Reg. § 1.381(c)(6)-1 Depreciation method.
(a) Carryover requirement
(1) Distributions in taxable years ending before July 25, 1969
(i) Section provides that if, in a transaction in a taxable year which ends before July 25, 1969, to which section applies, an acquiring corporation acquires depreciable property from a distributor or transferor corporation which computes its allowance for the depreciation of the property under section , (3), or (4), the acquiring corporation shall compute its depreciation allowance by the same method used by the distributor or transferor corporation with respect to such property. Thus, if the distributor or transferor corporation used the sum of the years-digits method under section with respect to an asset distributed or transferred to an acquiring corporation, the acquiring corporation will be required to use the sum of the years-digits method with respect to such asset acquired. The computation of the depreciation allowance with respect to the property acquired shall be made under the provisions of section and the regulations thereunder.
(ii) The rules provided in section and subdivision (i) of this subparagraph will apply only with respect to that part or all of the basis of the property in the hands of the acquiring corporation immediately after the date of distribution or transfer as does not exceed the basis of the property in the hands of the distributor or transferor corporation on the date of the distribution or transfer. For this purpose, the basis of the property in the hands of the distributor or transferor corporation shall be the adjusted basis provided in section for the purpose of determining gain on the sale or other disposition of such property. For provisions defining the date of distribution or transfer see .
(2) Distributions in taxable years ending after July 24, 1969
(i) Section provides that if, in a transaction in a taxable year ending after July 24, 1969, to which section applies, an acquiring corporation acquires depreciable property from a distributor or transferor corporation which computes its allowances for the depreciation of the property under subsection (b), (j), or (k) of section , the acquiring corporation shall compute its depreciation allowance by the same method used by the distributor or transferor corporation with respect to such property. Thus, if the distributor or transferor corporation used the straight line method under section with respect to an asset distributed or transferred to an acquiring corporation, the acquiring corporation will be required to use the straight line method with respect to such asset. Similarly, if the distributor or transferor corporation elected to compute depreciation under section with respect to property attributable to rehabilitation expenditures, and such property is transferred to an acquiring corporation, the acquiring corporation will be required to compute depreciation under section with respect to the property acquired. The computation of the depreciation allowance with respect to the property acquired shall be made under the provisions of section and the regulations thereunder.
(ii) The rules provided in section and subdivision (i) of this subparagraph shall apply only with respect to that part or all of the basis of the property in the hands of the acquiring corporation immediately after the date of distribution or transfer as does not exceed the basis of the property in the hands of the distributor or transferor corporation on the date of the distribution or transfer. For this purpose, the basis of the property in the hands of the distributor or transferor corporation shall be the adjusted basis provided in section for the purpose of determining gain on the sale or other disposition of such property. For provisions defining the date of distribution or transfer see .
(b) Portion in excess of distributor or transferor corporation's basis
(1) General rule With respect to that part of the basis of the depreciable property (other than certain section property described in subparagraph (2) of this paragraph) which in the hands of the acquiring corporation exceeds the adjusted basis to the distributor or transferor corporation, the acquiring corporation may use any reasonable method of computing depreciation, other than the methods provided in section , (3), or (4). See for methods which are acceptable under section with respect to such property. See also sections and for the determination of basis of property in the hands of the acquiring corporation in connection with a transaction to which section applies.
(2) Section 1250 property With respect to that part of the basis of section property acquired after July 24, 1969, which in the hands of the acquiring corporation exceeds the adjusted basis to the distributor or transferor corporation, the acquiring corporation shall be subject to the limitations contained in section (relating to used section property) or 167(j)(5) (relating to used residential rental property). Thus, for example, if section property which is not residential rental property is acquired in a section transaction after July 24, 1969, the straight line method of depreciation (or other method allowable under section ) is the only acceptable method with respect to that portion of the basis of the property which, in the hands of the acquiring corporation, exceeds the adjusted basis to the transferor or distributor corporation.
(c) Records required Records shall be maintained in sufficient detail to identify any depreciable property to which this section applies, and to establish the basis thereof.
(d) Agreement under section 167(d) To the extent not inconsistent with of this section, an acquiring corporation shall be treated as the distributor or transferor corporation in the case of an agreement between the distributor or transferor corporation and the district director under section and with respect to property to which section and this section apply. Thus, in the case where the basis of an asset in the hands of an acquiring corporation exceeds the basis of such asset in the hands of the distributor or the transferor corporation, such an agreement will not have the effect of permitting the acquiring corporation to compute its depreciation allowance with respect to such excess basis under the methods provided in section , (3), or (4). However, the provisions of the agreement will continue to apply with respect to the useful life of the asset.
(e) Change of method of depreciation Although the acquiring corporation is required to use the method of computing depreciation used by the distributor or transferor with respect to depreciable property to which this section applies, such acquiring corporation may use another method with respect to such property if consent of the Commissioner is obtained in accordance with . Further, subject to the provisions of the acquiring corporation may change from the declining balance method described in section to the straight line method without consent of the Commissioner.
(f) Successive transactions to which section applies. The provisions of this section shall apply in the case of successive transactions to which section applies. Thus, for example, if X Corporation, a transferor corporation, used the sum of the years-digits method under section with respect to an asset transferred to Y Corporation, an acquiring corporation, in a transaction to which section applies, and subsequently Y Corporation, using the same method, transfers such asset to Z Corporation in a transaction to which section also applies, then Z Corporation shall be required to use the sum of the years-digits method with respect to such asset.
(g) Illustration The application of this section may be illustrated by the following example:
Example. M and N Corporations compute their taxable incomes on the basis of the calendar year. On December 31, 1959, M Corporation transfers all of its assets to N Corporation in a transaction to which section applies. Included among these assets is an item of depreciable property which on that date has an adjusted basis (for determining gain) of $800,000 after M Corporation takes into account for 1959 its allowance for depreciation under section . The basis attributable to the asset under section is determined to be $900,000 in the hands of N Corporation. Under the provisions of section and of this section, N Corporation is required to compute its allowance for the depreciation of the asset under section for 1960 and subsequent years but only in respect of $800,000 of its basis. N Corporation may use any reasonable method other than the methods provided in section , (3), or (4) in computing its depreciation allowance of the remaining $100,000.
[T.D. 6559, 26 FR 2983, Apr. 7, 1961, as amended by T.D. 7166, 37 FR 5246, Mar. 11, 1972; 37 FR 6400, Mar. 29, 1972]