Internal Revenue Service
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 Rev. Rul. 75-55

1975-1 C.B. 74

Sec. 48
Sec. 167
Sec. 1245
Sec. 1250

IRS Headnote

Depreciation; used real property; component method. In applying the provisions of Rev. Rul. 73-410 to used buildings acquired after July 24, 1969, a taxpayer must use one of the applicable methods of depreciation prescribed by section 167(j)(4) or (5) of the Code for the various structural components of the building; Rev. Rul. 73-410 clarified.

Full Text

Rev. Rul. 75-55

Advice has been requested whether in applying the provisions of Rev. Rul. 73-410, 1973-2 C.B. 53, to used buildings acquired after July 24, 1969, a taxpayer must use one of the methods prescribed by section 167(j)(4) and (5) of the Internal Revenue Code of 1954 for the various structural components of the building.

Rev. Rul. 73-410 provides, in part, that the component method of depreciation may be used to compute depreciation on a used building if the cost is properly allocated to the various components based on their value, and useful lives are assigned to the component accounts based on the condition of such components at the time of acquisition.

Section 167(j)(4) of the Code provides, in part, that, except as provided in section 167(j)(5), in the case of section 1250 property acquired after July 24, 1969, the original use of which does not commence with the taxpayer, an allowance for depreciation is limited to an amount computed under the straight line method or any other method determined by the Secretary or his delegate to result in a reasonable allowance under section 167(a), not including (i) any declining balance method, (ii) the sum of the years-digits method, or (iii) any other method allowable solely by reason of the application of section 167(b)(4) or 167(j)(1)(C).

In addition to the methods of depreciation described in section 167(j)(4) of the Code, section 167(j)(5) provides, in part, that section 1250 property that is residential rental property acquired after July 24, 1969, having a useful life of 20 years or more, the original use of which does not commence with the taxpayer, may be depreciated by the use of the declining balance method using a rate not exceeding 125 percent of the straight line rate.

Section 1250(c) of the Code defines "section 1250 property" as any real property (other than section 1245 property, as defined in section 1245(a)(3)) that is or has been property subject to the allowance for depreciation provided in section 167.

Section 1.1250-1(e)(3) of the Income Tax Regulations provides, in part, that the term "real property" for the purposes of section 1250 of the Code includes buildings and their structural components within the meaning of section 1.1245-3(c).

Section 1.1245-3(c) of the regulations provides, in part, that the term "structural component" shall have the meaning assigned to that term in section 1.48-1(e).

It is held that in applying the provisions of Rev. Rul. 73-410 to used buildings acquired after July 24, 1969, a taxpayer must use one of the applicable methods of depreciation prescribed by section 167(j)(4) and (5) of the Code for the various "structural components" of the building, within the meaning of that term in section 1.48-1(e) of the regulations.

Rev. Rul. 73-410 is clarified.