Rev. Proc. 87-56
1987-2 C.B. 674
Section 168 -- ACRS Depreciation
Statement of Procedural Rules
Modified by Rev. Proc. 88-22
Clarified by Rev. Proc. 88-22
Summary
SERVICE PROVIDES CLASS LIVES FOR DEPRECIATION PURPOSES.
The Service has issued Rev. Proc. 87-56, providing class lives of property that are necessary to compute the depreciation allowances available under section 168, as amended by section 201(a) of the Tax Reform Act of 1986. The guidance applies to both the general depreciation system under section 168(a) and the alternative depreciation system (ACRS) provided in section 168(g).
For further information on Rev. Proc. 87-56, call Rick Robbins at (202) 566-4440. Rev. Proc. 83-35 was made obsolete by Rev. Proc. 87-56.
Full Text
Rev. Proc. 87-56
SECTION 1. PURPOSE
The purpose of this revenue procedure is to set forth the class lives of property that are necessary to compute the depreciation allowances available under section 168 of the Internal Revenue Code, as amended by section 201(a) of the Tax Reform Act of 1986 (Act), 1986-3 (Vol. 1) C.B. 38. Rev. Proc. 87-57, page 17, this Bulletin, describes the applicable depreciation methods, applicable recovery periods, and applicable conventions that must be used in computing depreciation allowances under section 168.
SEC. 2. GENERAL RULES OF APPLICATION
01 IN GENERAL. This revenue procedure specifies class lives and recovery periods for property subject to depreciation under the general depreciation system provided in section 168(a) of the Code or the alternative depreciation system provided in section 168(g).
02 DEFINITION OF CLASS LIFE. Except with respect to certain assigned property described in section 3 of this revenue procedure, for purposes of both the general depreciation system and the alternative depreciation system, the term "class life" means the class life that would be applicable for any property as of January 1, 1986, under section 167(m) of the Code (determined without regard to paragraph 4 thereof and determined as if the taxpayer had made an election under section 167(m)). The class life that would be applicable for any property as of January 1, 1986, under section 167(m), is the asset guideline period (midpoint class life) for the asset guideline class in which such property is classified under Rev. Proc. 83-35, 1983-1 C.B. 745. However, for purposes of the alternative depreciation system, section 168(g)(3)(B) assigns a class life to certain property that is taken into account under section 168 rather than the class life that would be applicable as of January 1, 1986. The class life of property that is either determined as of January 1, 1986, under Rev. Proc. 83-35 or assigned under section 168(g)(3)(B) may be modified by the Secretary pursuant to authority granted under section 168(i)(1). See section 4 of this revenue procedure.
03 REV. PROC. 83-35. Rev. Proc. 83-35 sets out the asset guideline classes, asset guideline periods and ranges, and annual asset guideline repair allowance percentages for the Class Life Asset Depreciation Range System. The asset guideline periods (midpoint class lives) set out in Rev. Proc. 83-35 are also used in defining the classes of recovery property under the Accelerated Cost Recovery System (that is, section 168 of the Code as in effect prior to amendment by section 201 of the Act). Rev. Proc. 83-35 remains effective for property subject to depreciation under those systems. Rev. Proc. 83-35 does not apply to property subject to depreciation under section 168, other than as a basis for determining the class lives of such property under section 2.02 of this revenue procedure.
04 PROPERTY WITH NO CLASS LIFE. Property that is neither described in an asset guideline class listed in section 5 of this revenue procedure nor assigned a class life under section 168(g)(3)(B) of the Code is treated as property having no class life for purposes of section 168 unless and until a class life is prescribed by the Secretary pursuant to the authority granted under section 168(i)(1). See section 4 of this revenue procedure. The general and alternative depreciation systems contain separate rules for classifying property that does not have a class life.
SEC. 3. ASSIGNED PROPERTY WITH ASSIGNED CLASS LIVES, RECOVERY CLASSES, OR RECOVERY PERIODS
Under section 168(i)(1)(E) of the Code, the term "assigned property" means property for which a class life, recovery class, or recovery period is assigned under section 168(e)(3) or section 168(g)(3)(B), (C), or (D), and the term "assigned item" means the class life, recovery class, or recovery period assigned under section 168(e)(3) or section 168(g)(3)(B), (C), or (D). For purposes of the general depreciation system assigned property under section 168(c)(3) is assigned to a recovery class without regard to such property's class life. (See section 3.02 of Rev. Proc. 87-57, this Bulletin.) For purposes of the alternative depreciation system, certain assigned property is assigned a class life under section 168(g)(3)(B), notwithstanding such property's class life as set out in Rev. Proc. 83-35. See section 3.03 of Rev. Proc. 87-57, this Bulletin. For purposes of the alternative depreciation system, certain assigned property is assigned a recovery period under section 168(g)(3)(C), (D), or (E), notwithstanding such property's class life (if any).
