[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.167(a)-10]

[Page 934-935]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.167(a)-10  When depreciation deduction is allowable.

    (a) A taxpayer should deduct the proper depreciation allowance each 
year and may not increase his depreciation allowances in later years by 
reason of his failure to deduct any depreciation allowance or of his 
action in deducting an allowance plainly inadequate under the known 
facts in prior years. The inadequacy of the depreciation allowance for 
property in prior years shall be determined on the basis of the 
allowable method of depreciation used by the taxpayer for such property 
or under the straight line method if no allowance has ever been claimed 
for such property. The preceding sentence shall not be construed as 
precluding application of any method provided in section 167(b) if 
taxpayer's failure to claim any allowance for depreciation was due 
solely to erroneously treating as a deductible expense an item properly 
chargeable to capital account. For rules relating to adjustments to 
basis, see section 1016 and the regulations thereunder.
    (b) The period for depreciation of an asset shall begin when the 
asset is placed in service and shall end when the asset is retired from 
service. A proportionate part of one year's depreciation is allowable 
for that part of the first and last year during which the asset was in 
service. However, in the case of a multiple asset account, the amount of 
depreciation may be determined by using what is commonly described as an 
``averaging convention'', that is, by using an assumed timing of 
additions and retirements. For example, it might be assumed that all 
additions and retirements to the asset account occur uniformly 
throughout the taxable year, in which case depreciation is computed on 
the average of the beginning and ending balances of the asset account 
for the taxable year. See example (3) under paragraph (b) of Sec. 
1.167(b)-1. Among still other averaging conventions which may be used is 
the one under which it is assumed that all additions and retirements 
during the first half of a given year were made on the first day of that 
year and that all additions and retirements during the second half of 
the year were made on the first day of the following year. Thus, a full 
year's depreciation would be taken on additions in the first half of the 
year and no depreciation would be taken on additions in the second half. 
Moreover, under this convention, no depreciation would be taken on 
retirements in the first half of the year and a full year's depreciation 
would be

[[Page 935]]

taken on the retirements in the second half. An averaging convention, if 
used, must be consistently followed as to the account or accounts for 
which it is adopted, and must be applied to both additions and 
retirements. In any year in which an averaging convention substantially 
distorts the depreciation allowance for the taxable year, it may not be 
used.