, §§ 7622(b)(1) [(d)(1)], 7645(a), Dec. 19, 1989, 103 Stat. 2378, 2381; Pub. L. 101–508, title XI, § 11812(a), (b)(1), Nov. 5, 1990, 104 Stat. 1388–534; Pub. L. 103–66, title XIII, §§ 13206(c)(2), 13261(b), (f)(1), Aug. 10, 1993, 107 Stat. 466, 538, 539; Pub. L. 104–188, title I, § 1604(a), Aug. 20, 1996, 110 Stat. 1836; Pub. L. 105–34, title X, § 1086(a), Aug. 5, 1997, 111 Stat. 957; Pub. L. 108–357, title II, § 242(a), (b), title VIII, § 847(b)(1), (2), Oct. 22, 2004, 118 Stat. 1438, 1439, 1601; Pub. L. 109–58, title XIII, § 1329(a), Aug. 8, 2005, 119 Stat. 1020; Pub. L. 109–135, title IV, § 412(r), Dec. 21, 2005, 119 Stat. 2638; Pub. L. 109–222, title II, § 207(a), title V, § 503(a), May 17, 2006, 120 Stat. 350, 354; Pub. L. 110–140, title XV, § 1502(a), Dec. 19, 2007, 121 Stat. 1800; Pub. L. 110–172, § 11(a)(13), Dec. 29, 2007, 121 Stat. 2485.) Editorial Notes REFERENCES IN TEXT Section 263A(i)(2), referred to in subsec. (g)(8)(C)(ii)(II), was redesignated section 263A(j)(2) by Pub. L. 115–97, title I, § 13102(b)(1), Dec. 22, 2017, 131 Stat. 2103. AMENDMENTS 2007—Subsec. (g)(8)(C)(ii)(II). Pub. L. 110–172 sub- stituted ‘‘section 263A(i)(2)’’ for ‘‘section 263A(j)(2)’’. Subsec. (h)(5)(A). Pub. L. 110–140 substituted ‘‘7-year’’ for ‘‘5-year’’. 2006—Subsec. (g)(8). Pub. L. 109–222, § 207(a), added par. (8). Subsec. (h)(5). Pub. L. 109–222, § 503(a), added par. (5). 2005—Subsec. (f)(3). Pub. L. 109–135 substituted ‘‘sec- tion 197(e)(6)’’ for ‘‘section 197(e)(7)’’. Subsecs. (h), (i). Pub. L. 109–58 added subsec. (h) and redesignated former subsec. (h) as (i). 2004—Subsec. (f)(1)(C). Pub. L. 108–357, § 847(b)(1), added subpar. (C). Subsec. (f)(2). 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 sec- tion 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)).’’ Subsec. (g)(5)(E) to (G). Pub. L. 108–357, § 242(b), added subpar. (E) and redesignated former subpars. (E) and (F) as (F) and (G), respectively. Subsec. (g)(7). Pub. L. 108–357, § 242(a), added par. (7). 1997—Subsec. (g)(6). Pub. L. 105–34 added par. (6). 1996—Subsecs. (g), (h). Pub. L. 104–188 added subsec. (g) and redesignated former subsec. (g) as (h). 1993—Subsec. (c). 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 deter- mining the gain on the sale or other disposition of such property.’’ Subsec. (e)(2). Pub. L. 103–66, § 13206(c)(2), amended heading and text of par. (2) generally. Prior to amend- ment, text read as follows: ‘‘This subsection shall not apply to any term interest to which section 273 ap- plies.’’ Subsec. (f). Pub. L. 103–66, § 13261(b)(1), added subsec. (f). Former subsec. (f) redesignated (g). Subsec. (g). Pub. L. 103–66, § 13261(b)(1), (f)(1), redesig- nated subsec. (f) as (g) and amended heading and text generally, designating existing provisions of text as par. (1) and adding par. (2). 1990—Subsec. (b). Pub. L. 101–508, § 11812(a), added sub- sec. (b) and struck out former subsec. (b) ‘‘Use of cer- tain 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 com- puted 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 allow- Page 779 TITLE 26—INTERNAL REVENUE CODE § 167 ances 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 sub- section (a).’’ Subsec. (c). 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 sub- section (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 at- tributable 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.’’ Subsec. (d). 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 regula- tions prescribed by the Secretary, the taxpayer and the Secretary have, after August 16, 1954, entered into an agreement in writing specifically dealing with the use- ful life and rate of depreciation of any property, the rate so agreed upon shall be binding on both the tax- payer and the Secretary in the absence of facts or cir- cumstances not taken into consideration in the adop- tion of such agreement. The responsibility of estab- lishing 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.’’ Subsec. (e). 