[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.167(e)-1]

[Page 972-974]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
COMPUTATION OF TAXABLE INCOME--Table of Contents
 
Sec. 1.167(e)-1  Change in method.

    (a) In general. Any change in the method of computing the 
depreciation allowances with respect to a particular account (other than 
a change in method permitted or required by reason of the operation of 
section 167(j)(2) and Sec. 1.167(j)-3(c)) is a change in method of 
accounting, and such a change will be permitted only with the consent of 
the Commissioner, except that certain changes to the straight line 
method of depreciation will be permitted without consent as provided in 
section 167(e) (1), (2), and (3). Except as provided in paragraphs (c) 
and (d) of this section, a change in method of computing depreciation 
will be permitted only with respect to all the assets contained in a 
particular account as defined in Sec. 1.167(a)-7. Any change in the 
percentage of the current straight line rate under the declining balance 
method, as for example, from 200 percent of the straight line rate to 
any other percent of the straight line rate, or any change in the 
interest factor used in connection with a compound interest or sinking 
fund method, will constitute a change in method of depreciation. Any 
request for a change in method of depreciation shall bemade in 
accordance with section 446 and the regulations thereunder and shall 
state the character and location of the property, method of depreciation 
being used and the method proposed, the date of acquisition, the cost or 
other basis and adjustments thereto, amount recovered through 
depreciation and other allowances, the estimated salvage value, the 
estimated remaining life of the property, and such other information as 
may be required. For rules covering the use of depreciation methods by 
acquiring corporations in the case of certain corporate acquisitions, 
see section 381(c)(6) and the regulations thereunder.
    (b) Declining balance to straight line. In the case of an account to 
which the method described in section 167(b)(2) is applicable, a 
taxpayer may change without the consent of the Commissioner from the 
declining balance method of depreciation to the straight line method at 
any time during the useful life of the property under the following 
conditions. Such a change may not be made if a provision prohibiting 
such a change is contained in an agreement under section 167(d). When 
the change is made, the unrecovered cost or other basis (less a 
reasonable estimate for salvage) shall be recovered through annual 
allowances over the estimated remaining useful life determined in 
accordance with the circumstances existing at the time. With respect to 
any account, this change will be permitted only if applied to all the 
assets in the account as defined in Sec. 1.167(a)-7. If the method of 
depreciation described in section 167(b)(2) (the

[[Page 973]]

