SECTION 6. DEPRECIATION — Internal Revenue Bulletin 2024-23

AMORTIZATION (§ 56(a)(1), 167, 168, 197, 280F(a), or 1502, OR FORMER § 56(g)(4)(A), 168, 1400I, 1400L, or 1400N(d)).

01 Impermissible to permissible method of accounting for depreciation or amortization

(1) Description of change (a) Applicability . This change applies to a taxpayer that wants to change from an impermissible to a permissible method of accounting for depreciation or amortization (depreciation) for any item of depreciable or amortizable property under the taxpayer’s present or proposed method of accounting:

(i) for which the taxpayer used the impermissible method of accounting in at

least two taxable years immediately preceding the year of change (but see section 6. 01(1)(b) of this revenue procedure for property placed in service in the taxable year immediately preceding the year of change);

(ii) for which the taxpayer is making a change in method of accounting under § 1. 446-1(e)(2)(ii)( d );

(iii) for which depreciation is determined under § 56(a)(1), § 56(g)(4)(A) (as in effect on the day before the date of enactment of Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA)), § 167, § 168, § 197, § 1400I, or § 1400L(c), under § 168 prior to its amendment in 1986 (former § 168), or under any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)); and

(iv) that is owned by the taxpayer at the beginning of the year of change (but see section 6. 07 of this revenue procedure for property disposed of before the year of change).

(b) Taxpayer has not adopted a method of accounting for the item of property . If a taxpayer does not satisfy section 6. 01(1)(a)(i) of this revenue procedure for an item of depreciable or amortizable property because this item of property is placed in service by the taxpayer in the taxable year immediately preceding the year of change (“1-year depreciable property”), the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year depreciable property by filing a Form 3115 for this change, provided the § 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment that is attributable to all property (including the 1-year depreciable property) subject to the Form 3115. Alternatively, the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for a 1-year depreciable property by filing an amended federal income tax return, or an administrative adjustment request under § 6227 (AAR), as applicable, for the property’s placed-in-service year prior to the date the taxpayer files its federal

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income tax return for the taxable year succeeding the placed-in-service year.

(i) any property to which § 1016(a)(3) (regarding property held by a tax-exempt organization) applies;

(ii) a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect to which the taxpayer wants to change its method of accounting under this section 6. 01 if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 12. 01, 12. 02, 12. 08, or 12. 12 of this revenue procedure (as applicable);

(iii) any property for which a taxpayer is making a change in depreciation under § 1. 446-1(e)(2)(ii)( d )( 2 )( vi ) or ( vii );

(iv) any property subject to § 167(g) regarding property depreciated under the income forecast method;

(v) any § 1250 property that a taxpayer is reclassifying to an asset class of Rev. Proc. 87-56, 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22, 1988-1 C. B. 785), or Rev. Proc. 83-35, 1983-1 C. B. 745, as appropriate, that does not explicitly include § 1250 property (for example, asset class 57. 0, Distributive Trades and Services);

(vi) any property for which a taxpayer is revoking a timely valid election, or making a late election, under § 167, § 168, § 179, § 1400I, § 1400L(c), former § 168, § 13261(g)(2) or (3) of the Revenue Reconciliation Act of 1993 (1993 Act), 1993-3 C. B. 1, 128 (relating to amortizable § 197 intangibles), or any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)). A taxpayer may request consent to revoke or make the election by submitting a request for a letter ruling under Rev. Proc. 2024-1, 2024-1 I. R. B. 1 (or successor). However, if a taxpayer is revoking or making an election under § 179, see § 179(c) and § 1. 179-5. See § 1. 446-1(e)(2)(ii)( d )( 3 )( iii );

(vii) any property for which depreciation is determined under § 56(g)(4)(A) (as in effect on the day before the date of enactment of the TCJA) or § 167 (other than under § 168, § 1400I, § 1400L(c),

former § 168, or any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)) and a taxpayer is changing the useful life of the property. A change in the useful life of property is corrected by adjustments in the applicable taxable year provided under § 1. 446-1(e) (2)(ii)( d )( 5 )( iv ). However, this section 6. 01(1)(c)(vii) does not apply if the taxpayer is changing to or from a useful life, recovery period, or amortization period that is specifically assigned by the Code (for example, § 167(f)(1), § 168(c)), the regulations thereunder, or other guidance published in the Internal Revenue Bulletin and, therefore, this change is a change in method of accounting (unless section 6. 01(1)(c)(xv) of this revenue procedure applies). See § 1. 446-1(e)(2)(ii)( d )( 3 )( i );

