[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1016-10]

[Page 73]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1016-10  Substituted basis.

    (a) Whenever it appears that the basis of property in the hands of 
the taxpayer is a substituted basis, as defined in section 1016(b), the 
adjustments indicated in Sec. Sec. 1.1016-1 to 1.1016-6, inclusive, 
shall be made after first making in respect of such substituted basis 
proper adjustments of a similar nature in respect of the period during 
which the property was held by the transferor, donor, or grantor, or 
during which the other property was held by the person for whom the 
basis is to be determined. In addition, whenever it appears that the 
basis of property in the hands of the taxpayer is a substituted basis, 
as defined in section 1016(b)(1), the adjustments indicated in 
Sec. Sec. 1.1016-7 to 1.1016-9, inclusive, and in section 1017 shall 
also be made, whenever necessary, after first making in respect of such 
substituted basis a proper adjustment of a similar nature in respect of 
the period during which the property was held by the transferor, donor, 
or grantor. Similar rules shall also be applied in the case of a series 
of substituted bases.
    (b)cation of this section may be illustrated by the following 
example:

    Example: A, who makes his returns upon the calendar year basis, in 
1935 purchased the X Building and subsequently gave it to his son B. B 
exchanged the X Building for the Y Building in a tax-free exchange, and 
then gave the Y Building to his wife C. C, in determining the gain from 
the sale or disposition of the Y Building in 1954, is required to reduce 
the basis of the building by deductions for depreciation which were 
successively allowed (but not less than the amount allowable) to A and B 
upon the X Building and to B upon the Y Building, in addition to the 
deductions for depreciation allowed (but not less than the amount 
allowable) to herself during her ownership of the Y Building.