[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: 26CFR1.1053-1]

[Page 172-173]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1053-1  Property acquired before March 1, 1913.

    (a) Basis for determining gain. In the case of property acquired 
before March 1, 1913, the basis as of March 1, 1913, for

[[Page 173]]

determining gain is the cost or other basis, adjusted as provided in 
section 1016 and other applicable provisions of chapter 1 of the Code, 
or its fair market value as of March 1, 1913, whichever is greater.
    (b) Basis for determining loss. In the case of property acquired 
before March 1, 1913, the basis as of March 1, 1913, for determining 
loss is the basis determined in accordance with part II (section 1011 
and following), subchapter O, chapter 1 of the Code, or other applicable 
provisions of chapter 1 of the Code, without reference to the fair 
market value as of March 1, 1913.
    (c) Example. The application of paragraphs (a) and (b) of this 
section may be illustrated by the following example:

    Example: (i) On March 1, 1908, a taxpayer purchased for $100,000, 
property having a useful life of 50 years. Assuming that there were no 
capital improvements to the property, the depreciation sustained on the 
property before March 1, 1913, was $10,000 (5 years @ $2,000), so that 
the original cost adjusted, as of March 1, 1913, for depreciation 
sustained prior to that date is $90,000. On that date the property had a 
fair market value of $94,500 with a remaining life of 45 years.
    (ii) For the purpose of determining gain from the sale or other 
disposition of the property on March 1, 1954, the basis of the property 
is the fair market value of $94,500 as of March 1, 1913, adjusted for 
depreciation allowed or allowable after February 28, 1913, computed on 
$94,500. Thus, the substituted basis, $94,500, is reduced by the 
depreciation adjustment from March 1, 1913, to February 28, 1954, in the 
aggregate of $86,100 (41 years @ $2,100), leaving an adjusted basis for 
determining gain of $8,400 ($94,500 less $86,100).
    (iii) For the purpose of determining loss from the sale or other 
disposition of such property on March 1, 1954, the basis of the property 
is its cost, adjusted for depreciation sustained before March 1, 1913, 
computed on cost, and the amount of depreciation allowed or allowable 
after February 28, 1913, computed on the fair market value of $94,500 as 
of March 1, 1913. In this example, the amount of depreciation sustained 
before March 1, 1913, is $10,000 and the amount of depreciation 
determined for the period after February 28, 1913, is $86,100. 
Therefore, the aggregate amount of depreciation for which the cost 
($100,000) should be adjusted is $96,100 ($10,000 plus $86,100), and the 
adjusted basis for determining loss on March 1, 1954, is $3,900 
($100,000 less $96,100).

    (d) Fair market value. The determination of the fair market value of 
property on March 1, 1913, is generally a question of fact and shall be 
established by competent evidence. In determining the fair market value 
of stock or other securities, due regard shall be given to the fair 
market value of the corporate assets as of such date, and other 
pertinent factors. In the case of property traded in on public 
exchanges, actual sales on or near the basic date afford evidence of 
value. In general, the fair market value of a block or aggregate of a 
particular kind of property is not to be determined by a forced-sale 
price, or by an estimate of what a whole block or aggregate would bring 
if placed upon the market at one and the same time. In such a case the 
value should be determined by ascertaining as the basis the fair market 
value of each unit of the property. All relevant facts and elements of 
value as of the basic date should be considered in each case.