(viii) any depreciable property for which the use changes in the hands of the same taxpayer. See § 1. 446-1(e)(2)(ii)( d ) ( 3 )( ii ). But see sections 6. 04 and 6. 05 of this revenue procedure for changing to the methods of accounting provided in § 1. 168(i)-1(c)(2)(ii)(I) or § 1. 168(i)-1(h) (2), and § 1. 168(i)-4, respectively;

(ix) any property for which depreciation is determined in accordance with § 1. 167(a)-11 (regarding the Class Life Asset Depreciation Range System (ADR));

(x) any change in method of accounting involving a change from deducting the cost or other basis of any property as an expense to capitalizing and depreciating the cost or other basis, or vice versa (but see section 11. 08 of this revenue procedure for making such a change in method of accounting under the final tangible property regulations);

(xi) any change in method of accounting involving a change from one permissible method of accounting for the property to another permissible method of accounting for the property. For example:

(A) a change from the straight-line method of depreciation to the income forecast method of depreciating for videocassettes. See Rev. Rul. 89-62, 1989-1 C. B. 78; or

(B) a change from charging the depreciation reserve with costs of removal and crediting the depreciation reserve with salvage proceeds to deducting costs of removal as an expense (provided the costs

of removal are not required to be capitalized under any provision of the Code, such as § 263(a)) and including salvage proceeds in taxable income (see section 6. 02 of this revenue procedure for making this change for property for which depreciation is determined under § 167);

(xii) any change in method of accounting involving both a change from treating the cost or other basis of the property as nondepreciable or nonamortizable property to treating the cost or other basis of the property as depreciable or amortizable property and the adoption of a method of accounting for depreciation requiring an election under § 167, § 168, § 1400I, § 1400L(c), former § 168, § 13261(g)(2) or (3) of the 1993 Act, or any additional first year depreciation deduction provision of the Code (for example, § 168(k), § 168(l), § 1400L(b), or § 1400N(d)) (for example, a change in the treatment of the space consumed in landfills placed in service in 2006 from nondepreciable to depreciable property (assuming section 6. 01(1)(c)(xiii) of this revenue procedure does not apply) and the making of an election under § 168(f)(1) to depreciate this property under the unit-of-production method of depreciation under § 167);

(xiii) any change in method of accounting for any item of income or deduction other than depreciation, even if the change results in a change in computing depreciation under § 1. 446-1(e)(2)(ii)( d )( 2 )( i ), ( ii ), ( iii ), ( iv ), ( v ), ( vi ), ( vii ), or ( viii ). For example, a change in method of accounting involving:

(A) a change in inventory costs (for example, when property is reclassified from inventory property to depreciable property, or vice versa ) (but see section 11. 02 of this revenue procedure for making a change in method of accounting from inventory property to depreciable property for unrecoverable line pack gas or unrecoverable cushion gas, and section 11. 06 of this revenue procedure for making a change in method of accounting from inventory property to depreciable property for rotable spare parts); or

(B) a change in the character of a transaction from sale to lease, or vice versa (but see section 6. 03 of this revenue procedure for making this change);

(xiv) a change from determining depreciation under § 168 to determining

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the deferral of federal income tax liability associated with the § 481(a) adjustment applicable to the public utility property subject to the Form 3115; and

(C) within 30 calendar days of filing the federal income tax return for the year of change, the taxpayer will provide a copy of the completed Form 3115 to any regulatory body having jurisdiction over the public utility property subject to the Form 3115;

(vi) if the taxpayer is changing the classification of an item of § 1250 property placed in service after August 19, 1996, to a retail motor fuels outlet under § 168(e) (3)(E)(iii), a statement containing the following representation: “For purposes of § 168(e)(3)(E)(iii) of the Internal Revenue Code, the taxpayer represents that (A) 50 percent or more of the gross revenue generated from the item of § 1250 property is from the sale of petroleum products (not including gross revenue from related services, such as the labor cost of oil changes and gross revenue from the sale of nonpetroleum products such as tires and oil filters), (B) 50 percent or more of the floor space in the item of property is devoted to the sale of petroleum products (not including floor space devoted to related services, such as oil changes and floor space devoted to nonpetroleum products such as tires and oil filters), or (C) the item of § 1250 property is 1,400 square feet or less. ”; and

