SECTION 7. MEANING OF

DEPRECIATION ALLOWABLE

.01 In general . This section 7 discusses the amount of the depreciation allowable determined under § 167, § 168, § 197, or former § 168. This amount, however, may be limited under other provisions of the Code (for example, § 280F).

.02 Section 167 property . Generally, for any taxable year, the depreciation allowable for property subject to § 167 is determined either: (1) under the depreciation method adopted by a taxpayer for the property; or (2) if this depreciation method does not result in a reasonable allowance for depreciation or a taxpayer has not adopted a depreciation method for the property, under the straight-line depreciation method. For determining the estimated useful life and salvage value of the property, see § 1.167(a)–1(b) and (c), respectively. The depreciation allowable for any taxable year for property subject to § 167(f) (pertaining to certain property excluded from § 197) is determined by using the depreciation method and useful life prescribed in § 167(f).

.03 Section 168 property . The depreciation allowable for any taxable year for property subject to § 168 is determined by using either: (1) the general depreciation system in § 168(a); or (2) the alternative depreciation system in § 168(g) if the property is required to be depreciated under the alternative depreciation system pursuant to § 168(g)(1) or other provisions of the Code (for example, property described in § 263A(e)(2)(A) or § 280F(b)(1)). Property required to be depreciated under the alternative depreciation system pursuant to § 168(g)(1) includes property in a class for which the taxpayer made a timely election under § 168(g)(7).

.04 Section 197 property . The depreciation allowable for any taxable year for an amortizable § 197 intangible (including any property for which a timely election under § 13261(g)(2) of the 1993 Act was made) is determined by using the straight-line method over a 15-year period.

.05 Former § 168 property . The depreciation allowable for any taxable year for property subject to former § 168 is determined by using either: (1) the accelerated method of cost recovery applicable to the property (for example,

.04 Section 481(a) adjustment .

(1) In general . A change in method of accounting under this revenue procedure is treated as a voluntary change in method of accounting that is initiated by the taxpayer and, therefore, the § 481(a) adjustment is not restricted to post-1953 items.

(2) Amount of § 481(a) adjust- ment . The § 481(a) adjustment is a negative § 481(a) adjustment (decrease in taxable income) to prevent the

omission of the allowable but unclaimed depreciation for open and closed years prior to the year of change. This negative § 481(a) adjustment equals the difference between the total amount of depreciation taken into account in computing taxable income for the property under the taxpayer’s present method of accounting, and the total amount of depreciation allowable for the property under the taxpayer’s proposed method of accounting (as determined under section 7 of this revenue procedure), for any taxable year prior to the year of change. The amount of the negative § 481(a) adjustment, however, must be offset by any allowable but unclaimed depreciation that is required to be capitalized under any provision of the Code (for example, § 263A) as of the beginning of the year of change.

(3) Section 481(a) adjustment period . A taxpayer must take the entire negative § 481(a) adjustment into account in computing the taxable income in the year of change.

.05 Basis adjustment . The basis of depreciable property to which this revenue procedure applies must reflect the reductions required by § 1016(a)(2) for the depreciation allowable for the property (as determined under section 7 of this revenue procedure).