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I. Proper Election
The Court of Appeals has directed us to determine whether
petitioners made a proper election under section 168(f) for the
1987 and 1988 years before us. ABC Rentals of San Antonio, Inc.
v. Commissioner, 142 F.3d at 1211.
Under section 168(f)(1) taxpayers must make a proper
election in the first taxable year for which a depreciation
deduction would be allowable for the rental unit. Section
168(f)(1) provides:
(f) Property to Which Section Does Not Apply.--This
section shall not apply to--
(1) Certain methods of depreciation.--Any
property if--
(A) the taxpayer elects to exclude such
property from the application of this section, and
(B) for the 1st taxable year for which a
depreciation deduction would be allowable with
respect to such property in the hands of the
taxpayer, the property is properly depreciated
under the unit-of-production method or any method
of depreciation not expressed in a term of years
(other than the retirement-replacement-betterment
method or similar method).
Section 2.02 of Revenue Procedure 87-57, 1987-2 C.B. 687,
688, provides that the election under section 168(f)(1) must be
made following the procedures set forth in section 2.10 of the
Revenue Procedure. Section 2.10 of Revenue Procedure, 1987-2
C.B. at 689, provides,
.10 Time and manner for making elections. Under
section 5h.5(a)(2) of the temporary regulations, after April
14, 1987, an election described in this revenue procedure
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