Designated property
(b) Designated property(1) In general. Except as provided in paragraphs (b)(3) and (b)(4) of this section, designated property means any property that is produced and that is either: (i) Real property; or (ii) Tangible personal property (as defined in 1.263A-2(a)(2)) which meets any of the following criteria: (A) Property with a class life of 20 years or more under section 168 (long-lived property), but only if the property is not property described in section 1221(l) in the hands of the taxpayer or a related person, (B) Property with an estimated production period (as defined in 1.263A-12) exceeding 2 years (2-year property), or (C) Property with an estimated production period exceeding 1 year and an estimated cost of production exceeding $1,000,000 (1-year property). (2) Special rules(i) Application of thresholds. The thresholds described in paragraphs (b)(l)(ii)(A), (B), and (C) of this section are applied separately for each unit of property (as defined in 1.263A-10). (ii) Relevant activities and costs. For purposes of determining whether property is designated property, all activities and costs are taken into account if they are performed or incurred by, or for, the taxpayer or any related persons and they directly benefit or are incurred by reason of the production of the property. (iii) Production period and cost of production. For purposes of applying the classification thresholds under paragraphs (b)(l)(ii) (B) and (C) of this section to a unit of property, the taxpayer is required, at the beginning of the production period, to reasonably estimate the production period and the total cost of production for the unit of property. The taxpayer must maintain contemporaneous written records supporting the estimates and classification. If the estimates are reasonable based on the facts in existence at the beginning of the production period, the taxpayer's classification of the property is not modified in subsequent periods, even if the actual length of the production period or the actual cost of production differs from the estimates. To be considered reasonable, estimates of the production period and the total cost of production must include anticipated expense and time for delay, rework, change orders, and technological, design or other problems. To the extent that several distinct activities related to the production of the property are expected to occur simultaneously, the period during which these distinct activities occur is not counted more than once. The bases of assets used to produce a unit of property (within the meaning of 1.263A-11(d)) and any interest that would be required to be capitalized if a unit of property were designated property are disregarded in making estimates of the total cost of production for purposes of this paragraph (b)(2)(iii). (3) Excluded property. Designated property does not include: (i) Timber and evergreen trees that are more than 6 years old when severed from the roots, or (ii) Property produced by the taxpayer for use by the taxpayer other than in a trade or business or an activity conducted for profit. (4) De minimis rule(i) In general. Designated property does not include property for which (A) The production period does not exceed 90 days; and (B) The total production expenditures do not exceed $1,000,000 divided by the number of days in the production period. (ii) Determination of total production expenditures. For purposes of determining whether the condition of paragraph (b)(4)(i)(B) of this section is met with respect to property, the cost of land, the adjusted basis of property used to produce property, and interest that would be capitalized with respect to property if it were designated property are excluded from total production expenditures.