[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)-4]

[Page 928-929]
 
                       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)-4  Leased property.

    Capital expenditures made by a lessee for the erection of buildings 
or the

[[Page 929]]

construction of other permanent improvements on leased property are 
recoverable through allowances for depreciation or amortization. If the 
useful life of such improvements in the hands of the taxpayer is equal 
to or shorter than the remaining period of the lease, the allowances 
shall take the form of depreciation under section 167. See Sec. Sec. 
1.167(b)-0, 1.167(b)-1, 1.167(b)-2, 1.167(b)-3, and 1.167(b)-4 for 
methods of computing such depreciation allowances. If, on the other 
hand, the estimated useful life of such property in the hands of the 
taxpayer, determined without regard to the terms of the lease, would be 
longer than the remaining period of such lease, the allowances shall 
take the form of annual deductions from gross income in an amount equal 
to the unrecovered cost of such capital expenditures divided by the 
number of years remaining of the term of the lease. Such deductions 
shall be in lieu of allowances for depreciation. See section 162 and the 
regulations thereunder. See section 178 and the regulations thereunder 
for rules governing the effect to be given renewal options in 
determining whether the useful life of the improvement exceeds the 
remaining term of the lease where a lessee begins improvements on leased 
property after July 28, 1958, other than improvements which on such date 
and at all times thereafter, the lessee was under a binding legal 
obligation to make. Capital expenditures made by a lessor for the 
erection of buildings or other improvements shall, if subject to 
depreciation allowances, be recovered by him over the estimated life of 
the improvements without regard to the period of the lease.

[T.D. 6520, 25 FR 13692, Dec. 24, 1960]