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 re- spect to sections 1245 and 1250 property. Subsec. (e)(3)(B). Pub. L. 101–508, § 11812(b)(1) sub- stituted ‘‘(d)’’ for ‘‘(h)’’. Subsec. (e)(4)(B). Pub. L. 101–508, § 11812(b)(1), sub- stituted ‘‘(d)’’ for ‘‘(h)’’ in heading and text. Subsec. (f). Pub. L. 101–508, § 11812(a)(1), redesignated subsec. (s) as (f) and struck out former subsec. (f) ‘‘Sal- vage value’’ which read as follows: ‘‘(1) GENERAL RULE.—Under regulations prescribed by the Secretary, a taxpayer may, for purposes of com- puting the allowance under subsection (a) with respect to personal property, reduce the amount taken into ac- count as salvage value by an amount which does not exceed 10 percent of the basis of such property (as de- termined under subsection (g) as of the time as of which such salvage value is required to be determined). ‘‘(2) PERSONAL PROPERTY DEFINED.—For purposes of this subsection, the term ‘personal property’ means de- preciable personal property (other than livestock) with a useful life of 3 years or more acquired after October 16, 1962.’’ Subsecs. (g), (h). Pub. L. 101–508, § 11812(a)(1), redesig- nated subsecs. (g) and (h) as (c) and (d), respectively. Subsec. (j). 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. Subsec. (k). Pub. L. 101–508, § 11812(a)(1), struck out subsec. (k) which related to depreciation of expendi- tures to rehabilitate low-income rental housing. Subsec. (l). 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. Subsec. (m). Pub. L. 101–508, § 11812(a)(1), struck out subsec. (m) which related to class lives. Subsec. (p). Pub. L. 101–508, § 11812(a)(1), struck out subsec. (p) which related to straight line method for boilers fueled by oil or gas. Subsec. (q). 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. Subsecs. (r), (s). Pub. L. 101–508, § 11812(a)(1), redesig- nated subsecs. (r) and (s) as (e) and (f), respectively. 1989—Subsec. (r). Pub. L. 101–239, § 7645(a), added sub- sec. (r). Pub. L. 101–239, § 7622(b)(1) [(d)(1)], repealed subsec. (r) which provided that trademark or trade name expendi- tures were not depreciable. 1988—Subsec. (a). 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.’’ Subsec. (d). Pub. L. 100–647, § 1002(a)(31), substituted ‘‘property to which section 168 applies’’ for ‘‘recovery property defined in section 168’’. Subsec. (l)(3)(G). Pub. L. 100–647, § 1002(a)(22), sub- stituted ‘‘section 168(i)(9)(B)’’ for ‘‘section 168(e)(3)(C)’’ in last sentence. Subsecs. (r), (s). Pub. L. 100–647, § 1002(i)(1), added sub- sec. (r) and redesignated former subsec. (r) as (s). 1986—Subsec. (c). 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.’’ Subsec. (m)(4). Pub. L. 99–514, § 201(d)(1), amended par. (4) generally. Prior to amendment, par. (4) read as fol- lows: ‘‘This subsection shall not apply with respect to recovery property (within the meaning of section 168) placed in service after December 31, 1980.’’ Subsec. (q)(2)(B). Pub. L. 99–514, § 1511(c)(4), sub- stituted ‘‘at the underpayment rate established under section 6621’’ for ‘‘at the rate determined under section 6621’’. 1984—Subsec. (k)(1), (3)(D). Pub. L. 98–369 substituted ‘‘January 1, 1987’’ for ‘‘January 1, 1984’’ wherever ap- pearing. 1983—Subsec. (l)(3)(G). Pub. L. 97–424 inserted provi- sion that, for the purposes of this paragraph, rules similar to the rules of section 168(e)(3)(C) of this title shall apply. 1981—Subsec. (a). Pub. L. 97–34, § 203(a), inserted pro- vision 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. Subsec. (d). Pub. L. 97–34, § 203(d), provided that sub- sec. (d) did not apply with respect to recovery property defined in section 168. Subsec. (k)(2). Pub. L. 97–34, § 264(a), substituted ‘‘Ex- cept 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). Subsec. (l)(3)(C). Pub. L. 97–34, § 209(d)(3), inserted ‘‘and which is placed in service before January 1, 1981’’ after ‘‘pre-1970 public utility property’’. Subsec. (m)(4). Pub. L. 97–34, § 203(b), added par. (4). Subsecs. (n), (o). 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 Page 780 TITLE 26—INTERNAL REVENUE CODE § 167 in the case of substantially rehabilitated historic prop- erty. Subsec. (r). Pub. L. 97–34, § 203(c)(1), redesignated sub- sec. (s) as (r). Former subsec. (r), relating to the retire- ment-replacement-betterment method of calculating depreciation, was struck out. Subsec. (s). Pub. L. 97–34, § 203(c)(1), redesignated sub- sec. (s) as (r). 