- 19 -
that it is the taxpayer’s primary use of the property that is
relevant. It is, thus, the taxpayer’s primary use of the
property, and not some other person’s use, that determines
classification.8 The taxpayer in question, of course, is the
person electing to use asset guideline classes for purposes of
computing its depreciation deductions for property placed in
service during the year.9 That it is only the electing
taxpayer’s use that counts is verified by the special rule in the
regulations that applies to leased property. After stating the
general rule that “property shall be included in the asset
guideline class for the activity in which the property is
8 Generally, as in this case, the taxpayer is the owner of
the property. See, however, sec. 1.167(a)-4, Income Tax Regs.,
which provides for lessee depreciation of permanent leasehold
improvements to a lessor-owner’s premises; see also Depot
Investors, Ltd. v. Commissioner, T.C. Memo. 1992-145 (allowing
lessee cost recovery of a leasehold improvement over the
remaining lease term).
9 Sec. 1.167(a)-11(b)(1), Income Tax Regs., provides: “The
allowance for depreciation of eligible property * * * to which
the taxpayer elects to apply this section shall * * * constitute
the reasonable allowance for depreciation of such property under
section 167(a).” (Emphasis added.)
Although Clajon is a partnership and, thus, not itself
subject to the income tax, see sec. 701 (partners not partnership
subject to income tax), the depreciation deduction is taken in
computing Clajon’s taxable income, see sec. 703(a), and the
regulations provide that, if a partnership places eligible
property in service, the partnership is to make the election to
apply sec. 1.167(a)-11, Income Tax Regs., sec. 1.167(a)-
11(e)(3)(ii), Income Tax Regs.
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011