26 CFR 1.1245-1 - General rule for treatment of gain from dispositions of certain depreciable property.

§ 1.1245-1 General rule for treatment of gain from dispositions of certain depreciable property.

(a)General.

(1) In general, section 1245(a)(1) provides that, upon a disposition of an item of section 1245 property, the amount by which the lower of (i) the recomputed basis of the property, or (ii) the amount realized on a sale, exchange, or involuntary conversion (or the fair market value of the property on any other disposition), exceeds the adjusted basis of the property shall be treated as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231 (that is, shall be recognized as ordinary income). The amount of such gain shall be determined separately for each item of section 1245 property. In general, the term recomputed basis means the adjusted basis of property plus all adjustments reflected in such adjusted basis on account of depreciation allowed or allowable for all periods after December 31, 1961. See section 1245(a)(2) and § 1.1245-2. Generally, the ordinary income treatment applies even though in the absence of section 1245 no gain would be recognized under the Code. For example, if a corporation distributes section 1245 property as a dividend, gain may be recognized as ordinary income to the corporation even though, in the absence of section 1245, section 311(a) would preclude any recognition of gain to the corporation. For the definition of section 1245 property, see section 1245(a)(3) and § 1.1245-3. For exceptions and limitations to the application of section 1245(a)(1), see section 1245(b) and § 1.1245-4.

(2) Section 1245(a)(1) applies to dispositions of section 1245 property in taxable years beginning after December 31, 1962, except that:

(i) In respect of section 1245 property which is an elevator or escalator, section 1245(a)(1) applies to dispositions after December 31, 1963, and

(ii) In respect of section 1245 property which is livestock (described in subparagraph (4) of § 1.1245-3(a)), section 1245(a)(1) applies to dispositions made in taxable years beginning after December 31, 1969, and

(iii) [Reserved].

(3) For purposes of this section and §§ 1.1245-2 through 1.1245-6, the term disposition includes a sale in a sale-and-leaseback transaction and a transfer upon the foreclosure of a security interest, but such term does not include a mere transfer of title to a creditor upon creation of a security interest or to a debtor upon termination of a security interest. Thus, for example, a disposition occurs upon a sale of property pursuant to a conditional sales contract even though the seller retains legal title to the property for purposes of security but a disposition does not occur when the seller ultimately gives up his security interest following payment by the purchaser.

(4) For purposes of applying section 1245, the facts and circumstances of each disposition shall be considered in determining what is the appropriate item of section 1245 property. A taxpayer may treat any number of units of section 1245 property in any particular depreciation account (as defined in § 1.167(a)-7) as one item of section 1245 property as long as it is reasonably clear, from the best estimates obtainable on the basis of all the facts and circumstances, that the amount of gain to which section 1245(a)(1) applies is not less than the total of the gain under section 1245(a)(1) which would be computed separately for each unit. Thus, for example, if 50 units of section 1245 property X, 25 units of section 1245 property Y, and other property are accounted for in one depreciation account, and if each such unit is sold at a gain in one transaction in which the total gain realized on the sale exceeds the sum of the adjustments reflected in the adjusted basis (as defined in paragraph (a)(2) of § 1.1245-2) of each such unit on account of depreciation allowed or allowable for periods after December 31, 1961, all 75 units may be treated as one item of section 1245 property. If, however, 5 such units of section 1245 property Y were sold at a loss, then only 70 of such units (50 of X plus the 20 of Y sold at a gain) may be treated as one item of section 1245 property.

(5) In case of a sale, exchange, or involuntary conversion of section 1245 and non-section 1245 property in one transaction, the total amount realized upon the disposition shall be allocated between the section 1245 property and the non-section 1245 property in proportion to their respective fair market values. In general, if a buyer and seller have adverse interests as to the allocation of the amount realized between the section 1245 property and the non-section 1245 property, any arm's length agreement between the buyer and the seller will establish the allocation. In the absence of such an agreement, the allocation shall be made by taking into account the appropriate facts and circumstances. Some of the facts and circumstances which shall be taken into account to the extent appropriate include, but are not limited to, a comparison between the section 1245 property and all the property disposed of in such transaction of (i) the original cost and reproduction cost of construction, erection, or production, (ii) the remaining economic useful life, (iii) state of obsolescence, and (iv) anticipated expenditures to maintain, renovate, or to modernize.

(b)Sale, exchange, or involuntary conversion.

(1) In the case of a sale, exchange, or involuntary conversion of section 1245 property, the gain to which section 1245(a)(1) applies is the amount by which (i) the lower of the amount realized upon the disposition of the property or the recomputed basis of the property, exceeds (ii) the adjusted basis of the property.

(2) The provisions of this paragraph may be illustrated by the following examples:

Example 1.
On January 1, 1964, Brown purchases section 1245 property for use in his manufacturing business. The property has a basis for depreciation of $3,300. After taking depreciation deductions of $1,300 (the amount allowable), Brown realizes after selling expenses the amount of $2,900 upon sale of the property on January 1, 1969. Brown's gain is $900 ($2,900 amount realized minus $2,000 adjusted basis). Since the amount realized upon disposition of the property ($2,900) is lower than its recomputed basis ($3,300, i.e., $2,000 adjusted basis plus $1,300 in depreciation deductions), the entire gain is treated as ordinary income under section 1245(a)(1) and not as gain from the sale or exchange of property described in section 1231.
Example 2.
Assume the same facts as in example (1) except that Brown exchanges the section 1245 property for land which has a fair market value of $3,700, thereby realizing a gain of $1,700 ($3,700 amount realized minus $2,000 adjusted basis). Since the recomputed basis of the property ($3,300) is lower than the amount realized upon its disposition ($3,700), the excess of recomputed basis over adjusted basis, or $1,300, is treated as ordinary income under section 1245(a)(1). The remaining $400 of the gain may be treated as gain from the sale or exchange of property described in section 1231.