1980—Subsec. (k). Pub. L. 96–541, § 3, substituted in pars. (1) and (3)(D) ‘‘January 1, 1984’’ for ‘‘January 1, 1982’’ wherever appearing. Subsec. (n)(4). Pub. L. 96–541, § 2(c), added par. (4). Subsec. (o)(3). Pub. L. 96–541, § 2(d), added par. (3). Subsecs. (r), (s). Pub. L. 96–613 added subsec. (r) and redesignated former subsec. (r) as (s). 1978—Subsec. (i). 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. Subsec. (k)(1), (3)(D). Pub. L. 95–615 substituted ‘‘Jan- uary 1, 1979’’ for ‘‘January 1, 1978’’ wherever appearing. Pub. L. 95–600, § 367, substituted ‘‘January 1, 1982’’ for ‘‘January 1, 1979’’ wherever appearing. Subsec. (n). Pub. L. 95–600, § 701(f)(4), in par. (1), sub- stituted ‘‘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 de- fined in section 191(d)(1)) which is demolished or sub- stantially altered (other than by virtue of a certified rehabilitation as defined in section 191(d)(3) after such date’’, inserted ‘‘and’’ preceding subpar. (B), sub- stituted ‘‘means’’ for ‘‘shall mean’’ in subpar. (B), and inserted provision that ‘‘The preceding sentence shall not apply if the last substantial alteration of the struc- ture is a certified rehabilitation.’’; in par. (2), sub- stituted heading ‘‘Exceptions’’ for ‘‘Exception’’, des- ignated existing text as subpar. (A), and added subpar. (B); and added par. (3). Subsec. (o). Pub. L. 95–600, § 701(f)(6), inserted in par. (1) ‘‘(other than property with respect to which an am- ortization 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)’’. Subsec. (p). Pub. L. 95–618, § 301(d)(3), added subsec. (p). Former subsec. (p) redesignated (r). Subsec. (q). Pub. L. 95–618, § 301(e)(1), added subsec. (q). Subsec. (r). Pub. L. 95–618, § 301(d)(3), redesignated former subsec. (p) as (r). 1977—Subsec. (k). Pub. L. 95–171 substituted ‘‘January 1, 1979’’ for ‘‘January 1, 1978’’ wherever appearing in pars. (1) and (3)(D). 1976—Subsec. (b). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (d). 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 sen- tence before ‘‘shall be binding’’. Subsec. (e). 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’’. Subsec. (f)(1). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (f)(2). Pub. L. 94–455, § 1901(a)(27)(B), sub- stituted ‘‘October 16, 1962’’ for ‘‘the date of enactment of the Revenue Act of 1962’’. Subsec. (i). Pub. L. 94–455, § 1906(b)(13)(A), struck out in pars. (1) and (2) ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (j). 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’’. Subsec. (k)(1). 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’’. Subsec. (k)(2)(A). Pub. L. 94–455, § 203(a)(2), sub- stituted ‘‘$20,000’’ for ‘‘$15,000’’. Subsec. (k)(3)(B). Pub. L. 94–455, §§ 203(a)(3), 1906(b)(13)(A), substituted ‘‘the Leased Housing Pro- gram under section 8 of the United States Housing Act of 1937’’ for ‘‘the policies of the Housing and Urban De- velopment Act of 1968’’ and struck out ‘‘or his dele- gate’’ after ‘‘Secretary’’. Subsec. (k)(3)(D). Pub. L. 94–455, § 203(a)(4), added sub- par. (D). Subsec. (l)(3)(F). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (l)(4)(A). 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’’. Subsec. (l)(5). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (m). Pub. L. 94–455, § 1906(b)(13)(A), struck out in pars. (1) and (3) ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (n). Pub. L. 94–455, § 2124(c)(1), added subsec. (n). Former subsec. (n) redesignated (p). Subsec. (o). Pub. L. 94–455, § 2124(d)(1), added subsec. (o). Subsec. (p). Pub. L. 94–455, § 2124(c)(1), redesignated former subsec. (n) as (p). 1975—Subsec. (k)(1). Pub. L. 93–625 substituted ‘‘Janu- ary 1, 1976’’ for ‘‘January 1, 1975’’. 1971—Subsecs. (m), (n). Pub. L. 92–178 added subsec. (m) and redesignated former subsec. (m) as (n). 1969—Subsec. (e)(3). Pub. L. 91–172, § 521(d), added par. (3). Subsecs. (j), (k). Pub. L. 91–172, § 521(a), added subsecs. (j) and (k). Former subsec. (j) redesignated (m). Subsec. (l). Pub. L. 91–172, § 441(a), added subsec. (l). Subsec. (m). Pub. L. 91–172, § 521(a), redesignated former subsec. (j) as (m). 