Reg. § 1.169-3 Amortizable basis.
(a) In general The amortizable basis of a certified pollution control facility for the purpose of computing the amortization deduction under section is the adjusted basis of the facility for purposes of determining gain (see part II (section and following), subchapter O, chapter 1 of the Internal Revenue Code), in conjunction with , , and of this section. The adjusted basis for purposes of determining gain (computed without regard to , , and of this section) of a facility that performs a function in addition to pollution control, or that is used in connection with more than one plant or other property, or both, is determined under . For rules as to additions and improvements to such a facility, see of this section. Before computing the amortization deduction allowable under section , the adjusted basis for purposes of determining gain for a facility that is placed in service by a taxpayer after September 10, 2001, and that is qualified property under section or , -percent bonus depreciation property under section or , or qualified New York Liberty Zone property under section 1400L(b) or must be reduced by the amount of the additional first year depreciation deduction allowed or allowable, whichever is greater, under section or section 1400L(b), as applicable, for the facility. Further, before computing the amortization deduction allowable under section , the adjusted basis for purposes of determining gain for a facility that is acquired and placed in service after September 27, 2017, and that is qualified property under section , as amended by the Tax Cuts and Jobs Act, Public Law 115-97 (131 Stat. 2054 (December 22, 2017)) (the “Act”), or , must be reduced by the amount of the additional first year depreciation deduction allowed or allowable, whichever is greater, under section , as amended by the Act.
(b) Limitation to post-1968 construction, reconstruction, or erection
(1) If the construction, reconstruction, or erection was begun before January 1, 1969, there shall be included in the amortizable basis only so much of the adjusted basis of such facility for purposes of determining gain (referred to in of this section) as is properly attributable under the rules set forth in to construction, reconstruction, or erection after December 31, 1968. See section (d)(4). For example, assume a certified pollution control facility for which the shortest period authorized under section is 10 years has a cost of $500,000, of which $450,000 is attributable to construction after December 31, 1968. Further, assume such facility does not perform a function in addition to pollution control and is used only in connection with a plant in operation before January 1, 1969. The facility would have an amortizable basis of $450,000 (computed without regard to and of this section). For depreciation of the remaining portion ($50,000) of the cost, see section and . For the definition of the term “certified pollution control facility” see .
(2) If the taxpayer elects to begin the 60-month amortization period with the first month of the taxable year succeeding the taxable year in which the facility is completed or acquired and a depreciation deduction is allowable under section (including an additional first-year depreciation allowance under former section ; for a facility that is acquired by the taxpayer after September 10, 2001, and that is qualified property under section or or qualified New York Liberty Zone property under section 1400L(b) or , the additional first year depreciation deduction under section or 1400L(b), as applicable; and for a facility that is acquired by the taxpayer after May 5, 2003, and that is 50-percent bonus depreciation property under section or , the additional first year depreciation deduction under section ) with respect to the facility for the taxable year in which it is completed or acquired, the amount determined under of this section shall be reduced by an amount equal to the amount of the depreciation deduction allowed or allowable, whichever is greater, multiplied by a fraction the numerator of which is the amount determined under of this section, and the denominator of which is the facility's total cost. The additional first-year allowance for depreciation under former section will be allowable only for the taxable year in which the facility is completed or acquired and only if the taxpayer elects to begin the amortization deduction under section with the taxable year succeeding the taxable year in which such facility is completed or acquired. For a facility that is acquired by a taxpayer after September 10, 2001, and that is qualified property under section or or qualified New York Liberty Zone property under section 1400L(b) or , see or , as applicable, with respect to when the additional first year depreciation deduction under section or 1400L(b) is allowable. For a facility that is acquired by a taxpayer after May 5, 2003, and that is 50-percent bonus depreciation property under section or , see with respect to when the additional first year depreciation deduction under section is allowable.
(c) Modification for profitmaking abatement works, etc If it appears that by reason of estimated profits to be derived through the recovery of wastes or otherwise (as determined by applying the rules prescribed in ) a portion or all of the total costs of the certified pollution control facility will be recovered over the period referred to in , its amortizable basis (computed without regard to this paragraph and of this section) shall be reduced by an amount equal to
(1) its amortizable basis (so computed) multiplied by
(2) a fraction the numerator of which is such estimated profits and the denominator of which is its adjusted basis for purposes of determining gain. See section .
(d) Cases in which the period referred to in paragraph (a)(6) of § 1.169-2 exceeds 15 years If as to a certified pollution control facility the period referred to in exceeds 15 years (determined as of the first day of the first month for which a deduction is allowable under the election made under the section and ), the amortizable basis of such facility shall be an amount equal to
(1) its amortizable basis (computed without regard to this paragraph) multiplied by
(2) a fraction the numerator of which is 15 years and the denominator of which is the number of years of such period. See section (2)(A).
(e) Examples This section may be illustrated by the following example:
Example 1.
