For purposes of this subparagraph, all rehabilitation expenditures which are incurred in connection with the rehabilitation of an element of section 1250 property shall be considered incurred on the date the last such expenditure is considered incurred under the accrual method of accounting, regardless of the method of accounting used by the taxpayer with regard to other items of income and expense. If the property consists of two or more elements (for example, if the property is placed in service at different times), then each element shall be treated as if it were a separate property and the expenditures attributable to each such element shall be considered incurred on the date the last such expenditure is considered incurred.
Year | Actual depreciation | Straight line | Additional depreciation (deficit) |
1963 | $2,000 | $900 | |
1964 | 1,600 | 900 | $700 |
1965 | 1,280 | 900 | 380 |
1966 | 1,024 | 900 | 124 |
1967 | 819 | 900 | (81) |
Sum for periods after Dec. 31, 1963 | 4,723 | 3,600 | 1,123 |
Years | Depreciation | Straight line | Additional depreciation (deficit) |
1964 through 1967 | $4,723 | $3,600 | $1,123 |
1968 | 400 | 678 | (278) |
1969 | 400 | 678 | (278) |
Sum for periods after Dec. 31, 1963 | 5,523 | 4,956 | 567 |
Year | Actual depreciation | Straight line | Additional depreciation (deficit) |
1971 | $10,000 | $3,000 | $7,000 |
1972 | 10,000 | 3,000 | 7,000 |
1973 | 10,000 | 3,000 | 7,000 |
1974 | 10,000 | 3,000 | 7,000 |
1975 | 10,000 | 3,000 | 7,000 |
1976 | 3,000 | (3,000) | |
1977 | 3,000 | (3,000) | |
Total | 50,000 | 21,000 | 29,000 |
Example: Assume that a leasehold improvement with a useful life of 30 years is properly amortized on the basis of a 10-year initial lease term. The lease is renewable for an additional 9 years. The period taken into account is 162/3 years, that is, 10 years plus two-thirds of 10 years. If, however, the leasehold improvement were disposed of at the end of 12 years, and if its remaining useful life were only 3 years, then the period taken into account would be 15 years.
Example: On January 1, 1966, a calendar year taxpayer purchases for $100,000 a building for use in his trade or business. He takes depreciation deductions of $20,000 (the amount allowable), of which $3,000 is additional depreciation, and transfers the building to his son as a gift on January 1, 1968. Since the exception for gifts in section 1250(d)(1) applies, the taxpayer does not recognize gain under section 1250(a)(2). In the son's adjusted basis of $80,000 for the building there is reflected $3,000 of additional depreciation. On January 1, 1969, after taking a depreciation deduction of $10,000 (the amount allowable), of which $1,000 is additional depreciation, the son sells the building. At the time of the sale the additional depreciation is $4,000 ($3,000 allowed the father plus $1,000 allowed the son).
Example: In the year 1969 it becomes necessary to determine the additional depreciation in respect of section 1250 property, the adjusted basis of which reflects a depreciation adjustment of $1,000 with respect to depreciation deductions allowable for the calendar year 1965 under the sum of the years-digits method. Under paragraph (b)(1)(ii) of this section, the depreciation which would have resulted under the straight line method for 1965 is $800. If the taxpayer can establish by adequate records or other sufficient evidence that he did not take, and was not allowed, any deduction for depreciation in respect of the property in 1965, then, for purposes of computing the depreciation adjustments in excess of straight line in respect of the property, the amount to be taken into account for 1965 as allowed or allowable is zero, and the amount to be taken into account in computing deductions which would have resulted under the straight line method in 1965 is $800. Thus, in effect, there is a deficit in additional depreciation for 1965 of $800.
26 C.F.R. §1.1250-2