Element | Additional depreciation * | Applicable percentage= | Gain for element |
W | $12,000 * | 0= | 0 |
X | 6,000 * | 50= | $3,000 |
Y | 0 * | 63= | 0 |
Z | 6,000 * | 75= | 4,500 |
Totals | 24,000 | 7,500 |
Element | Additional depreciation * | Applicable percentage * | Ratio= | Gain for element |
W | $12,000 * | 0 * | 20:24= | 0 |
X | 6,000 * | 50 * | 20:24= | $2,500 |
Y | 0 * | 63 * | 20:24= | 0 |
Z | 6,000 * | 75 * | 20:24= | 3,750 |
Totals | 24,000 | 6,250 |
or the remaining gain (or remaining potential gain), by (2) the sum of the additional depreciation attributable to periods before January 1, 1970, in respect of each element having additional depreciation.
Element | Additional depreciation after Dec. 31, 1969 * | Applicable percentage= (1250(a)(1)) | Gain for element |
W | $14,000 * | 80= | $11,200 |
X | 6,000 * | 90= | 5,400 |
Y | 2,000 * | 95= | 1,900 |
Z | 10,000 * | 100= | 10,000 |
Total | 32,000 | 28,500 |
Element | Additional depreciation before Jan. 1, 1970 * | Applicable percentage= (1250(a)(2)) | Gain for element (1250)(a)(2)) |
W | $8,000 * | 0= | $0 |
X | 6,000 * | 10= | 600 |
Y | 2,000 * | 15= | 300 |
Z | 5,000 * | 60= | 3,000 |
Total | 21,000 | 3,900 |
Element | Additional depreciation * | Applicable percentage * (1250(a)(1)) | Ratio= | Gain for element |
W | $14,000 * | 80 * | 24:30= | $8,960 |
X | 6,000 * | 90 * | 24:30= | 4,320 |
Y | (6,000) * | 95 * | 24:30= | 0 |
Z | 10,000 * | 100 * | 24:30= | 8,000 |
Total | 24,000 | 21,280 |
Stage | Kind of element | Cost | Full months in holding period | Applicable percentage |
1 | Unit | $350,000 | 48 | 72 |
2 | Unit | 500,000 | 42 | 78 |
3 | Remaining property | 150,000 | 36 | 84 |
Then each such improvement during such period shall be treated as a separate improvement, and thus as an element. For purposes of (a) and (b) of this subdivision, the adjusted basis (or unadjusted basis) of section 1250 property shall be determined as of the beginning of the 36-month period, or as of the beginning of the holding period of the property (within the meaning of § 1.1250-4 ), whichever is the later.
Example:
Year | Adjusted basis | Unadjusted basis | 1 percent of unadjusted basis | Addition |
1969 | $94,000 | $100,000 | $1,000 | A-$10,000 |
1970 | 97,030 | 110,000 | 1,100 | B-4,000 |
1971 | 94,041 | 114,000 | 1,140 | C-6,000 |
1972 | 92,799 | 120,000 | 1,200 | |
1973 | 86,158 | 120,000 | 1,200 | D-18,000 |
Example: Section 1250 property has additional depreciation of $16,000 of which $12,000 is additional depreciation for element X and $4,000 for element Y. The property is transferred to a corporation in exchange for cash of $6,000 and for stock in the corporation. Assume that recognition of gain under section 1250(a) is limited to $6,000 (the amount of cash received) by reason of the application of section 351(b) (relating to transfer to corporation controlled by transferor) and section 1250(d)(3) (relating to limitation on application of section 1250 in certain tax-free transactions). Under paragraph (c)(3)(i) of § 1.1250-3 , the additional depreciation for the property in the hands of the corporation immediately after the transfer is $10,000, that is, the additional depreciation for the property in the hands of the transferor immediately before the transfer ($16,000) minus the gain under section 1250(a) recognized upon the transfer ($6,000). Under subparagraph (1) of this paragraph, in the hands of the corporation immediately after the transfer element X has additional depreciation of $7,500 (12/16 of $10,000) and element Y as additional depreciation of $2,500 (4/16 of $10,000). Under paragraph (d)(2)(ii) of this section there is an addition of $6,000 to the capital account for the property.
Then such separate improvement shall be treated for purposes of computing applicable percentage as placed in service on the first day, of a calendar month, which is the closest such first day to the middle of the taxable year. See the last sentence of section 1250(f)(4)(B). If two such first days are equally close to the middle of the taxable year, the earliest of such days is the applicable day.
Example:
26 C.F.R. §1.1250-5