(c)Other dispositions.

(1) In the case of a disposition of section 1245 property other than by way of a sale, exchange, or involuntary conversion, the gain to which section 1245(a)(1) applies is the amount by which (i) the lower of the fair market value of the property on the date of disposition or the recomputed basis of the property, exceeds (ii) the adjusted basis of the property. If property is transferred by a corporation to a shareholder for an amount less than its fair market value in a sale or exchange, for purposes of applying section 1245 such transfer shall be treated as a disposition other than by way of a sale, exchange, or involuntary conversion.

(2) The provisions of this paragraph may be illustrated by the following examples:

Example 1.
X Corporation distributes section 1245 property to its shareholders as a dividend. The property has an adjusted basis of $2,000 to the corporation, a recomputed basis of $3,300, and a fair market value of $3,100. Since the fair market value of the property ($3,100) is lower than its recomputed basis ($3,300), the excess of fair market value over adjusted basis, or $1,100, is treated under section 1245(a)(1) as ordinary income to the corporation even though, in the absence of section 1245, section 311(a) would preclude recognition of gain to the corporation.
Example 2.
Assume the same facts as in example (1) except that X Corporation distributes the section 1245 property to its shareholders in complete liquidation of the corporation. Assume further that section 1245(b)(3) does not apply and that the fair market value of the property is $3,800 at the time of the distribution. Since the recomputed basis of the property ($3,300) is lower than its fair market value ($3,800), the excess of recomputed basis over adjusted basis, or $1,300, is treated under section 1245(a)(1) as ordinary income to the corporation even though, in the absence of section 1245, section 336 would preclude recognition of gain to the corporation.

(d)Losses. Section 1245(a)(1) does not apply to losses. Thus, section 1245(a)(1) does not apply if a loss is realized upon a sale, exchange, or involuntary conversion of property, all of which is considered section 1245 property, nor does the section apply to a disposition of such property other than by way of sale, exchange, or involuntary conversion if at the time of the disposition the fair market value of such property is not greater than its adjusted basis.

(e)Treatment of partnership and partners.

(1) The manner of determining the amount of gain recognized under section 1245(a)(1) to a partnership may be illustrated by the following example:

Example:
A partnership sells for $63 section 1245 property which has an adjusted basis to the partnership of $30 and a recomputed basis to the partnership of $60. The partnership recognizes under section 1245(a)(1) gain of $30, i.e., the lower of the amount realized ($63) or recomputed basis ($60), minus adjusted basis ($30). This result would not be changed if one or more partners had, in respect of the property, a special basis adjustment described in section 743(b) or had taken depreciation deductions in respect of such special basis adjustment.

(2)

(i) Unless paragraph (e)(3) of this section applies, a partner's distributive share of gain recognized under section 1245(a)(1) by the partnership is equal to the lesser of the partner's share of total gain from the disposition of the property (gain limitation) or the partner's share of depreciation or amortization with respect to the property (as determined under paragraph (e)(2)(ii) of this section). Any gain recognized under section 1245(a)(1) by the partnership that is not allocated under the first sentence of this paragraph (e)(2)(i) (excess depreciation recapture) is allocated among the partners whose shares of total gain from the disposition of the property exceed their shares of depreciation or amortization with respect to the property. Excess depreciation recapture is allocated among those partners in proportion to their relative shares of the total gain (including gain recognized under section 1245(a)(1)) from the disposition of the property that is allocated to the partners who are not subject to the gain limitation. See Example 2 of paragraph (e)(2)(iii) of this section.

(ii)

(A) Subject to the adjustments described in paragraphs (e)(2)(ii)(B) and (e)(2)(ii)(C) of this section, a partner's share of depreciation or amortization with respect to property equals the total amount of allowed or allowable depreciation or amortization previously allocated to that partner with respect to the property.

(B) If a partner transfers a partnership interest, a share of depreciation or amortization must be allocated to the transferee partner as it would have been allocated to the transferor partner. If the partner transfers a portion of the partnership interest, a share of depreciation or amortization proportionate to the interest transferred must be allocated to the transferee partner.

(C)(1) A partner's share of depreciation or amortization with respect to property contributed by the partner includes the amount of depreciation or amortization allowed or allowable to the partner for the period before the property is contributed.

(2) A partner's share of depreciation or amortization with respect to property contributed by a partner is adjusted to account for any curative allocations. (See § 1.704-3(c) for a description of the traditional method with curative allocations.) The contributing partner's share of depreciation or amortization with respect to the contributed property is decreased (but not below zero) by the amount of any curative allocation of ordinary income to the contributing partner with respect to that property and by the amount of any curative allocation of deduction or loss (other than capital loss) to the noncontributing partners with respect to that property. A noncontributing partner's share of depreciation or amortization with respect to the contributed property is increased by the noncontributing partner's share of any curative allocation of ordinary income to the contributing partner with respect to that property and by the amount of any curative allocation of deduction or loss (other than capital loss) to the noncontributing partner with respect to that property. The partners' shares of depreciation or amortization with respect to property from which curative allocations of depreciation or amortization are taken is determined without regard to those curative allocations. See Example 3(iii) of paragraph (e)(2)(iii) of this section.