decliningbalance method of depreciation using a rate not exceeding 200 
percent of the straight line rate) is an acceptable method of 
depreciation with respect to a particular account, the taxpayer may 
elect under this paragraph to change to the straight line method of 
depreciation even if with respect to that particular account the 
declining balance method is permitted under a provision other than 
section 167(b)(2). Thus, for example, in the case of section 1250 
property to which section 167(j)(1) is applicable, section 167(b) does 
not apply, but the declining balance method of depreciation using 150 
percent of the straight line rate is an acceptable method of 
depreciation under section 167(j)(1)(B). Accordingly, the taxpayer may 
elect under this paragraph to change to the straight line method of 
depreciation with respect to such property. Similarly, if the taxpayer 
acquired used property before July 25, 1969, and adopted the 150 percent 
declining balance method of depreciation permitted with respect to such 
property under Sec. 1.167(b)-0(b), the taxpayer may elect under this 
paragraph to change to the straight line method of depreciation with 
respect to such property. The taxpayer shall furnish a statement with 
respect to the property which is the subject of the change showing the 
date of acquisition, cost or other basis, amounts recovered through 
depreciation and other allowances, the estimated salvage value, the 
character of the property, the remaining useful life of the property, 
and such other information as may be required. The statement shall be 
attached to the taxpayer's return for the taxable year in which the 
change is made. A change to the straight line method must be adhered to 
for the entire taxable year of the change and for all subsequent taxable 
years unless, with the consent of the Commissioner, a change to another 
method is permitted.
    (c) Change with respect to section 1245 property. (1) In respect of 
his first taxable year beginning after December 31, 1962, a taxpayer may 
elect, without the consent of the Commissioner, to change the method of 
depreciation of section 1245 property (as defined in section 1245(a)(3)) 
from any declining balance method or sum of the years-digits method to 
the straight line method. With respect to any account (as defined in 
Sec. 1.167(a)-7), this change may be made notwithstanding any provision 
to the contrary in an agreement under section 167(d), but such change 
shall constitute (as of the first day of such taxable year) a 
termination of such agreement as to all property in such account. With 
respect to any account, this change will be permitted only if applied to 
all the section 1245 property in the account. The election shall be made 
by a statement on, or attached to, the return for such taxable year 
filed on or before the last day prescribed by law, including any 
extensions thereof, for filing such return.
    (2) When an election under this paragraph is made in respect of 
section 1245 property in an account, the unrecovered cost or other basis 
(less a reasonable estimate for salvage) of all the section 1245 
property in the account shall be recovered through annual allowances 
over the estimated remaining useful life determined in accordance with 
the circumstances existing at that time. If there is other property in 
such account, the other property shall be placed in a separate account 
and depreciated by using the same method as was used before the change 
permitted by this paragraph, but the estimated useful life of such 
property shall be redetermined in accordance with Sec. 1.167(b)-2, or 
1.167(b)-3, whichever is applicable. The taxpayer shall maintain records 
which permit specific identification of the section 1245 property in the 
account with respect to which the election is made, and any other 
property in such account. The records shall also show for all the 
property in the account the date of acquisition, cost or other basis, 
amounts recovered through depreciation and other allowances, the 
estimated salvage value, the character of the property, and the 
remaining useful life of the property. A change to the straight line 
method under this paragraph must be adhered to for the entire taxable 
year of the change and for all subsequent taxable years unless, with the 
consent of the Commissioner, a change to another method is permitted.

[[Page 974]]

    (d) Change with respect to section 1250 property. (1) In respect of 
his first taxable year beginning after July 24, 1969, a taxpayer may 
elect, without the consent of the Commissioner, to change the method of 
depreciation of section 1250 property (as defined in section 1250(c)) 
from any declining balance method or sum of the years-digits method to 
the straight line method. With respect to any account (as defined in 
Sec. 1.167(a)-7) this change may be made notwithstanding any provision 
to the contrary in an agreement under section 167(d), but such change 
will constitute (as of the first day of such taxable year) a termination 
of such agreement as to all property in such account. With respect to 
any account, this change will be permitted only if applied to all the 
section 1250 property in the account. The election shall be made by a 
statement on, or attached to, the return for such taxable year filed on 
or before the last day prescribed by law, including extensions thereof, 
for filing such return.
    (2) When an election under this paragraph is made in respect of 
section 1250 property in an account, the unrecovered cost or other basis 
(less a reasonable estimate for salvage) of all the section 1250 
property in the account shall be recovered through annual allowances 
over the estimated remaining useful life determined in accordance with 
the circumstances existing at that time. If there is other property in 
such account, the other property shall be placed in a separate account 
and depreciated by using the same method as was used before the change 
permitted by this paragraph, but the estimated useful life of such 
property shall be redetermined in accordance with Sec. 1.167(b)-2 or 
Sec. 1.167(b)-3, whichever is applicable. The taxpayer shall maintain 
records which permit specific identification of the section 1250 
property in the account with respect to which the election is made and 
any other property in such account. The records shall also show for all 
the property in the account the date of the acquisition, cost or other 
basis, amounts recovered through depreciation and other allowances, the 
estimated salvage value, the character of the property, and the 
estimated remaining useful life of the property. A change to the 
straight line method under this paragraph must be adhered to for the 
entire taxable year of the change and for all subsequent taxable years 
unless, with the consent of the Commissioner, a change to another method 
is permitted.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6832, 30 FR 
8573, July 7, 1965; T.D. 7166, 37 FR 5245, Mar. 11, 1972]