(1) In General. For income years ending after
December 31, 1958, in the case of "Section 24356 property" acquired by purchase
after December 31, 1958, a taxpayer may elect for the first income year for
which a deduction with respect to such property is allowable under Sections
24349 through 24354 to the taxpayer to include as part of the "reasonable
allowance" allowable under Section 24349(a) an additional allowance of 20
percent of the cost or of a portion of the cost of such property. The allowance
under Section 24356 is in addition to the depreciation allowable under Sections
24349 through 24354 computed on the balance of the unrecovered cost of the
property after adjustment for the allowance under this regulation. For
application of the dollar limitations of Section 24356(b) see Reg. 24356(b).
For a definition of the term "Section 24356 property" and for special rules,
see Reg. 24356(c). For the time and manner of making the election under this
regulation, see Reg. 24356(d).
(2)
Proration Not Required. The allowance under Section 24356 is determined without
any proration based on the period of time the Section 24356 property has been
in service during the income year. For example, taxpayer A, which makes its tax
returns on the calendar year basis, purchased and placed in service on August
7, 1959, Section 24356 property costing $8,000. A elects to claim the
additional first-year depreciation on the total cost of $8,000. A is entitled
to a deduction of $1,600 (20 percent of $8,000) under this section for 1959,
without proration for the number of days in 1959 during which the property was
in service.
(3) Amount Subject to
Allowance. The allowance under Section 24356 is equal to 20 percent of the
cost, or portion of the cost, of Section 24356 property selected by the
taxpayer. Thus, all or a part of the cost of one item of property, or all or
parts of the cost of several items of property, may be selected, subject to the
dollar limitations of Section 24356(b) and Reg. 24356(b). For example,
Corporation B, which makes its tax returns on the basis of the calendar year,
purchased Section 24356 property costing $9,000 in March 1959. B elects to
claim the additional first-year depreciation allowance, but only with respect
to $3,000 of the cost of the property. B's allowance under Section 24356 for
1959 is $600 (20 percent of $3,000).
(4) Salvage. The allowance under Section
24356 is computed without regard to any salvage value which is estimated will
be realizable upon the sale or other disposition of the Section 24356 property
when it is no longer useful in the taxpayer's trade or business or in the
production of its income and is to be retired from service by the
taxpayer.
(5) When Allowance Is
Available.
(A)
(i) The term "the first income year for which
a deduction is allowable under Sections 24349 through 24354 to the taxpayer
with respect to such property" means the first income year for which
depreciation is allowable under Section 24349 on such property. See subsection
(2) of Reg. 24349(j). The provisions of this subparagraph may be illustrated by
the following examples:
EXAMPLE (1).
Corporation M, which makes its tax returns on the
calendar year basis, purchases Section 24356 property costing $10,000 on
December 27, 1960, places it in service on the same date, and does not use an
averaging convention in determining the depreciation allowance. Since
depreciation is allowable for the December 27-31, 1960, period, Corporation M
may elect to claim the additional first-year depreciation allowance of $2,000
(20 percent of $10,000) for 1960.
EXAMPLE (2).
Corporation N, which files its tax returns on the
calendar year basis, purchases Section 24356 property costing $10,000 on August
10, 1960, and places it in service on the same date. Corporation N places the
Section 24356 property in a multiple asset account under which it is assumed,
for purposes of computing depreciation, that all additions and retirements
during the first half of the income year were made on the first day of that
year, and that all additions and retirements during the second half of the
income year were made on the first day of the following year. Under these
circumstances, Corporation N is entitled to elect the additional first-year
depreciation allowance under Section 24356 on such property only for 1961,
since that is the first year for which a deduction is allowable under Section
24349 on such property.
(ii)
In the case of an emergency facility which the taxpayer elects to amortize
under the provisions of Section 24355, and which facility also qualifies as
Section 24356 property, the additional first-year depreciation allowance is not
available (except as hereafter provided) unless the taxpayer elects under Reg.
24355(b) to begin the amortization deductions under Section 24355 with the
succeeding income year. If the taxpayer elects under Reg. 24355(b) to begin the
amortization deductions under Section 24355 with the month following the month
in which the facility was completed or acquired, and the facility qualifies as
Section 24356 property, the additional first-year allowance is available only
with respect to the portion of the facility which is not certified in
accordance with Section 24355 and the regulations thereunder. If 100 percent of
the facility is certified in accordance with Section 24355 and the regulations
thereunder and the taxpayer elects under Reg. 24355(b) to begin the
amortization deductions under Section 24355 with such following month, no
additional first-year allowance is available with respect to any portion of the
facility.
(B) The
additional first-year depreciation allowance on Section 24356 property is not
available if the cost of such property is to be recovered through amortization
deductions under Section
24343 and the regulations
thereunder instead of through depreciation allowances under Section
24349