(3) A partner's share of depreciation or amortization with respect to property contributed by a partner is adjusted to account for any remedial allocations. (See § 1.704-3(d) for a description of the remedial allocation method.) The contributing partner's share of depreciation or amortization with respect to the contributed property is decreased (but not below zero) by the amount of any remedial allocation of income to the contributing partner with respect to that property. A noncontributing partner's share of depreciation or amortization with respect to the contributed property is increased by the amount of any remedial allocation of depreciation or amortization to the noncontributing partner with respect to that property. See Example 3(iv) of paragraph (e)(2)(iii) of this section.

(4) If, under paragraphs (e)(2)(ii)(C)(2) and (e)(2)(ii)(C)(3) of this section, the partners' shares of depreciation or amortization with respect to a contributed property exceed the adjustments reflected in the adjusted basis of the property under § 1.1245-2(a) at the partnership level, then the partnership's gain recognized under section 1245(a)(1) with respect to that property is allocated among the partners in proportion to their relative shares of depreciation or amortization (subject to any gain limitation that might apply).

(5) This paragraph (e)(2)(ii)(C) also applies in determining a partner's share of depreciation or amortization with respect to property for which differences between book value and adjusted tax basis are created when a partnership revalues partnership property pursuant to § 1.704-1(b)(2)(iv)(f).

(iii)Examples. The application of this paragraph (e)(2) may be illustrated by the following examples:

Example 1. Recapture allocations.
(i)Facts. A and B each contribute $5,000 cash to form AB, a general partnership. The partnership agreement provides that depreciation deductions will be allocated 90 percent to A and 10 percent to B, and, on the sale of depreciable property, A will first be allocated gain to the extent necessary to equalize A's and B's capital accounts. Any remaining gain will be allocated 50 percent to A and 50 percent to B. In its first year of operations, AB purchases depreciable equipment for $5,000. AB depreciates the equipment over its 5-year recovery period and elects to use the straight-line method. In its first year of operations, AB's operating income equals its expenses (other than depreciation). (To simplify this example, AB's depreciation deductions are determined without regard to any first-year depreciation conventions.)

(ii)Year 1. In its first year of operations, AB has $1,000 of depreciation from the partnership equipment. In accordance with the partnership agreement, AB allocates 90 percent ($900) of the depreciation to A and 10 percent ($100) of the depreciation to B. At the end of the year, AB sells the equipment for $5,200, recognizing $1,200 of gain ($5,200 amount realized less $4,000 adjusted tax basis). In accordance with the partnership agreement, the first $800 of gain is allocated to A to equalize the partners' capital accounts, and the remaining $400 of gain is allocated $200 to A and $200 to B.

(iii)Recapture allocations. $1,000 of the gain from the sale of the equipment is treated as section 1245(a)(1) gain. Under paragraph (e)(2)(i) of this section, each partner's share of the section 1245(a)(1) gain is equal to the lesser of the partner's share of total gain recognized on the sale of the equipment or the partner's share of total depreciation with respect to the equipment. Thus, A's share of the section 1245(a)(1) gain is $900 (the lesser of A's share of the total gain ($1,000) and A's share of depreciation ($900)). B's share of the section 1245(a)(1) gain is $100 (the lesser of B's share of the total gain ($200) and B's share of depreciation ($100)). Accordingly, $900 of the $1,000 of total gain allocated to A is treated as ordinary income and $100 of the $200 of total gain allocated to B is treated as ordinary income.

Example 2. Recapture allocation subject to gain limitation.
(i)Facts. A, B, and C form general partnership ABC. The partnership agreement provides that depreciation deductions will be allocated equally among the partners, but that gain from the sale of depreciable property will be allocated 75 percent to A and 25 percent to B. ABC purchases depreciable personal property for $300 and subsequently allocates $100 of depreciation deductions each to A, B, and C, reducing the adjusted tax basis of the property to $0. ABC then sells the property for $440. ABC allocates $330 of the gain to A (75 percent of $440) and allocates $110 of the gain to B (25 percent of $440). No gain is allocated to C.

(ii)Application of gain limitation. Each partner's share of depreciation with respect to the property is $100. C's share of the total gain from the disposition of the property, however, is $0. As a result, under the gain limitation provision in paragraph (e)(2)(i) of this section, C's share of section 1245(a)(1) gain is limited to $0.

(iii)Excess depreciation recapture. Under paragraph (e)(2)(i) of this section, the $100 of section 1245(a)(1) gain that cannot be allocated to C under the gain limitation provision (excess depreciation recapture) is allocated to A and B (the partners not subject to the gain limitation at the time of the allocation) in proportion to their relative shares of total gain from the disposition of the property. A's relative share of the total gain allocated to A and B is 75 percent ($330 of $440 total gain). B's relative share of the total gain allocated to A and B is 25 percent ($110 of $440 total gain). However, under the gain limitation provision of paragraph (e)(2)(i) of this section, B cannot be allocated 25 percent of the excess depreciation recapture ($25) because that would result in a total allocation of $125 of depreciation recapture to B (a $100 allocation equal to B's share of depreciation plus a $25 allocation of excess depreciation recapture), which is in excess of B's share of the total gain from the disposition of the property ($110). Therefore, only $10 of excess depreciation recapture is allocated to B and the remaining $90 of excess depreciation recapture is allocated to A. A is not subject to the gain limitation because A's share of the total gain ($330) still exceeds A's share of section 1245(a)(1) gain ($190). Accordingly, all $110 of the total gain allocated to B is treated as ordinary income ($100 share of depreciation allocated to B plus $10 of excess depreciation recapture) and $190 of the total gain allocated to A is treated as ordinary income ($100 share of depreciation allocated to A plus $90 of excess depreciation recapture).

