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Tax law & IRS
Code sections, Treasury regulations, and IRS publications this library has opened, with dates and limits noted.
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Internal Revenue Code §167 — Depreciation
Section 167 is the base rule that allows a depreciation deduction for property used in a business or held to produce income. It does not set rates or periods. Section 168 supplies the method for most tangible property placed in service after 1986.
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Internal Revenue Code §168 — MACRS
Section 168 sets the Modified Accelerated Cost Recovery System: the methods, recovery periods, conventions, and the alternative system that govern most depreciation of tangible property placed in service after 1986. Cost segregation uses that grid; it does not rewrite it.
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§168(k) — Bonus Depreciation
Bonus depreciation lets a taxpayer deduct a percentage of qualified property’s cost in the year it is placed in service. As of October 16, 2026, the rate is 100 percent for qualified property acquired after January 19, 2025. Earlier binding-contract property stays on the prior phase-down.
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§179 — Expensing Rules and Boundaries
Section 179 lets a business elect to expense qualifying property up to an annual limit. It differs from bonus depreciation in scope, dollar limits, the taxable-income cap, and the property it covers. Limits are stated by tax year. Educational information, not tax advice.
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§1245 Property Overview
Section 1245 property is mainly depreciable personal property and certain other listed property. When it is sold, gain up to prior depreciation is generally taxed as ordinary income. Most short-lived components in a cost segregation study fall here. Educational information, not tax advice.
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§1250 Property Overview
Section 1250 property is depreciable real property that is not §1245 property — generally buildings and their structural components. Its ordinary-income recapture is limited to additional depreciation above straight line. MACRS buildings usually have none of that excess. Educational information, not tax advice.
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§481(a) — Accounting Method Adjustments
When a taxpayer changes an accounting method, §481(a) requires a catch-up adjustment so nothing is counted twice or missed. Look-back cost segregation is usually claimed that way, not by amending every prior return. Filing decisions belong to the taxpayer’s CPA.
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IRS Cost Segregation Audit Techniques Guide
IRS Publication 5653 explains how IRS examiners review cost segregation studies. It is useful guidance, but by its own terms it is not authority, and the February 2025 revision predates the July 2025 law. It is not an IRS-approved study format.
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IRS Tangible Property Regulations
The tangible property regulations decide whether spending on property is deducted or capitalized. For buildings, the improvement test applies separately to the structure and each building system, with elective safe harbors. Older cases are background. Educational information, not tax advice.
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Treasury Regulations for Depreciable Property
A guide to the Treasury regulations cost segregation relies on most: §1.48-1 definitions of personal property and structural components, class-life and placed-in-service rules, general asset accounts, dispositions, and bonus depreciation. Local fixture law is not controlling. Educational information, not tax advice.
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IRS Publication 946
Publication 946, How To Depreciate Property, is the IRS’s plain-language depreciation guide. The 2025 edition reflects the July 2025 law, including 100 percent bonus depreciation after January 19, 2025. No 2026 edition had been released as of October 16, 2026.
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IRS Form 3115 Instructions
A guide to the Form 3115 instructions and the automatic change list taxpayers use to change depreciation methods, including after a look-back cost segregation study. The instructions are dated December 2022. Filing decisions belong to the taxpayer’s CPA. Educational information, not tax advice.
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IRS Form 4562
Form 4562 is where depreciation, §179 expensing, and amortization are reported. The 2025 instructions describe each part and the July 2025 law changes, including 100 percent bonus depreciation for qualified property acquired after January 19, 2025. Educational information, not tax advice.
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MACRS Recovery Periods and Classification
How property is placed in a MACRS class: check the asset classes used in all businesses, then the activity classes, then the statutory defaults. Class lives come from Rev. Proc. 87-56 as reproduced in Publication 946, Appendix B. Educational information, not tax advice.