1967—Subsec. (i)(1). Pub. L. 90–26, § 2(b), provided that accelerated depreciation was not to apply if the phys- ical 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 attrib- utable to construction, reconstruction or erection be- fore May 24, 1967, shall be affected by the applicability of the suspension period. Subsec. (i)(3). Pub. L. 90–26, § 1, substituted ‘‘March 9, 1967’’ for ‘‘December 31, 1967’’. 1966—Subsecs. (i), (j). Pub. L. 89–800 added subsec. (i) and redesignated former subsec. (i) as (j). 1962—Subsec. (e). Pub. L. 87–834, § 13(b), designated ex- isting provisions as par. (1) and added par. (2). Subsecs. (f) to (i). Pub. L. 87–834, § 13(c)(1), added sub- sec. (f) and redesignated former subsecs. (f), (g), and (h) as (g), (h), and (i), respectively. 1958—Subsec. (d). Pub. L. 85–866 inserted ‘‘certified mail or’’ before ‘‘registered mail’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2007 AMENDMENT Pub. L. 110–140, title XV, § 1502(b), Dec. 19, 2007, 121 Stat. 1800, provided that: ‘‘The amendment made by this section [amending this section] shall apply to amounts paid or incurred after the date of the enact- ment of this Act [Dec. 19, 2007].’’ Amendment by Pub. L. 110–140 effective on the date that is 1 day after Dec. 19, 2007, see section 1601 of Pub. L. 110–140, set out as an Effective Date note under sec- tion 1824 of Title 2, The Congress. EFFECTIVE DATE OF 2006 AMENDMENT Pub. L. 109–222, title II, § 207(b), May 17, 2006, 120 Stat. 351, provided that: ‘‘The amendments made by this sec- tion [amending this section] shall apply to expenses paid or incurred with respect to property placed in service in taxable years beginning after December 31, 2005.’’ Pub. L. 109–222, title V, § 503(b), May 17, 2006, 120 Stat. 355, provided that: ‘‘The amendment made by this sec- Page 781 TITLE 26—INTERNAL REVENUE CODE § 167 tion [amending this section] shall apply to amounts paid or incurred after the date of the enactment of this Act [May 17, 2006].’’ EFFECTIVE DATE OF 2005 AMENDMENT Pub. L. 109–58, title XIII, § 1329(c), Aug. 8, 2005, 119 Stat. 1020, provided that: ‘‘The amendments made by this section [amending this section and section 263A of this title] shall apply to amounts paid or incurred in taxable years beginning after the date of the enactment of this Act [Aug. 8, 2005].’’ EFFECTIVE DATE OF 2004 AMENDMENT Pub. L. 108–357, title II, § 242(c), Oct. 22, 2004, 118 Stat. 1439, provided that: ‘‘The amendments made by this section [amending this section] shall apply to property placed in service after the date of the enactment of this Act [Oct. 22, 2004].’’ Amendment by section 847(b)(1) of Pub. L. 108–357 ap- plicable to leases entered into after Mar. 12, 2004, and amendment by section 847(b)(2) of Pub. L. 108–357 appli- cable to leases entered into after Oct. 3, 2004, except that such amendments inapplicable to qualified trans- portation property, see section 849 of Pub. L. 108–357, set out as an Effective Date note under section 470 of this title. EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105–34, title X, § 1086(c), Aug. 5, 1997, 111 Stat. 958, provided that: ‘‘The amendment made by this sec- tion [amending this section and section 168 of this title] shall apply to property placed in service after the date of the enactment of this Act [Aug. 5, 1997].’’ EFFECTIVE DATE OF 1996 AMENDMENT Pub. L. 104–188, title I, § 1604(b), Aug. 20, 1996, 110 Stat. 1838, as amended by Pub. L. 105–206, title VI, § 6018(d), July 22, 1998, 112 Stat. 823, provided that: ‘‘(1) IN GENERAL.—The amendment made by sub- section (a) [amending this section] shall apply to prop- erty placed in service after September 13, 1995. ‘‘(2) BINDING CONTRACTS.—The amendment made by subsection (a) shall not apply to any property produced or acquired by the taxpayer pursuant to a written con- tract which was binding on September 13, 1995, and at all times thereafter before such production or acquisi- tion. ‘‘(3) UNDERPAYMENTS OF INCOME TAX.