Example 3. Determination of partners' shares of depreciation with respect to contributed property.
(i)Facts.C and D form partnership CD as equal partners. C contributes depreciable personal property C1 with an adjusted tax basis of $800 and a fair market value of $2,800. Prior to the contribution, C claimed $200 of depreciation from C1. At the time of the contribution, C1 is depreciable under the straight-line method and has four years remaining on its 5-year recovery period. D contributes $2,800 cash, which CD uses to purchase depreciable personal property D1, which is depreciable over seven years under the straight-line method. (To simplify the example, all depreciation is determined without regard to any first-year depreciation conventions.)

(ii)Traditional method. C1 generates $700 of book depreciation ( 1/4 of $2,800 book value) and $200 of tax depreciation ( 1/4 of $800 adjusted tax basis) each year. C and D will each be allocated $350 of book depreciation from C1 in year 1. Under the traditional method of making section 704(c) allocations, D will be allocated the entire $200 of tax depreciation from C1 in year 1. D1 generates $400 of book and tax depreciation each year ( 1/7 of $2,800 book value and adjusted tax basis). C and D will each be allocated $200 of book and tax depreciation from D1 in year 1. As a result, after the first year of partnership operations, C's share of depreciation with respect to C1 is $200 (the depreciation taken by C prior to contribution) and D's share of depreciation with respect to C1 is $200 (the amount of tax depreciation allocated to D). C and D each have a $200 share of depreciation with respect to D1. At the end of four years, C's share of depreciation with respect to C1 will be $200 (the depreciation taken by C prior to contribution) and D's share of depreciation with respect to C1 will be $800 (four years of $200 depreciation per year). At the end of four years, C and D will each have an $800 share of depreciation with respect to D1 (four years of $200 depreciation per year).

(iii)Effect of curative allocations.

(A)Year 1. If the partnership elects to make curative allocations under § 1.704-3(c) using depreciation from D1, the results will be the same as under the traditional method, except that $150 of the $200 of tax depreciation from D1 that would be allocated to C under the traditional method will be allocated to D as additional depreciation with respect to C1. As a result, after the first year of partnership operations, C's share of depreciation with respect to C1 will be reduced to $50 (the total depreciation taken by C prior to contribution ($200) decreased by the amount of the curative allocation to D ($150)). D's share of depreciation with respect to C1 will be $350 (the depreciation allocated to D under the traditional method ($200) increased by the amount of the curative allocation to D ($150)). C and D will each have a $200 share of depreciation with respect to D1.

(B)Year 4. At the end of four years, C's share of depreciation with respect to C1 will be reduced to $0 (the total depreciation taken by C prior to contribution ($200) decreased, but not below zero, by the amount of the curative allocations to D ($600)), and D's share of depreciation with respect to C1 will be $1,400 (the total depreciation allocated to D under the traditional method ($800) increased by the amount of the curative allocations to D ($600)). However, CD's section 1245(a)(1) gain with respect to C1 will not be more than $1,000 (CD's tax depreciation ($800) plus C's tax depreciation prior to contribution ($200)). Under paragraph (e)(2)(ii)(C)(4) of this section, because the partners' shares of depreciation with respect to C1 exceed the adjustments reflected in the property's adjusted basis, CD's section 1245(a)(1) gain will be allocated in proportion to the partners' relative shares of depreciation with respect to C1. Because C's share of depreciation with respect to C1 is $0, and D's share of depreciation with respect to C1 is $1,400, all of CD's $1,000 of section 1245(a)(1) gain will be allocated to D. At the end of four years, C and D will each have an $800 share of depreciation with respect to D1 (four years of $200 depreciation per year).

(iv)Effect of remedial allocations.

(A)Year 1. If the partnership elects to make remedial allocations under § 1.704-3(d), there will be $600 of book depreciation from C1 in year 1. (Under the remedial allocation method, the amount by which C1's book basis ($2,800) exceeds its tax basis ($800) is depreciated over a 5-year life, rather than a 4-year life.) C and D will each be allocated one-half ($300) of the total book depreciation. As under the traditional method, D will be allocated all $200 of tax depreciation from C1. Because the ceiling rule would cause a disparity of $100 between D's book and tax allocations of depreciation, D will also receive a $100 remedial allocation of depreciation with respect to C1, and C will receive a $100 remedial allocation of income with respect to C1. As a result, after the first year of partnership operations, D's share of depreciation with respect to C1 is $300 (the depreciation allocated to D under the traditional method ($200) increased by the amount of the remedial allocation ($100)). C's share of depreciation with respect to C1 is $100 (the total depreciation taken by C prior to contribution ($200) decreased by the amount of the remedial allocation of income ($100)). C and D will each have a $200 share of depreciation with respect to D1.

