Treasury Regulations · 26 CFR
§ 1.1250-2. Additional depreciation defined.
Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).
Regulation under 26 U.S.C. § 1250
Cite as 26 CFR § 1.1250-2
At a glance
Read from the text and its source citation. Not part of the regulation.
- Status
- In the current eCFR
- Issued
- January 8, 1971 by T.D. 7084
- Last amended
- June 30, 1972 by T.D. 7193
- Issued under
- 26 U.S.C. § 1250
- Length
- 4,924 words · about 21 min to read
- Defines
- 4 terms
- Cross-references
- cites 13 Code sections and 6 regulations; cited by 5
For purposes of this subparagraph, all rehabilitation expenditures which are incurred in connection with the rehabilitation of an element of section 1250 property shall be considered incurred on the date the last such expenditure is considered incurred under the accrual method of accounting, regardless of the method of accounting used by the taxpayer with regard to other items of income and expense. If the property consists of two or more elements (for example, if the property is placed in service at different times), then each element shall be treated as if it were a separate property and the expenditures attributable to each such element shall be considered incurred on the date the last such expenditure is considered incurred.
A calendar year taxpayer sells section 1250 property on January 1, 1968, which he purchased for $10,000 on January 1, 1963. For the period of 1963 through 1967 he computed depreciation deductions in respect of the property under the declining balance method using a rate of 200 percent of the straight line rate and a proper useful life of 10 years. Under such method salvage value is not taken into account in computing annual allowances. For purposes of applying subparagraph (3) of this paragraph, if the taxpayer had used the straight line method for such period, he would have used a salvage value of $1,000, and the depreciation under the straight line method would have been $900 each year, that is, one-tenth of $10,000 minus $1,000. As of January 1, 1968, the additional depreciation for the property is $1,123, as computed in the table below:
| Year | Actual depreciation | Straight line | Additional depreciation (deficit) |
|---|---|---|---|
| 1963 | $2,000 | $900 | |
| 1964 | 1,600 | 900 | $700 |
| 1965 | 1,280 | 900 | 380 |
| 1966 | 1,024 | 900 | 124 |
| 1967 | 819 | 900 | (81) |
| Sum for periods after Dec. 31, 1963 | 4,723 | 3,600 | 1,123 |
Assume the same facts as in example (1) except that the taxpayer sells the section 1250 property on January 1, 1970. Assume further that as of January 1, 1968, the taxpayer elects under section 167(e)(1) to change to the straight line method. On that date the adjusted basis of the property is $3,277 ($10,000 minus $6,723). He redetermines the remaining useful life of the property to be 8 years and its salvage value to be $77, and thus takes depreciation deductions for 1968 and 1969 of $400 (the amount allowable) for each such year, that is, one-eighth of $3,200 (that is, $3,277 minus $77). For purposes of applying subparagraph (3) of this paragraph, if he had used the straight line method throughout the period he held the property, the adjusted basis of the property on January 1, 1968, would have been $5,500 ($10,000 minus $4,500), and the depreciation which would have resulted under such method for 1968 and 1969 would have been $678 for each such year, that is, one-eighth of $5,423 ($5,500 minus $77). As of January 1, 1970, the additional depreciation for the property is $567, as computed in the table below:
| Years | Depreciation | Straight line | Additional depreciation (deficit) |
|---|---|---|---|
| 1964 through 1967 | $4,723 | $3,600 | $1,123 |
| 1968 | 400 | 678 | (278) |
| 1969 | 400 | 678 | (278) |
| Sum for periods after Dec. 31, 1963 | 5,523 | 4,956 | 567 |
On January 1, 1978, a calendar year taxpayer sells section 1250 property. The property, which is attributable to rehabilitation expenditures of $50,000 incurred in 1970, was placed in service on January 1, 1971. The taxpayer elected to compute depreciation for the period of 1971 through 1975 under section 167(k). Under such section salvage value is not taken into account in computing annual allowances, and the useful life of the property is deemed to be 5 years. For purposes of applying subparagraph (4) of this paragraph, if the taxpayer had used the straight line method permitted under section 167(b)(1) for such period, he would have used a salvage value of $5,000 and a useful life of 15 years. Depreciation under the straight line method would thus have been $3,000 each year, 1/15 of $45,000 (that is, $50,000 minus $5,000). As of January 1, 1978, the additional depreciation for the property is $29,000, as computed in the table below:
| Year | Actual depreciation | Straight line | Additional depreciation (deficit) |
|---|---|---|---|
| 1971 | $10,000 | $3,000 | $7,000 |
| 1972 | 10,000 | 3,000 | 7,000 |
| 1973 | 10,000 | 3,000 | 7,000 |
| 1974 | 10,000 | 3,000 | 7,000 |
| 1975 | 10,000 | 3,000 | 7,000 |
| 1976 | 3,000 | (3,000) | |
| 1977 | 3,000 | (3,000) | |
| Total | 50,000 | 21,000 | 29,000 |
Section 1250 property which has an adjusted basis of $108,000 is sold for $146,000 on December 31, 1972, and thus the gain realized is $38,000. The property was acquired on December 31, 1963. The applicable percentage for the period before January 1, 1970, is 12 percent (paragraph (d)(2) of § 1.1250-1) and the applicable percentage for the period after December 31, 1969, is 100 percent (paragraph (d)(1)(i)(e) of § 1.1250-1). The additional depreciation must be computed separately for the period before January 1, 1970, and for the period after December 31, 1969. Assume that the additional depreciation for the period before January 1, 1970, is $32,000 and that there is a deficit in additional depreciation of $2,000 for the period after December 31, 1969. Accordingly, the additional depreciation for the period before January 1, 1970 ($32,000) is reduced to $30,000 by the $2,000 deficit in additional depreciation for the period after December 31, 1969. Although section 1250(a)(1) applies to the property, none of the gain is recognized as ordinary income under that section since there is a deficit in additional depreciation for the period after December 31, 1969. Gain is recognized under section 1250(a)(2) since there is remaining gain of $38,000 (that is, gain realized, $38,000, minus the additional depreciation attributable to periods after December 31, 1969, zero). Since the additional depreciation attributable to the period before January 1, 1970 ($30,000), is lower than the gain realized ($38,000), the amount of gain recognized under section 1250(a)(2) is $3,600 (that is, 12 percent of $30,000).
Section 1250 property which has an adjusted basis of $207,000 is sold for $267,000 on February 24, 1988, and thus the gain realized is $60,000. The property was acquired on April 30, 1970. The applicable percentage for the period from April 30, 1970, through December 31, 1981, is 60 percent (paragraph (d)(1)(i)(c) of § 1.1250-1) and the applicable percentage for the period from January 1, 1982, through February 24, 1988, is 100 percent (paragraph (d)(1)(i)(e) of § 1.1250-1). The additional depreciation must be computed separately for the period before January 1, 1982, and for the period after December 31, 1981. Assume that the additional depreciation for the period before January 1, 1982, is $43,000 and that there is a deficit in additional depreciation of $6,000 for the period after December 31, 1981. Accordingly, the additional depreciation for the period before January 1, 1982 ($43,000), is reduced to $37,000 by the $6,000 deficit for the period after December 31, 1981. There is no gain recognized under section 1250(a)(1) for the period after December 31, 1981, since there is a deficit in additional depreciation for that period. The gain recognized under section 1250(a)(1) for the period before January 1, 1982, is $22,200, that is, the lower of the gain realized attributable to that period ($60,000) or the additional depreciation attributable to that period ($37,000), or $37,000, multiplied by 60 percent, the applicable percentage.
Assume that a leasehold improvement with a useful life of 30 years is properly amortized on the basis of a 10-year initial lease term. The lease is renewable for an additional 9 years. The period taken into account is 16 2/3 years, that is, 10 years plus two-thirds of 10 years. If, however, the leasehold improvement were disposed of at the end of 12 years, and if its remaining useful life were only 3 years, then the period taken into account would be 15 years.