—No addition to tax shall be made under section 6662 of the Internal Revenue Code of 1986 as a result of the application of subsection (d) of that section (relating to substantial understatements of income tax) with respect to any un- derpayment of income tax for any taxable year ending before the date of the enactment of this Act [Aug. 20, 1996], to the extent such underpayment was created or increased by the amendments made by subsection (a).’’ EFFECTIVE DATE OF 1993 AMENDMENT Pub. L. 103–66, title XIII, § 13206(c)(3), Aug. 10, 1993, 107 Stat. 467, provided that: ‘‘The amendments made by this subsection [amending this section and section 305 of this title] shall take effect on April 30, 1993.’’ Amendment by section 13261(b) and (f)(1) of Pub. L. 103–66 applicable, except as otherwise provided, with re- spect to property acquired after Aug. 10, 1993, see sec- tion 13261(g) of Pub. L. 103–66, set out as an Effective Date note under section 197 of this title. EFFECTIVE DATE OF 1990 AMENDMENT Amendment by Pub. L. 101–508 applicable to property placed in service after Nov. 5, 1990, but not applicable to any property to which section 168 of this title does not apply by reason of subsec. (f)(5) of section 168, and not applicable to rehabilitation expenditures described in section 252(f)(5) of Pub. L. 99–514, see section 11812(c) of Pub. L. 101–508, set out as a note under section 42 of this title. EFFECTIVE DATE OF 1989 AMENDMENT Pub. L. 101–239, title VII, § 7622(c)[(e)], Dec. 19, 1989, 103 Stat. 2378, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [amending this section and sections 1245 and 1253 of this title] shall apply to transfers after October 2, 1989. ‘‘(2) BINDING CONTRACT.—The amendments made by this section shall not apply to any transfer pursuant to a written binding contract in effect on October 2, 1989, and at all times thereafter before the transfer.’’ Pub. L. 101–239, title VII, § 7645(b), Dec. 19, 1989, 103 Stat. 2382, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply to in- terests created or acquired after July 27, 1989, in tax- able years ending after such date.’’ EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 201(d)(1) of Pub. L. 99–514 ap- plicable to property placed in service after Dec. 31, 1986, in taxable years ending after such date, with excep- tions, see sections 203 and 204 of Pub. L. 99–514, set out as a note under section 168 of this title. Amendment by section 201(d)(1) of Pub. L. 99–514 not applicable to any property placed in service before Jan. 1, 1994, if such property placed in service as part of specified rehabilitations, and not applicable to certain additional rehabilitations, see section 251(d)(2), (3) of Pub. L. 99–514, set out as a note under section 46 of this title. Amendment by section 1511(c)(4) of Pub. L. 99–514 ap- plicable for purposes of determining interest for periods after Dec. 31, 1986, see section 1511(d) of Pub. L. 99–514, set out as a note under section 47 of this title. Pub. L. 99–514, title XVIII, § 1809(d)(1), Oct. 22, 1986, 100 Stat. 2821, provided that subsec. (c) is amended except with respect to property placed in service by the tax- payer on or before Mar. 28, 1985. EFFECTIVE DATE OF 1983 AMENDMENT Amendment by Pub. L. 97–424 applicable to taxable years beginning after Dec. 31, 1979, with a special rule for periods beginning before Mar. 1, 1980, see section 541(c) of Pub. L. 97–424, set out as a note under section 46 of this title. EFFECTIVE DATE OF 1981 AMENDMENT Pub. L. 97–34, title II, § 264(b), Aug. 13, 1981, 95 Stat. 265, provided that: ‘‘The amendments made by this sec- tion [amending this section] shall apply with respect to rehabilitation expenditures incurred after December 31, 1980.’’ Amendment by sections 203 and 209 of Pub. L. 97–34 applicable to property placed in service after Dec. 31, 1980, in taxable years ending after that date, except that amendment by section 203(c) of Pub. L. 97–34 effec- tive Jan. 1, 1981, and applicable with respect to taxable years ending after that date, see section 209(a), (b) of Pub. L. 97–34, set out as an Effective Date note under section 168 of this title. Amendment by section 212(d)(1) of Pub. L. 97–34 appli- cable to expenditures incurred after Dec. 31, 1981, in taxable years ending after that date, see section 212(e) of Pub. L. 97–34, set out as a note under section 46 of this title. EFFECTIVE DATE OF 1980 AMENDMENT Pub. L. 96–613, § 2(b), Dec. 28, 1980, 94 Stat. 3579, pro- vided that: ‘‘The amendments made by subsection (a) [amending this section] shall apply with respect to tax- able years ending after December 31, 1953.’’ EFFECTIVE AND TERMINATION DATES OF 1978 AMENDMENT Amendment by section 312(c)(4) of Pub. L. 95–600 ap- plicable to taxable years ending after Dec. 31, 1978, see Page 782 TITLE 26—INTERNAL REVENUE CODE § 167 section 312(d) of Pub. L. 95–600, set out as an Effective Date of 1978 Amendment note under section 46 of this title. Pub. L. 95–600, title VII, § 701(f)(8), Nov. 6, 1978, 92 Stat. 2903, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘The amendments made by this subsection [amending this section and sections 57, 191, 280B, 1245, and 1250 of this title] shall take effect as if included in the respective provisions of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] to which such amendments relate, as such provision[s] were added to such Code, or amended, by section 2124 of the Tax Reform Act of 1976 [Pub. L. 94–455, title XXI, § 2124, Oct. 4, 1976, 90 Stat. 1916].’’ Amendment by Pub. L. 95–615 to cease to have effect on the day after Nov. 8, 1978, see section 210(a) of Pub. L. 95–615, set out as a Termination Date of 1978 Amend- ment note under section 61 of this title. Amendment by section 301(d)(3) of Pub. L. 95–618 ap- plicable to property which is placed in service after Sept. 30, 1978, but not to property which is constructed, reconstructed, erected, or acquired pursuant to a con- tract which, on Oct. 1, 1978, and at all times thereafter, was binding on the taxpayer, see section 301(d)(4) of Pub. L. 95–618, set out as an Effective Date of 1978 Amendment note under section 48 of this title. Pub. L. 95–618, title III, § 301(e)(2), Nov. 9, 1978, 92 Stat. 3201, provided that: ‘‘The amendment made by para- graph (1) [amending this section] shall apply to taxable years ending after the date of enactment of this Act [Nov. 9, 1978].’’ EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 1901(a)(27)(A) of Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title. Amendment by section 202(c)(3) of Pub. L. 94–455 ap- plicable for taxable years ending after Dec. 31, 1975, see section 202(d) of Pub. L. 94–455, set out as a note under section 1250 of this title. Pub. L. 94–455, title II, § 203(b), Oct. 4, 1976, 90 Stat. 1531, as amended by Pub. L. 95–171, § 4(b), Nov. 12, 1977, 91 Stat. 1355; Pub. L. 95–615, § 7(b), Nov. 8, 1978, 92 Stat. 3098, provided that: ‘‘The amendments made by para- graphs (1), (3), and (4) of subsection (a) [amending this section] shall apply to expenditures paid or incurred after December 31, 1975. The amendment made by para- graph (2) of subsection (a) [amending this section] shall apply to expenditures incurred after December 31, 1975.’’ [Section 7(b) of Pub. L. 95–615 (which amended section 203(b) of Pub. L. 94–455 exactly as that section 203(b) had been amended by Pub. L. 95–171) to cease to have effect on the day after Nov. 8, 1978, see section 210(a) of Pub. L. 95–615, set out as a Termination Date of 1978 Amendment note under section 61 of this title.] Pub. L. 94–455, title XXI, § 2124(c)(2), (d)(2), Oct. 4, 1976, 90 Stat. 1918, 1919, which provided that the amendment of this section was applicable to that portion of the basis attributable to construction, reconstruction, or erection after Dec. 31, 1975, and before Jan. 1, 1981, and with respect to additions to capital account occurring after June 30, 1976, and before July 1, 1981, was repealed by Pub. L. 96–541, § 2(e)(3), (4), Dec. 17, 1980, 94 Stat. 3205. EFFECTIVE DATE OF 1975 AMENDMENT Pub. L. 93–625, § 5(d), Jan. 3, 1975, 88 Stat. 2112, pro- vided that: ‘‘The amendments made by this section [amending section 1250 of this title and enacting and re- pealing provisions set out as notes under this section] shall apply with respect to property placed in service after December 31, 1973.’’ EFFECTIVE DATE OF 1971 AMENDMENT Pub. L. 92–178, title I, § 109(d)(1), Dec. 10, 1971, 85 Stat. 509, provided that: ‘‘The amendments made by sub- section (a) [amending this section] shall apply to prop- erty placed in service after December 31, 1970.’’ EFFECTIVE DATE OF 1969 AMENDMENT Pub. L. 91–172, title IV, § 441(b), Dec. 30, 1969, 83 Stat. 628, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply with re- spect to all taxable years for which a return has not been filed before August 1, 1969.’’ Pub. L. 91–172, title V, § 521(g), Dec. 30, 1969, 83 Stat. 654, provided that: ‘‘The amendments made by this sec- tion [amending this section and sections 381 and 1250 of this title] shall apply with respect to taxable years end- ing after July 24, 1969.’’ EFFECTIVE DATE OF 1967 AMENDMENT Amendment by Pub. L. 90–26 applicable with respect to taxable years ending after March 9, 1967, see section 4 of Pub. L. 90–26, set out as a note under section 48 of this title. EFFECTIVE DATE OF 1966 AMENDMENT Amendment by Pub. L. 89–800 applicable to taxable years ending after Oct. 9, 1966, see section 4 of Pub. L. 89–800, set out as a note under section 46 of this title. EFFECTIVE DATE OF 1962 AMENDMENT Amendment by section 13(b) of Pub. L. 87–834 applica- ble to taxable years beginning after Dec. 31, 1962, and amendment by section 13(c)(1) of Pub. L. 87–834 applica- ble to taxable years beginning after Dec. 31, 1961, and ending after Oct. 16, 1962, see section 13(g) of Pub. L. 87–834, set out as an Effective Date note under section 1245 of this title. EFFECTIVE DATE OF 1958 AMENDMENT Amendment by Pub. L. 85–866 applicable only if mail- ing occurs after Sept. 2, 1958, see section 89(d) of Pub. L. 85–866, set out as a note under section 7502 of this title. SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989 For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title. DISCONTINUATION OF RETIREMENT-REPLACEMENT-BET- TERMENT METHOD OF DEPRECIATION; TRANSITIONAL RULE Pub. L. 97–34, title II, § 203(c)(2), (3), Aug. 13, 1981, 95 Stat. 222, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(2) CHANGE IN METHOD OF ACCOUNTING.—Sections 446 and 481 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall not apply to the change in the method of depreciation to comply with the provisions of this subsection [which struck out subsec. (r) of this section relating to the retirement-replacement-betterment method of accounting]. ‘‘(3) TRANSITIONAL RULE.—The adjusted basis of RRB property (as defined in section 168(g)(6) of such Code) as of December 31, 1980, shall be depreciated using a useful life of no less than 5 years and no more than 50 years and a method described in section 167(b) of such Code, including the method described in section 167(b)(2) of Page 783 TITLE 26—INTERNAL REVENUE CODE § 168 1 See References in Text note below. such Code, switching to the method described in sec- tion 167(b)(3) of such Code at a time to maximize the deduction.’’ INTERNAL REVENUE CODE PROVISIONS RELATING TO DE- PRECIATION AS NOT APPLICABLE TO CALCULATIONS OF SECRETARY OF HEALTH AND HUMAN SERVICES IN DE- TERMINING COSTS OF PROGRAMS Pub. L. 97–34, title II, § 203(e), Aug. 13, 1981, 95 Stat. 222, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘The Secretary of Health and Human Services is not required to apply any provision of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], as amended, in calculating depreciation (for the purpose of determining any cost under a program ad- ministered by the Secretary), unless a provision of law requires so expressly.’’ CLASS LIFE SYSTEM; APPLICATION TO REAL PROPERTY; GENERAL RULE Pub. L. 93–625, § 5(a), Jan. 3, 1975, 88 Stat. 2112, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘In the case of buildings and other items of section 1250 property (within the meaning of section 1250(c) of the Internal Revenue Code of 1986 [for- merly I.R.C. 1954]) placed in service before the effective date of the class lives first prescribed by the Secretary of the Treasury or his delegate under section 167(m) of such Code for the class in which such property falls, if an election under such section 167(m) applies to the taxpayer for the taxable year in which such property is placed in service, the taxpayer may, in accordance with regulations prescribed by the Secretary of the Treasury or his delegate, elect to determine the useful life of such property— ‘‘(1) under Revenue Procedure 62–21 (as amended and supplemented) as in effect on December 31, 1970, or ‘‘(2) on the facts and circumstances.’’ TRANSITIONAL RULES FOR REASONABLE ALLOWANCE FOR DEPRECIATION Pub. L. 92–178, title I, § 109(e), Dec. 10, 1971, 85 Stat. 510, as amended by Pub. L. 93–625, § 5(b), Jan. 3, 1975, 88 Stat. 2112; Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) [Repealed. Pub. L. 93–625, § 5(b), Jan. 3, 1975, 88 Stat. 2112.] ‘‘(2) SUBSIDIARY ASSETS.—If a significant portion of a class of property first prescribed by the Secretary of the Treasury or his delegate under section 167(m) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] consists of subsidiary assets, all such subsidiary assets in such class placed in service by the taxpayer during the period beginning on January 1, 1971, and ending on December 31, 1973 (or such earlier date on which a class which includes such subsidiary assets subsequently pre- scribed by the Secretary of the Treasury or his delegate under such section becomes effective), may, in accord- ance with regulations prescribed by the Secretary of the Treasury or his delegate, be excluded by the tax- payer from an election under such section.’’ REHABILITATION EXPENDITURES FOR LOW INCOME RENT- AL HOUSING INCURRED AFTER DECEMBER 31, 1974, AND BEFORE JANUARY 1, 1978, PURSUANT TO CONTRACT ENTERED BEFORE DECEMBER 31, 1974 Pub. L. 93–482, § 4, Oct. 26, 1974, 88 Stat. 1456, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘Notwithstanding the provisions of section 167(k)(1) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to depreciation of ex- penditures to rehabilitate low income rental housing), the provisions of section 167(k) shall apply with respect to rehabilitation expenditures incurred with respect to low income rental housing after December 31, 1974, and before January 1, 1978, if such expenditures are incurred pursuant to a binding contract entered into before De- cember 31, 1974.’’ § 168. Accelerated cost recovery system (a) General rule Except as otherwise provided in this section, the depreciation deduction provided by section 167(a) for any tangible property shall be deter- mined by using— (1) the applicable depreciation method, (2) the applicable recovery period, and (3) the applicable convention. (b) Applicable depreciation method For purposes of this section— (1) In general Except as provided in paragraphs (2) and (3), the applicable depreciation method is— (A) the 200 percent declining balance meth- od, (B) switching to the straight line method for the 1st taxable year for which using the straight line method with respect to the ad- justed basis as of the beginning of such year will yield a larger allowance. (2) 150 percent declining balance method in certain cases Paragraph (1) shall be applied by sub- stituting ‘‘150 percent’’ for ‘‘200 percent’’ in the case of— (A) any 15-year or 20-year property not re- ferred to in paragraph (3), (B) any property (other than property de- scribed in paragraph (3)) which is a qualified smart electric meter or qualified smart elec- tric grid system, or (C) any property (other than property de- scribed in paragraph (3)) with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply. (3) Property to which straight line method ap- plies The applicable depreciation method shall be the straight line method in the case of the fol- lowing property: (A) Nonresidential real property. (B) Residential rental property. (C) Any railroad grading or tunnel bore. (D) Property with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply. (E) Property described in subsection (e)(3)(D)(ii). (F) Water utility property described in subsection (e)(5). (G) Qualified improvement property de- scribed in subsection (e)(6). (4) Salvage value treated as zero Salvage value shall be treated as zero. (5) Election An election under paragraph (2)(D) 1 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