(B)Year 5. At the end of five years, C's share of depreciation with respect to C1 will be $0 (the total depreciation taken by C prior to contribution ($200) decreased, but not below zero, by the total amount of the remedial allocations of income to C ($600)). D's share of depreciation with respect to C1 will be $1,400 (the total depreciation allocated to D under the traditional method ($800) increased by the total amount of the remedial allocations of depreciation to D ($600)). However, CD's section 1245(a)(1) gain with respect to C1 will not be more than $1,000 (CD's tax depreciation ($800) plus C's tax depreciation prior to contribution ($200)). Under paragraph (e)(2)(ii)(C)(4) of this section, because the partners' shares of depreciation with respect to C1 exceed the adjustments reflected in the property's adjusted basis, CD's section 1245(a)(1) gain will be allocated in proportion to the partners' relative shares of depreciation with respect to C1. Because C's share of depreciation with respect to C1 is $0, and D's share of depreciation with respect to C1 is $1,400, all of CD's $1,000 of section 1245(a)(1) gain will be allocated to D. At the end of five years, C and D will each have a $1,000 share of depreciation with respect to D1 (five years of $200 depreciation per year).

(iv)Effective date. This paragraph (e)(2) is effective for properties acquired by a partnership on or after August 20, 1997. However, partnerships may rely on this paragraph (e)(2) for properties acquired before August 20, 1997 and disposed of on or after August 20, 1997.

(3)

(i) If (a) a partner had a special basis adjustment under section 743(b) in respect of section 1245 property, or (b) on the date he acquired his partnership interest by way of a sale or exchange (or upon death of another partner) the partnership owned section 1245 property and an election under section 754 (relating to optional adjustment to basis of partnership property) was in effect with respect to the partnership, then the amount of gain recognized under section 1245(a)(1) by him upon a disposition by the partnership of such property shall be determined under this subparagraph.

(ii) There shall be allocated to such partner, in the same proportion as the partnership's total gain is allocated to him as his distributive share under section 704, a portion of (a) the common partnership adjusted basis for the property, and (b) the amount realized by the partnership upon the disposition, or, if nothing is realized, the fair market value of the property. There shall also be allocated to him, in the same proportion as the partnership's gain recognized under section 1245(a)(1) is allocated under subparagraph (2) of this paragraph as his distributive share of such gain, a portion of the adjustments reflected in the adjusted basis (as defined in paragraph (a)(2) of § 1.1245-2) of such property. If on the date he acquired his partnership interest by way of a sale or exchange the partnership owned such property and an election under section 754 was in effect, then for purposes of the preceding sentence the amount of the adjustments reflected in the adjusted basis of such property on such date shall be deemed to be zero. For special rules relating to the amount of adjustments reflected in the adjusted basis of property after partnership transactions, see paragraph (c)(6) of § 1.1245-2.

(iii) The partner's adjusted basis in respect of the property shall be deemed to be (a) the portion of the partnership's adjusted basis for the property allocated to the partner under subdivision (ii) of this subparagraph, (b) increased by the amount of any special basis adjustment described in section 743(b)(1) (or decreased by the amount of any special basis adjustment described in section 743(b)(2) which the partner may have in respect of the property on the date the partnership disposed of the property.

(iv) The partner's recomputed basis in respect of the property shall be deemed to be (a) the sum of the partner's adjusted basis for the property, as determined in subdivision (iii) of this subparagraph, plus the amount of the adjustments reflected in the adjusted basis (as defined in paragraph (a)(2) of § 1.1245-2) for the property allocated to the partner under subdivision (ii) of this subparagraph, (b) increased by the amount by which any special basis adjustment described in section 743(b)(1) (or decreased by the amount by which any special basis adjustment described in section 743(b)(2)) in respect of the property was reduced, but only to the extent such amount was applied to adjust the amount of the deductions allowed or allowable to the partner for depreciation or amortization of section 1245 property attributable to periods referred to in paragraph (a)(2) of § 1.1245-2. The termsallowed or allowable, depreciation or amortization, and attributable to periods shall have the meanings assigned to these terms in paragraph (a) of § 1.1245-2.

(4) The application of subparagraph (3) of this paragraph may be illustrated by the following example:

Example:
A, B, and C each hold a one-third interest in calendar year partnership ABC. On December 31, 1962, the firm holds section 1245 property which has an adjusted basis of $30,000 and a recomputed basis of $33,000. Depreciation deductions in respect of the property for 1962 were $3,000. On January 1, 1963, when D purchases C's partnership interest, the election under section 754 is in effect and a $5,000 special basis adjustment is made in respect of D to his one-third share of the common partnership adjusted basis for the property. For 1963 and 1964 the partnership deducts $6,000 as depreciation in respect of the property, thereby reducing its adjusted basis to $24,000, and D deducts $2,800, i.e., his distributive share of partnership depreciation ($2,000) plus depreciation in respect of his special basis adjustment ($800). On March 15, 1965, the partnership sells the property for $48,000. Since the partnership's recomputed basis for the property ($33,000, i.e., $24,000 adjusted basis plus $9,000 in depreciation deductions) is lower than the amount realized upon the sale ($48,000), the excess of recomputed basis over adjusted basis, or $9,000, is treated as partnership gain under section 1245(a)(1). D's distributive share of such gain is $3,000 ( 1/3 of $9,000). However, the amount of gain recognized by D under section 1245 (a)(1) is only $2,800, determined as follows:
(1) Adjusted basis:
D's portion of partnership adjusted basis ( 1/3 of $24,000) $8,000
D's special basis adjustment as of December 31, 1964 ($5,000 minus $800) 4,200
D's adjusted basis $12,200
(2) Recomputed basis:
D's adjusted basis 12,200
D's portion of partnership depreciation for 1963 and 1964, i.e., for periods after he acquired his partnership interest ( 1/3 of $6,000) 2,000
Depreciation for 1963 and 1964 in respect of D's special basis adjustment 800
D's recomputed basis
15,000
(3) D's portion of amount realized by partnership ( 1/3 of $48,000) 16,000
(4) Gain recognized to D under section 1245(a)(1), i.e., the lower of (2) or (3), minus (1) 2,800
[T.D. 6832, 30 FR 8576, July 7, 1965, as amended by T.D. 7084, 36 FR 268, Jan. 8, 1971; T.D. 7141, 36 FR 18793, Sept. 22, 1971; T.D. 8730, 62 FR 44216, Aug. 20, 1997]

This is a list of United States Code sections, Statutes at Large, Public Laws, and Presidential Documents, which provide rulemaking authority for this CFR Part.