SEC. 4. PRESCRIPTION AND MODIFICATION OF CLASS LIVES
01 Section 168(i)(1)(B) of the Code provides that the Secretary, through an office established in the Treasury, shall monitor and analyze actual experience with respect to all depreciable assets. Except in the case of section 1250 property that is residential rental property or nonresidential real property, the Secretary, through that office, (i) may prescribe a new class life for any property, (ii) in the case of assigned property, may modify any assigned item, or (iii) may prescribe a class life for any property that does not have a class life within the meaning of section 2.02 of this revenue procedure. Any class life or assigned item that is prescribed or modified pursuant to this authority shall be used for all purposes in determining depreciation allowances under the general depreciation system and the alternative depreciation system. In the case of assigned property as defined in section 168(i)(1)(E), no class life set forth in this revenue procedure nor any other assigned item may be modified, unless such modification reflects a shortening of such class life, for property placed in service prior to January 1, 1992.
02 Prescription or modification of class lives under the authority granted in section 168(i)(1)(B) of the Code shall reflect the anticipated useful lives, and the anticipated decline in value over time (that is, economic depreciation) of an asset to the industry or other group. Rules and practices governing prescription and modification of class lives pursuant to the authority granted in section 168(i)(1)(B) shall be announced through the office referred to in section 4.01 of this revenue procedure.
SEC. 5. TABLES OF CLASS LIVES AND RECOVERY PERIODS
01 Except for property described in section 5.02, below, the class lives (if any) and recovery periods for property subject to depreciation under section 168 of the Code appear in the tables below. These tables are based on the definition of class life in section 2.02 of this revenue procedure and the assigned items described in section 3 of this revenue procedure.
02 For purposes of depreciation under the general depreciation system, residential rental property has a recovery period of 27.5 years and nonresidential real property has a recovery period of 31.5 years. For purposes of the alternative depreciation system, residential rental and nonresidential real property each has a recovery period of 40 years.
03 Generally, the asset classes in the tables are incorporated from the asset guideline classes in Rev. Proc. 83-35 as of January 1, 1986. However, descriptions of the following asset classes have been amended or added: 00.12, 00.3, 01.221, 01.222, 01.3, 01.4, 36.0, 36.1, 40.4, 48.12, 48.121, 48.31-48.45, 50 and 51. Certain asset guideline classes in Rev. Proc. 83-35 included property on the basis of regulated accounts. For purposes of section 168 of the Code and this revenue procedure, asset classes include property described therein without regard to whether a taxpayer is a regulated public utility or an unregulated company.
04 In addition to specifying class lives for each asset guideline class, the tables list certain property for which a recovery period is assigned, notwithstanding such property's class life (if any). See section 3 of this revenue procedure. The listed assigned property classes (denoted A-E) generally do not correspond to asset guideline classes for which class lives are specified in the tables. The class life (if any) of an item of assigned property described in classes A-E is determined by reference to the asset guideline class (if any) containing such item of property. If an item of assigned property described in classes A-E is not contained in any asset guideline class, such item of property has no class life.
EXAMPLES. Qualified technological equipment as defined in section 168(i)(2) (class B) is assigned a recovery period of 5 years for both the general and alternative depreciation systems, notwithstanding such property's class life (if any). Property which is a computer or peripheral equipment, high technology telephone station equipment installed on the customer's premises or high technology medical equipment within the meaning of section 168(i)(2), may be described in asset guideline class 00.12 (class life 6 years), 48.13 (class life 10 years) or 57.0 (class life 9 years), respectively. Property used in connection with research and experimentation referred to in section 168(e)(3)(B) (class C) is assigned a recovery period of 5 years for the general depreciation system, notwithstanding its class life (if any). Such property's recovery period for the alternative depreciation system is based on its class life (if any). An item of property used in connection with research and experimentation has a class life if such property is contained in an asset guideline class.
