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The credit allowed by section 38 with respect to any
property shall be allowed only for the first taxable
year in which such property is placed in service by the
taxpayer. The determination of whether property is
section 38 property in the hands of the taxpayer shall
be made with respect to such first taxable year. Thus,
if a taxpayer places property in service in a taxable
year and such property does not qualify as section 38
property (or only a portion of such property qualifies
as section 38 property) in such year, no credit (or a
credit only as to the portion which qualifies in such
year) shall be allowed to the taxpayer with respect to
such property notwithstanding that such property (or a
greater portion of such property) qualifies as section
38 property in a subsequent taxable year. For example,
if a taxpayer places property in service in 1963 and
uses the property entirely for personal purposes in
such year, but in 1964 begins using the property in a
trade or business, no credit is allowable to the
taxpayer under section 38 with respect to such
property. See � 1.48-1 for the definition of section 38
property.
Section 1.46-3(d)(4)(i), Income Tax Regs., illustrates two
situations where an ITC is not allowed in subsequent years.
First, when property is placed in service and it does not qualify
for an ITC in that year, but does qualify for a credit in a
subsequent taxable year, the taxpayer is not entitled to an ITC.
Second, when only a portion of the property qualifies for an ITC
in the year that it is placed in service, but in a subsequent
year an additional portion of the property qualifies for a
credit, the taxpayer is entitled to a credit only for the portion
of the property that qualified for the ITC in the year that the
property was placed in service. Except as provided in section
1.46-3(d)(4)(ii), Income Tax Regs., a credit is allowable only
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