This list is taken from the Parallel Table of Authorities and Rules provided by GPO [Government Printing Office].

It is not guaranteed to be accurate or up-to-date, though we do refresh the database weekly. More limitations on accuracy are described at the GPO site.


United States Code
U.S. Code: Title 26 - INTERNAL REVENUE CODE

§ 1 - Tax imposed

§ 21 - Expenses for household and dependent care services necessary for gainful employment

§ 23 - Adoption expenses

§ 25 - Interest on certain home mortgages

§ 25A - Hope and Lifetime Learning credits

§ 28 - Renumbered § 45C]

§ 30 - Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(2)(A), Dec. 19, 2014, 128 Stat. 4037]

§ 36B - Refundable credit for coverage under a qualified health plan

§ 38 - General business credit

§ 40 - Alcohol, etc., used as fuel

§ 41 - Credit for increasing research activities

§ 42 - Low-income housing credit

§ 43 - Enhanced oil recovery credit

§ 45D - New markets tax credit

§ 46 - Amount of credit

§ 47 - Rehabilitation credit

§ 52 - Special rules

§ 56 - Adjustments in computing alternative minimum taxable income

§ 58 - Denial of certain losses

§ 61 - Gross income defined

§ 62 - Adjusted gross income defined

§ 66 - Treatment of community income

§ 67 - 2-percent floor on miscellaneous itemized deductions

§ 72 - Annuities; certain proceeds of endowment and life insurance contracts

§ 101 - Certain death benefits

§ 103 - Interest on State and local bonds

§ 103A - Repealed. Pub. L. 99–514, title XIII, § 1301(j)(1), Oct. 22, 1986, 100 Stat. 2657]

§ 108 - Income from discharge of indebtedness

§ 110 - Qualified lessee construction allowances for short-term leases

§ 129 - Dependent care assistance programs

§ 132 - Certain fringe benefits

§ 148 - Arbitrage

§ 149 - Bonds must be registered to be tax exempt; other requirements

§ 150 - Definitions and special rules

§ 152 - Dependent defined

§ 162 - Trade or business expenses

§ 163 - Interest

§ 165 - Losses

§ 166 - Bad debts

§ 168 - Accelerated cost recovery system

§ 170 - Charitable, etc., contributions and gifts

§ 171 - Amortizable bond premium

§ 179 - Election to expense certain depreciable business assets

§ 179A - Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(34)(A), Dec. 19, 2014, 128 Stat. 4042]

§ 197 - Amortization of goodwill and certain other intangibles

§ 199 - Income attributable to domestic production activities

§ 216 - Deduction of taxes, interest, and business depreciation by cooperative housing corporation tenant-stockholder

§ 221 - Interest on education loans

§ 263A - Capitalization and inclusion in inventory costs of certain expenses

§ 267 - Losses, expenses, and interest with respect to transactions between related taxpayers

§ 274 - Disallowance of certain entertainment, etc., expenses

§ 280C - Certain expenses for which credits are allowable

§ 280F - Limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes

§ 280G - Golden parachute payments

§ 301 - Distributions of property

§ 304 - Redemption through use of related corporations

§ 305 - Distributions of stock and stock rights

§ 324

§ 336 - Gain or loss recognized on property distributed in complete liquidation

§ 337 - Nonrecognition for property distributed to parent in complete liquidation of subsidiary

§ 338 - Certain stock purchases treated as asset acquisitions

§ 351 - Transfer to corporation controlled by transferor

§ 355 - Distribution of stock and securities of a controlled corporation

§ 357 - Assumption of liability

§ 358 - Basis to distributees

§ 362 - Basis to corporations

§ 367 - Foreign corporations

§ 382 - Limitation on net operating loss carryforwards and certain built-in losses following ownership change

§ 383 - Special limitations on certain excess credits, etc.

§ 401 - Qualified pension, profit-sharing, and stock bonus plans

§ 401 note - Qualified pension, profit-sharing, and stock bonus plans

§ 402A - Optional treatment of elective deferrals as Roth contributions

§ 403 - Taxation of employee annuities

§ 404 - Deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan

§ 408 - Individual retirement accounts

§ 408A - Roth IRAs

§ 409 - Qualifications for tax credit employee stock ownership plans

§ 410 - Minimum participation standards

§ 411 - Minimum vesting standards

§ 414 - Definitions and special rules

§ 417 - Definitions and special rules for purposes of minimum survivor annuity requirements

§ 419A - Qualified asset account; limitation on additions to account

§ 420 - Transfers of excess pension assets to retiree health accounts

§ 441 - Period for computation of taxable income

§ 442 - Change of annual accounting period

§ 444 - Election of taxable year other than required taxable year

§ 446 - General rule for methods of accounting

§ 453 - Installment method

§ 453A - Special rules for nondealers

§ 458 - Magazines, paperbacks, and records returned after the close of the taxable year