05 The following special rules are incorporated from Rev. Proc. 83-35, sections 2.02(iii) and (iv):
1. Asset guideline class 00.3, "Land Improvements," includes "other tangible property" that qualifies under section 1.48-1(d) of the Income Tax Regulations. However, a structure that is essentially an item of machinery or equipment or a structure that houses property used as an integral part of an activity specified in section 48(a)(1)(B)(i) of the Code, if the use of the structure is so closely related to the use of the property that the structure clearly can be expected to be replaced when the property it initially houses is replaced, is included in the asset guideline class appropriate to the equipment to which it is related.
2 Asset class 30.11 includes general rebuilding or rehabilitation costs for the special tools defined in class 30.11 that have been traditionally capitalized as the cost of a new asset.
SEC. 6. EFFECT ON OTHER REVENUE PROCEDURES
Rev. Proc. 83-35 is obsoleted for property that is subject to section 168 of the Code.
The principal author of this revenue procedure is Mr. Rick Robbins of the Corporation Tax Division. For further information regarding this revenue procedure, contact Mr. Rick Robbins on (202) 566-4440 (not a toll-free call).
Recovery Periods
(in years)
Class General Alternative
Life Depre- Depre-
Asset (in ciation ciation
class Description of assets included years) System System
______
SPECIFIC DEPRECIABLE ASSETS USED IN ALL BUSINESS ACTIVITIES, EXCEPT
AS NOTED:
00.11 OFFICE FURNITURE, FIXTURES
AND EQUIPMENT:
Includes furniture and fixtures that
are not a structural component of a
building. Includes such assets as
desks, files, safes, and
communications equipment. Does not
include communications equipment
that is included in other classes 10 7 10
00.12 INFORMATION SYSTEMS:
Includes computers and their
peripheral equipment used in
administering normal business
transactions and the maintenance of
business records, their retrieval
and analysis.
Information systems are defined as:
1) Computers: A computer is a
programmable electronically
activated device capable of
accepting information, applying
prescribed processes to the
information, and supplying the
results of these processes with or
without human intervention. It
usually consists of a central
processing unit containing extensive
storage, logic, arithmetic, and
control capabilities. Excluded from
this category are adding machines,
electronic desk calculators, etc.
and other equipment described in
class 00.13
2) Peripheral equipment consists of
the auxiliary machines which are
designed to be placed under control
of the central processing unit.
Nonlimiting examples are: Card
readers, card punches, magnetic tape
fees, high speed printers, optical
character readers, tape cassettes,
mass storage units, paper tape
equipment, keypunches, data entry
devices, teleprinters, terminals,
tape drives, disc drives, disc
files, disc packs, visual image
projector tubes, card sorters,
plotters, and collators. Peripheral
equipment may be used on-line or off-
line.
Does not include equipment that is
an integral part of other capital
equipment that is included in other
classes of economic activity, i.e.,
computers used primarily for process
or production control, switching,
channeling, and automating
distributive trades and services
such as point of sale (POS) computer
systems. Also, does not include
equipment of a kind used primarily
for amusement or entertainment of
the user 6 5 /1/ 5 /1/
00.13 DATA HANDLING EQUIPMENT, EXCEPT
COMPUTERS:
Includes only typewriters,
calculators, adding and accounting
machines, copiers, and duplicating
equipment 6 5 6
00.21 AIRPLANES (AIRFRAMES AND ENGINES),
EXCEPT THOSE USED IN COMMERCIAL OR
CONTRACT CARRYING OF PASSENGERS OR
FREIGHT, AND ALL HELICOPTERS
(AIRFRAMES AND ENGINES) 6 5 6
00.22 AUTOMOBILES, TAXIS 3 5 5
00.23 BUSES 9 5 9
00.241 LIGHT GENERAL PURPOSE TRUCKS:
Includes trucks for use over the
road (actual unloaded weight less
than 13,000 pounds) 4 5 5
00.242 HEAVY GENERAL PURPOSE TRUCKS:
Includes heavy general purpose
trucks, concrete ready mix-
truckers, and ore trucks, for use
over the road (actual unloaded
weight 13,000 pounds or more) 6 5 6
00.25 RAILROAD CARS AND LOCOMOTIVES,
EXCEPT THOSE OWNED BY RAILROAD
TRANSPORTATION COMPANIES 15 7 15
00.26 TRACTOR UNITS FOR USE OVER-THE-
ROAD 4 3 4
00.27 TRAILERS AND TRAILER-MOUNTED
CONTAINERS 6 5 6
00.28 VESSELS, BARGES, TUGS, AND SIMILAR
WATER TRANSPORTATION EQUIPMENT,