On January 1, 1966, a calendar year taxpayer purchases for $100,000 a building for use in his trade or business. He takes depreciation deductions of $20,000 (the amount allowable), of which $3,000 is additional depreciation, and transfers the building to his son as a gift on January 1, 1968. Since the exception for gifts in section 1250(d)(1) applies, the taxpayer does not recognize gain under section 1250(a)(2). In the son's adjusted basis of $80,000 for the building there is reflected $3,000 of additional depreciation. On January 1, 1969, after taking a depreciation deduction of $10,000 (the amount allowable), of which $1,000 is additional depreciation, the son sells the building. At the time of the sale the additional depreciation is $4,000 ($3,000 allowed the father plus $1,000 allowed the son).
In the year 1969 it becomes necessary to determine the additional depreciation in respect of section 1250 property, the adjusted basis of which reflects a depreciation adjustment of $1,000 with respect to depreciation deductions allowable for the calendar year 1965 under the sum of the years-digits method. Under paragraph (b)(1)(ii) of this section, the depreciation which would have resulted under the straight line method for 1965 is $800. If the taxpayer can establish by adequate records or other sufficient evidence that he did not take, and was not allowed, any deduction for depreciation in respect of the property in 1965, then, for purposes of computing the depreciation adjustments in excess of straight line in respect of the property, the amount to be taken into account for 1965 as allowed or allowable is zero, and the amount to be taken into account in computing deductions which would have resulted under the straight line method in 1965 is $800. Thus, in effect, there is a deficit in additional depreciation for 1965 of $800.
[T.D. 7084, 36 FR 273, Jan. 8, 1971, as amended by T.D. 7193, 37 FR 12956, June 30, 1972]
Terms defined here
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Cross-references
Computed from the citations in the text of 26 CFR.
Code sections it cites
- § 1250 Gain from dispositions of certain depreciable realty
- § 1223 Holding period of property
- § 167 Depreciation
- § 168 Accelerated cost recovery system
- § 704 Partner’s distributive share
- § 1016 Adjustments to basis
- § 501 Exemption from tax on corporations, certain trusts, etc.
- § 512 Unrelated business taxable income
- § 502 Feeder organizations
- § 1012 Basis of property—cost
- § 301 Distributions of property
- § 334 Basis of property received in liquidations
- § 6012 Persons required to make returns of income
Regulations it cites
- § 1.167(a)-8 Retirements.
- § 1.167(a)-1 Depreciation in general.
- § 1.1250-1 Gain from dispositions of certain depreciable realty.
- § 1.1245-2 Definition of recomputed basis.
- § 1.162-11 Rentals.
- § 1.1250-3 Exceptions and limitations.
Cited by 5 other regulations
- § 1.168(k)-2 Additional first year depreciation deduction for property acquired and placed in service after September 27, 2017.
- § 1.1250-1 Gain from dispositions of certain depreciable realty.
- § 1.1250-3 Exceptions and limitations.
- § 1.1250-5 Property with two or more elements.
- § 1.1251-2 Excess deductions account.
Amendment history
From the source citation at the end of the section, newest first. T.D. is a Treasury decision; FR is the Federal Register.
- Amended by T.D. 7193 (37 FR 12956)
- Issued by T.D. 7084 (36 FR 273)
Where it sits in 26 CFR
- Subchapter A Income tax
- Part 1 Income taxes
- Special Rules for Determining Capital Gains and Losses
Nearby sections
- § 1.1248(f)-2 Exceptions for certain distributions and attribution rules.
- § 1.1248(f)-3 Reasonable cause and effective/applicability dates.
- § 1.1249-1 Gain from certain sales or exchanges of patents, etc., to foreign corporations.
- § 1.1250-1 Gain from dispositions of certain depreciable realty.
- § 1.1250-2 Additional depreciation defined.
- § 1.1250-3 Exceptions and limitations.
- § 1.1250-4 Holding period.
- § 1.1250-5 Property with two or more elements.
- § 1.1251-1 General rule for treatment of gain from disposition of property used in farming where farm losses offset nonfarm income.