§ 460 - Special rules for long-term contracts

§ 461 - General rule for taxable year of deduction

§ 465 - Deductions limited to amount at risk

§ 466 - Repealed. Pub. L. 99–514, title VIII, § 823(a), Oct. 22, 1986, 100 Stat. 2373]

§ 467 - Certain payments for the use of property or services

§ 468A - Special rules for nuclear decommissioning costs

§ 468B - Special rules for designated settlement funds

§ 469 - Passive activity losses and credits limited

§ 471 - General rule for inventories

§ 472 - Last-in, first-out inventories

§ 475 - Mark to market accounting method for dealers in securities

§ 481 - Adjustments required by changes in method of accounting

§ 482 - Allocation of income and deductions among taxpayers

§ 483 - Interest on certain deferred payments

§ 493

§ 504 - Status after organization ceases to qualify for exemption under section 501(c)(3) because of substantial lobbying or because of political activities

§ 514 - Unrelated debt-financed income

§ 527 - Political organizations

§ 585 - Reserves for losses on loans of banks

§ 597 - Treatment of transactions in which Federal financial assistance provided

§ 642 - Special rules for credits and deductions

§ 643 - Definitions applicable to subparts A, B, C, and D

§ 645 - Certain revocable trusts treated as part of estate

§ 663 - Special rules applicable to sections 661 and 662

§ 664 - Charitable remainder trusts

§ 672 - Definitions and rules

§ 679 - Foreign trusts having one or more United States beneficiaries

§ 701 - Partners, not partnership, subject to tax

§ 702 - Income and credits of partner

§ 703 - Partnership computations

§ 704 - Partner’s distributive share

§ 705 - Determination of basis of partner’s interest

§ 706 - Taxable years of partner and partnership

§ 707 - Transactions between partner and partnership

§ 708 - Continuation of partnership

§ 709 - Treatment of organization and syndication fees

§ 721 - Nonrecognition of gain or loss on contribution

§ 722 - Basis of contributing partner’s interest

§ 723 - Basis of property contributed to partnership

§ 724 - Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property

§ 731 - Extent of recognition of gain or loss on distribution

§ 732 - Basis of distributed property other than money

§ 733 - Basis of distributee partner’s interest

§ 734 - Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction

§ 735 - Character of gain or loss on disposition of distributed property

§ 736 - Payments to a retiring partner or a deceased partner’s successor in interest

§ 737 - Recognition of precontribution gain in case of certain distributions to contributing partner

§ 741 - Recognition and character of gain or loss on sale or exchange

§ 742 - Basis of transferee partner’s interest

§ 743 - Special rules where section 754 election or substantial built-in loss

§ 751 - Unrealized receivables and inventory items

§ 752 - Treatment of certain liabilities

§ 753 - Partner receiving income in respect of decedent

§ 754 - Manner of electing optional adjustment to basis of partnership property

§ 755 - Rules for allocation of basis

§ 761 - Terms defined

§ 809 - Repealed. Pub. L. 108–218, title II, § 205(a), Apr. 10, 2004, 118 Stat. 610]

§ 817A - Special rules for modified guaranteed contracts

§ 832 - Insurance company taxable income

§ 845 - Certain reinsurance agreements

§ 846 - Discounted unpaid losses defined

§ 848 - Capitalization of certain policy acquisition expenses

§ 852 - Taxation of regulated investment companies and their shareholders

§ 860E - Treatment of income in excess of daily accruals on residual interests

§ 860G - Other definitions and special rules

§ 863 - Special rules for determining source

§ 864 - Definitions and special rules

§ 865 - Source rules for personal property sales

§ 874 - Allowance of deductions and credits

§ 882 - Tax on income of foreign corporations connected with United States business

§ 883 - Exclusions from gross income

§ 884 - Branch profits tax

§ 892 - Income of foreign governments and of international organizations

§ 894 - Income affected by treaty

§ 897 - Disposition of investment in United States real property

§ 901 - Taxes of foreign countries and of possessions of United States

§ 902 - Deemed paid credit where domestic corporation owns 10 percent or more of voting stock of foreign corporation

§ 904 - Limitation on credit

§ 907 - Special rules in case of foreign oil and gas income

§ 911 - Citizens or residents of the United States living abroad

§ 924

§ 925

§ 927

§ 934 - Limitation on reduction in income tax liability incurred to the Virgin Islands

§ 936 - Puerto Rico and possession tax credit

§ 937 - Residence and source rules involving possessions

§ 954 - Foreign base company income

§ 956 - Investment of earnings in United States property

§ 957 - Controlled foreign corporations; United States persons

§ 960 - Special rules for foreign tax credit

§ 963 - Repealed. Pub. L. 94–12, title VI, § 602(a)(1), Mar. 29, 1975, 89 Stat. 58]

§ 985 - Functional currency

§ 987 - Branch transactions

§ 988 - Treatment of certain foreign currency transactions

§ 989 - Other definitions and special rules

§ 1017 - Discharge of indebtedness

§ 1032 - Exchange of stock for property

§ 1059 - Corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends

§ 1060 - Special allocation rules for certain asset acquisitions

§ 1092 - Straddles

§ 1202 - Partial exclusion for gain from certain small business stock

§ 1221 - Capital asset defined

§ 1244 - Losses on small business stock

§ 1248 - Gain from certain sales or exchanges of stock in certain foreign corporations