(vii) if the taxpayer is changing the classification of an item of property from § 1250 property to § 1245 property under § 168 or former § 168, a statement of the facts and law supporting the new § 1245 property classification, and a statement containing the following representation: “Each item of depreciable property that is the subject of the Form 3115 filed under section 6. 01 of Rev. Proc. 2024-23 for the year of change beginning [ Insert the date] , and that is reclassified from [ Insert, as appropriate: nonresidential real prop- erty, residential rental property, qualified leasehold improvement property, quali- fied restaurant property, qualified retail improvement property, qualified improve- ment property as defined in § 168(e)(6) (as amended by § 13204 of the TCJA), 19-year real property, 18-year real prop- erty, or 15-year real property ] to an asset class of [ Insert, as appropriate, either:

depreciation under former § 168 for any property subject to the transition rules in § 203(b) or § 204(a) of the Tax Reform Act of 1986, 1986-3 (Vol . 1) C .B . 1, 60-80;

(xv) any change in the placed-in-service date of a depreciable or amortizable property . This change is corrected by adjustments in the applicable taxable year provided under § 1 .446-1(e)(2)(ii)( d )( 5 ) ( v );

(xvi) any property for which the taxpayer has claimed a federal income tax credit ( e.g., the rehabilitation credit under § 47), unless the change does not alter the amount of the federal income tax credit;

(xvii) any qualified improvement property, as defined in § 168(e)(6), placed in service by the taxpayer after December 31, 2017, to which section 6 .18 of this revenue procedure applies;

(xviii) any property to which section 4 or 5 of Rev . Proc . 2020-22, 2020-18 I .R .B . 745, applies . (See sections 4 .02 and 4 .03, or 5 .02 of Rev . Proc . 2020-22, as applicable, for making any changes to depreciation for such property .);

(xix) any change in method of accounting to which section 6 .20 of this revenue procedure applies; or

(xx) the change in method of accounting specified in section 6.21 of this revenue procedure .

(2) Certain eligibility rules inapplica- ble . The eligibility rule in section 5 .01(1) (d) of Rev . Proc . 2015-13, 2015-5 I .R .B . 419, does not apply to this change . If during any of the five taxable years ending with the year of change, a taxpayer requested or made a change in method of accounting from expensing to capitalizing, or vice versa, the cost or other basis of an asset, the eligibility rule in section 5 .01(1)(f) of Rev . Proc . 2015-13 is not applicable to a change under this section 6 .01 for that same asset . (3) Additional requirements . A taxpayer also must comply with the following:

(a) Permissible method of accounting for depreciation . A taxpayer must change to a permissible method of accounting for depreciation for the item of depreciable or amortizable property . The permissible method of accounting is the same method that determines the depreciation allowable for the item of property (as provided in section 6 .01(7) of this revenue procedure) .

(b) Statements required . A taxpayer (including a qualified small taxpayer as defined in section 6.01(4)(b) of this revenue procedure) must provide the following statements, if applicable, and attach them to the completed Form 3115:

(i) a detailed description of the present and proposed methods of accounting . A general description of these methods of accounting is unacceptable (for example, MACRS to MACRS, erroneous method to proper method, claiming less than the depreciation allowable to claiming the depreciation allowable);

(ii) to the extent not provided elsewhere on the Form 3115, a statement describing the taxpayer’s business or income-producing activities . Also, if the taxpayer has more than one business or income-producing activity, a statement describing the taxpayer’s business or income-producing activity in which the item of property at issue is primarily used by the taxpayer;

(iii) to the extent not provided elsewhere on the Form 3115, a statement of the facts and law supporting the proposed method of accounting, new classification of the item of property, and new asset class in, as appropriate, Rev . Proc . 87-56 or Rev . Proc . 83-35 . If the taxpayer is the owner and lessor of the item of property at issue, the statement of the facts and law supporting the new asset class also must describe the business or income-producing activity in which that item of property is primarily used by the lessee;

(iv) to the extent not provided elsewhere on the Form 3115, a statement identifying the year in which the item of property was placed in service by the taxpayer;

(v) if any item of property is public utility property within the meaning of § 168(i)(10) or former § 167(l)(3)(A), as applicable, a statement providing that the taxpayer agrees to the following additional terms and conditions:

(A) a normalization method of accounting (within the meaning of former § 167(l) (3)(G), former § 168(e)(3)(B), or § 168(i) (9), as applicable) will be used for the public utility property subject to the Form 3115; (B) as of the beginning of the year of change, the taxpayer will adjust its deferred tax reserve account or similar reserve account in the taxpayer’s regulatory books of account by the amount of

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