The X Corporation, which uses the calendar year as its taxable year, began the installation of a facility on November 1, 1968, and completed the installation on June 30, 1970, at a cost of $400,000. All of the facility qualifies as a certified pollution control facility within the meaning of . $40,000 of such cost is attributable to construction prior to January 1, 1969. The X Corporation elects to take amortization deductions under section with respect to the facility and to begin the 60-month amortization period with January 1, 1971. The corporation takes a depreciation deduction under sections and of $10,000 (the amount allowable, of which $2,000 is for additional first year depreciation under section ) for the last 6 months of 1970. It is estimated that over the period referred to in (20 years) as to such facility, $80,000 in profits will be realized from the sale of wastes recovered in its operation. The amortizable basis of the facility for purposes of computing the amortization deduction as of January 1, 1971, is $210,600, computed as follows:
| (1) Portion of $400,000 cost attributable to post-1968 construction, reconstruction, or erection | $360,000 | |
| (2) Reduction for portion of depreciation deduction taken for the taxable year in which the facility was completed: | ||
| (a) $10,000 depreciation deduction taken for last 6 months of 1970 including $2,000 for additional first year depreciation under section 179 | $10,000 | |
| (b) Multiplied by the amount in line (1) and divided by the total cost of the facility ($360,000/ $400,000) | 0.9 | $9,000 |
| (3) Subtotal | $351,000 | |
| (4) Modification for profitmaking abatement works: Multiply line (3) by estimated profits through waste recovery ($80,000) and divide by the adjusted basis for determining gain of the facility ($400,000). | ||
| (5) Reduction | $70,200 | |
| (6) Subtotal | $280,800 | |
| (7) Modification for period referred to in paragraph (a)(6) of § 1.169-2 exceeding 15 years: Multiply by 15 years and divide by such period (determined in accordance with paragraph (d) of this section) (20 years) | 0.75 | |
| (8) Amortizable basis | $210,600 |
Example 2.
Assume the same facts as in example (1) except that the facility is used in connection with a number of separate plants some of which were in operation before January 1, 1969, that the Federal certifying authority certifies that 80 percent of the capacity of the facility is allocable to the plants which were in operation before such date, and that all of the waste recovery is allocable to the portion of the facility used in connection with the plants in operation before January 1, 1969. The amortizable basis of such facility, for purposes of computing the amortization deduction as of January 1, 1971, is $157,950 computed as follows:
| (1) Adjusted basis for purposes of determining gain: Multiply percent certified as allocable to plants in operation before January 1, 1969 (80 percent) by cost of entire facility ($400,000) | $320,000 | |
| (2) Portion of adjusted basis for determining gain attributable to post-1968 construction, reconstruction, or rection: Multiply line (1) by portion of total cost of facility attributable to post-1968 construction, reconstruction, or erection ($360,000) and divide by the total cost of the facility ($400,000) | $288,000 | |
| (3) Reduction for portion of depreciation deduction taken for the taxable year in which the facility was completed: | ||
| (a) $10,000 depreciation deduction taken for last 6 months of 1970 including $2,000 for additional first year depreciation under section 170 | $10,000 | |
| (b) Multiplied by the amount in line (2) and divided by the total cost of the facility ($288,000/$400,000) | 0.72 | $7,200 |
| (4) Subtotal | $280,800 | |
| (5) Modification for profitmaking abatement works; Multiply line (4) by estimated profits through waste recovery ($80,000) and divide by the amount in line (1) ($320,000). | ||
| (6) Reduction | $70,200 | |
| (7) Subtotal | $210,600 | |
| (8) Modification for period referred to in paragraph (a)(6) of § 1.169-2 exceeding 15 years: Multiply by 15 years and divide by such period (determined in accordance with paragraph (d) of this section) (20 years) | 0.75 | |
| (9) Amortizable basis | $157,950 |
(f) Additions or improvements
(1) If after the completion or acquisition of a certified pollution control facility further expenditures are made for additional construction, reconstruction, or improvements, the cost of such additions or improvements made prior to the beginning of the amortization period shall increase the amortizable basis of such facility, but the cost of additions or improvements made after the amortization period has begun, shall not increase the amortizable basis. See section .
(2) If expenditures for such additional construction, reconstruction, or improvements result in a facility which is new and is separately certified as a certified pollution control facility as defined in section and , and, if proper election is made, such expenditures shall be taken into account in computing under of this section the amortizable basis of such new and separately certified pollution control facility.
(g) Effective date for qualified property, 50-percent bonus depreciation property, and qualified New York Liberty Zone property This section applies to a certified pollution control facility. This section also applies to a certified pollution control facility that is qualified property under section or qualified New York Liberty Zone property under section 1400L(b) acquired by a taxpayer after September 10, 2001, and to a certified pollution control facility that is 50-percent bonus depreciation property under section acquired by a taxpayer after May 5, 2003. The last sentence of of this section applies to a certified pollution control facility that is qualified property under section and placed in service by a taxpayer during or after the taxpayer's taxable year that includes September 24, 2019. However, a taxpayer may choose to apply the last sentence of of this section to a certified pollution control facility that is qualified property under section and acquired and placed in service after September 27, 2017, by the taxpayer during taxable years ending on or after September 28, 2017. A taxpayer may rely on the last sentence in of this section in regulation project REG-104397-18 (2018-41 IRB 558) (see ) for a certified pollution control facility that is qualified property under section and acquired and placed in service after September 27, 2017, by the taxpayer during taxable years ending on or after September 28, 2017, and ending before the taxpayer's taxable year that includes September 24, 2019.
[T.D. 7116, 36 FR 9015, May 18, 1971; 36 FR 9770, May 28, 1971, as amended by T.D. 9091, 68 FR 53004, Sept. 8, 2003; T.D. 9283, 71 FR 51746, Aug. 31, 2006; T.D. 9874, 84 FR 50149, Sept. 24, 2019]