§ 1254 - Gain from disposition of interest in oil, gas, geothermal, or other mineral properties

§ 1275 - Other definitions and special rules

§ 1286 - Tax treatment of stripped bonds

§ 1291 - Interest on tax deferral

§ 1293 - Current taxation of income from qualified electing funds

§ 1294 - Election to extend time for payment of tax on undistributed earnings

§ 1295 - Qualified electing fund

§ 1296 - Election of mark to market for marketable stock

§ 1297 - Passive foreign investment company

§ 1298 - Special rules

§ 1301 - Averaging of farm income

§ 1361 - S corporation defined

§ 1368 - Distributions

§ 1374 - Tax imposed on certain built-in gains

§ 1377 - Definitions and special rule

§ 1378 - Taxable year of S corporation

§ 1397D - Qualified zone property defined

§ 1397E - Credit to holders of qualified zone academy bonds

§ 1402 - Definitions

§ 1441 - Withholding of tax on nonresident aliens

§ 1443 - Foreign tax-exempt organizations

§ 1445 - Withholding of tax on dispositions of United States real property interests

§ 1471 - Withholdable payments to foreign financial institutions

§ 1472 - Withholdable payments to other foreign entities

§ 1473 - Definitions

§ 1474 - Special rules

§ 1502 - Regulations

§ 1503 - Computation and payment of tax

§ 1504 - Definitions

§ 1561 - Limitations on certain multiple tax benefits in the case of certain controlled corporations

§ 3401 - Definitions

§ 5000 - Certain group health plans

§ 5000A - Requirement to maintain minimum essential coverage

§ 6001 - Notice or regulations requiring records, statements, and special returns

§ 6011 - General requirement of return, statement, or list

§ 6015 - Relief from joint and several liability on joint return

§ 6033 - Returns by exempt organizations

§ 6035 - Basis information to persons acquiring property from decedent

§ 6038 - Information reporting with respect to certain foreign corporations and partnerships

§ 6038A - Information with respect to certain foreign-owned corporations

§ 6038B - Notice of certain transfers to foreign persons

§ 6038D - Information with respect to foreign financial assets

§ 6039I - Returns and records with respect to employer-owned life insurance contracts

§ 6041 - Information at source

§ 6043 - Liquidating, etc., transactions

§ 6045 - Returns of brokers

§ 6046A - Returns as to interests in foreign partnerships

§ 6049 - Returns regarding payments of interest

§ 6050E - State and local income tax refunds

§ 6050H - Returns relating to mortgage interest received in trade or business from individuals

§ 6050I-1

§ 6050K - Returns relating to exchanges of certain partnership interests

§ 6050M - Returns relating to persons receiving contracts from Federal executive agencies

§ 6050P - Returns relating to the cancellation of indebtedness by certain entities

§ 6050S - Returns relating to higher education tuition and related expenses

§ 6060 - Information returns of tax return preparers

§ 6061 - Signing of returns and other documents

§ 6065 - Verification of returns

§ 6081 - Extension of time for filing returns

§ 6103 - Confidentiality and disclosure of returns and return information

§ 6109 - Identifying numbers

§ 6302 - Mode or time of collection

§ 6402 - Authority to make credits or refunds

§ 6411 - Tentative carryback and refund adjustments

§ 6655 - Failure by corporation to pay estimated income tax

§ 6662 - Imposition of accuracy-related penalty on underpayments

§ 6695 - Other assessable penalties with respect to the preparation of tax returns for other persons

§ 6851 - Termination assessments of income tax

§ 7520 - Valuation tables

§ 7654 - Coordination of United States and certain possession individual income taxes

§ 7701 - Definitions

§ 7702 - Life insurance contract defined

§ 7805 - Rules and regulations

§ 7872 - Treatment of loans with below-market interest rates

§ 7874 - Rules relating to expatriated entities and their foreign parents

U.S. Code: Title 29 - LABOR
Statutes at Large
Public Laws
Presidential Documents

Reorganization ... 1978 Plan No. 4

Title 26 published on 16-Jun-2017 03:58

The following are ALL rules, proposed rules, and notices (chronologically) published in the Federal Register relating to 26 CFR Part 1 after this date.

  • 2017-06-30; vol. 82 # 125 - Friday, June 30, 2017
    1. 82 FR 29719 - Regulations Regarding Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons, Information Reporting and Backup Withholding on Payments Made to Certain U.S. Persons, and Portfolio Interest Treatment; Correction
      GPO FDSys XML | Text
      DEPARTMENT OF THE TREASURY, Internal Revenue Service
      Correcting amendment.
        Effective Date: These corrections are effective June 30, 2017. Applicability Date: The corrections to §§ 1.1441-0; 1.1441-1(b)(7)(ii)(B), (e)(3)(iv)(B) and (C), (e)(4)(ii)(B)( 11 ), (e)(4)(ix)(D), (e)(5)(ii) through (e)(5)(ii)(B), (e)(5)(ii)(D) through (e)(5)(v)(B)( 3 ), (e)(5)(v)(B)( 5 ) through (e)(5)(v)(D), and (f) through (f)(4); 1.1441-1T; 1.1441-3(d)(1); 1.1441-4; 1.6045-1(m)(2)(ii) and (n)(12)(ii); and 1.6049-5(c)(1) through (c)(4) are applicable on January 6, 2017.
      26 CFR Part 1

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