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Half-Year Convention
The half-year convention treats personal property as placed in service, or disposed of, at the midpoint of the tax year, regardless of the actual month. It is the default convention under §168(d). Buildings use mid-month instead. Educational information, not tax advice.
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Mid-Quarter Convention
The mid-quarter convention applies to a year’s personal property when more than 40 percent of the tested basis is placed in service in the final three months of the tax year. Real property is left out of the test. Educational information, not tax advice.
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Mid-Month Convention
Buildings use the mid-month convention: property is treated as placed in service, or disposed of, at the midpoint of the month. Personal-property components from the same closing generally use half-year or mid-quarter instead. First-year depreciation depends on the month. Educational information, not tax advice.
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Bonus Depreciation Eligibility
Which property qualifies for bonus depreciation under §168(k), including used property, and what is excluded. Eligibility and the applicable rate are separate questions. As of October 16, 2026, 100 percent applies only after January 19, 2025. Educational information, not tax advice.
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Bonus Depreciation Acquisition-Date Rules
Under current law, the bonus depreciation rate depends on when property was acquired. Binding contracts and self-constructed property have specific rules. As of October 16, 2026, 100 percent applies only to qualified property acquired after January 19, 2025. Educational information, not tax advice.
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Placed-in-Service Rules
Property is placed in service when it is first ready and available for its specifically assigned function. That date starts depreciation, sets the convention, and helps determine which bonus rules apply. Actual use is not required. Educational information, not tax advice.
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Qualified Improvement Property
Qualified improvement property is 15-year straight-line property: an interior improvement made by the taxpayer to a nonresidential building after the building was first placed in service. Enlargements, elevators, escalators, and internal structural framework are excluded. Educational information, not tax advice.
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Leasehold Improvement Considerations
When a tenant or landlord pays for interior improvements, who made the improvement affects whether it is qualified improvement property and who depreciates it. Lease terms and tenant-improvement allowances need case-by-case review by the taxpayer’s CPA. Educational information, not tax advice.
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Building Acquisition and Basis Allocation
Basis is generally cost under §1012. Land must be separated because it is not depreciable. In an applicable asset acquisition, a written buyer–seller allocation can bind both parties under §1060 — a risk illustrated by Peco Foods, not a rule for every purchase.
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Related-Party Acquisition Considerations
Buying from a related party can deny bonus depreciation on used property and can deny the §179 election. The tests are statutory purchase rules in §179(d)(2), used by §168(k). A cost segregation study does not override them. Educational information, not tax advice.
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Property Used in a Trade or Business
Depreciation is allowed only for property used in a trade or business or held for the production of income. Personal-use property is outside that rule. Section 179 is narrower than §167 because it requires active conduct of a trade or business.
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Rental Property Depreciation Rules
Residential rental real property is generally recovered over 27.5 years, straight line, using the mid-month convention. Whether a building qualifies depends on an 80 percent dwelling-unit income test in §168(e)(2)(A). Transient lodging is excluded from that definition. Educational information, not tax advice.
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Capital Improvements vs. Repairs
Treasury Regulation §1.263(a)-3 decides whether an amount paid for a building is a deductible repair or a capital improvement. The test is applied to the building structure and to each building system. Older cases, including Plainfield-Union, are background only. Educational information, not tax advice.
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Partial Asset Dispositions
When you replace part of a building, a partial disposition election under Treas. Reg. §1.168(i)-8(d) can let you recognize a loss on the retired portion instead of leaving its remaining basis in the asset. The election is generally made on the original return.
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Federal vs. State Depreciation Differences
States start from the federal Code but may conform to an older date or decouple from bonus depreciation, §179, or §168(n). California is confirmed from FTB 3885. Other states are not listed here until confirmed on official state pages. Educational information, not tax advice.
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Tax Law Updates and Effective Dates
The dates that matter most for current cost segregation work, as of October 16, 2026: 100 percent bonus depreciation after January 19, 2025, 2026 §179 limits, Form 3115 list dates, and the construction and placed-in-service windows for qualified production property.
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