Depreciation Basis Decisions
Idaho Power requires capitalizing self-construction costs into basis. Peco Foods bound a buyer to a written purchase-price allocation. Massey and Alamo are historical useful-life law. Simon is ACRS history about instruments, not buildings.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Basis generally starts at cost. Land is removed before depreciation. Construction-equipment depreciation used to build a capital asset is capitalized (Idaho Power).
- A written §1060 allocation can prevent a later study from subdividing agreed assets (Peco). The audit guide says the reach beyond §1060 acquisitions is unclear.
- MACRS ignores salvage. Massey and Alamo do not set current class lives. Label them historical.
- Educational information, not tax advice.
Commissioner v. Idaho Power Co., 418 U.S. 1 (1974), required a utility to capitalize the depreciation on transportation equipment used to build its own transmission and distribution facilities. That cost became part of the facilities’ basis and was recovered over those facilities’ lives, not as a current deduction against operating income. The case is about how costs enter basis. It is not about whether a constructed item is personal property.
Peco Foods, Inc. v. Commissioner, T.C. Memo. 2012-18, aff’d, No. 12-12169 (11th Cir. 2013) (unpublished), held a buyer to Form 8594-style allocation schedules in two poultry-plant purchase agreements. Each agreement said the allocation would be used for all purposes, including tax. A later cost-segregation study could not break “Processing Plant Building” or “Real Property: Improvements” into shorter-lived components. The Eleventh Circuit found no ambiguity and no contract defense. Peco has no named inventory URL; it is discussed here and on acquisition tax-law pages (flag F-21). Do not say the holding applies to every purchase (flag F-05).
Massey Motors, Inc. v. United States, 364 U.S. 92 (1960), held that useful life follows the taxpayer’s expected use and that salvage includes expected resale value. Alamo Broadcasting Co. v. Commissioner, 15 T.C. 534 (1950), allocated a lump-sum radio-equipment price and recovered leasehold improvements over the lease plus renewal, or useful life if shorter. Both are pre-MACRS useful-life cases (flag F-15). Under §168, salvage is treated as zero and recovery periods are statutory.
Simon v. Commissioner, 68 F.3d 41 (2d Cir. 1995), aff’g 103 T.C. 247 (1994), allowed ACRS depreciation on Tourte bows used by professional violinists without a separate useful-life showing. It is the statutory-recovery counterpart to Massey. It is not authority for a building class and has low relevance to real estate. Do not cite it to depreciate displayed art or to classify a wall.
A construction study that omits capitalized overhead understates the pot later split among classes. An acquisition study that ignores a binding written allocation overstates what the study is allowed to do. Super Intelligence is proposed only. This page is educational information, not tax advice.
Alamo and Massey
Alamo Broadcasting allocated a lump-sum equipment price under old useful-life law. Massey Motors set useful life and salvage for cars before ACRS. Neither assigns MACRS recovery periods. Keep both pages labeled historical.
Acquisition planning
If the deal is an applicable asset acquisition, read the allocation schedule before commissioning a study. Peco is the reason “we will cost-segregate after closing” can be too late when the contract already split “building” from “equipment.”
How to use this page
Idaho Power tells a self-constructing owner that equipment depreciation used in construction belongs in the basis of the asset built. Peco tells a buyer that a signed §1060 schedule can freeze that basis split. Massey and Alamo tell a modern reader why useful-life and salvage fights no longer pick MACRS classes. Simon tells the same reader that ACRS replaced useful-life proof for tangible personal property that wears in a business — and that the property in that case was a violin bow, not a wall.
Cite the 11th Circuit Peco decision by docket number (No. 12-12169). It is unpublished. AmeriSouth and Peco remain topic-page authorities without named routes (flag F-21). Label Massey and Alamo historical (flag F-15).
Educational information, not tax advice.
Limits and flags
Idaho Power is national precedent on capitalizing construction-equipment depreciation into the asset built. It is not a MACRS class-life case and it predates §263A. Peco is an unpublished Eleventh Circuit decision about a written §1060 schedule; the audit guide says the reach beyond applicable asset acquisitions is unclear (flag F-05).
Massey and Alamo are historical useful-life and salvage cases (flag F-15). Simon is an ACRS violin-bow case with low relevance to buildings. None of those opinions classifies a wall, a chiller, or a parking lot as 5-year property. AmeriSouth and Peco have no named inventory URLs (flag F-21).
Super Intelligence is proposed only. Educational information, not tax advice.
Practice note
Read the purchase contract and the construction cost ledger before you classify anything. If the deal is an applicable asset acquisition and the parties already signed a written split, Peco is the reason a later study may be too late — and the audit guide still says the reach beyond §1060 is unclear (flag F-05). If the owner self-constructed, Idaho Power is the reason construction-equipment depreciation belongs in the asset built.
Do not quote Massey’s automobile useful life or Alamo’s four-year transmitter life to pick a MACRS class (flag F-15). Do not quote Simon’s Tourte bows to depreciate lobby art. Statutory recovery periods and salvage-is-zero are the current system. Classification still has to be won on HCA, Whiteco, and Scott Paper facts. Cite the Eleventh Circuit Peco decision as unpublished No. 12-12169. Educational information, not tax advice.
Sources
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