Eva Zhang- USTC Exam Preparation – 2002 S-9 - IRC §§ 167 & 168 – Depreciation I.R.C. § 167 – Depreciation https://www.law.cornell.edu/uscode/text/26/167 I.R.C. § 168 - Accelerated cost recovery system https://www.law.cornell.edu/uscode/text/26/168 Publication 946 How to Depreciation Property https://www.irs.gov/publications/p946/ch01.html#en_US_2013_publink1000107337 Publication 534 Depreciating Property Placed in Service Before 1987 https://www.irs.gov/publications/p534/ch01.html#en_US_201609_publink100043592 Liddle v. Commissioner, 103 T.C. 285 (1994). Question/Issue: IRC §§ 167 and 168 provide differing capital cost/depreciation rules. Discuss in general terms the essential differences between the two deduction rules. Rule: I.R.C. § 167 – Depreciation (a) General rule. There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence)— (1) of property used in the trade or business, or (2) of property held for the production of income. I.R.C. § 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 determined by using— (1) the applicable depreciation method, (2) the applicable recovery period, and (3) the applicable convention. Application:

Publication 946 How to Depreciation Property

What Property Can Be Depreciated You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. You also can depreciate certain intangible property, such as patents, copyrights, and computer software. To be depreciable, the property must meet all the following requirements. It must be property you own. It must be used in your business or income-producing activity. It must have a determinable useful life. It must be expected to last more than one year. *** What Method Can You Use To Depreciate Your Property? You cannot use MACRS to depreciate the following property: Property you placed in service before 1987. Certain property owned or used in 1986. Intangible property. Films, video tapes, and recordings. Certain corporate or partnership property acquired in a nontaxable transfer. Property you elected to exclude from MACRS. Publication 534 Depreciating Property Placed in Service Before 1987 What Can and Cannot Be Depreciated Under ACRS ACRS applies to most depreciable tangible property placed in service after 1980 and before 1987. It includes new or used and real or personal property. The property must be for use in a trade or business or for the production of income. Property you acquired before 1981 or after 1986 is not ACRS recovery property. Nonrecovery Property You cannot use ACRS for property you placed in service before 1981 or after 1986. Nonrecovery property also includes: Intangible property Suggested Answer: Both IRC §§ 167 and 168 purport to provide that a depreciation deduction for the exhaustion, wear and tear, and obsolescence of property used in the trade or business or of property held by the taxpayer for the production of income. Both tangible and intangible property can be depreciated under IRC § 167. By contrast, the deductions under IRC § 168 are limited to recovery property, which is defined as tangible property of a character subject to the allowance for depreciation.