[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1250-4]

[Page 436-437]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
GAIN OR LOSS ON DISPOSITION OF PROPERTY--Table of Contents
 
Sec. 1.1250-4  Holding period.

    (a) General. In general, for purposes only of determining the 
applicable percentage (as defined in section 1250 (1)(C) and (2)(B)) of 
section 1250 property, the holding period of the property shall be 
determined under the rules of section 1250(e) and this section and not 
under the rules of section 1223. If the property is treated as 
consisting of two or more elements (within the meaning of paragraph 
(c)(1) of Sec. 1.1250-5), see paragraph (a)(2)(ii) of Sec. 1.1250-5 for 
application of this section to determination of holding period of each 
element. Section 1250(e) does not affect the determination of the amount 
of additional depreciation in respect of section 1250 property.
    (b) Beginning of holding period. (1) For the purpose of determining 
the applicable percentage, in the case of property acquired by the 
taxpayer (other than by means of a transaction referred to in paragraph 
(c) or (d) of this section), the holding period of the property shall 
begin on the day after the date of its acquisition. See section 
1250(e)(1)(A). Thus, for example, if a taxpayer purchases section 1250 
property on January 1, 1965, the holding period of the property begins 
on January 2, 1965. If he sells the property on October 1, 1966, the 
holding period on the day of the sale is 21 full months, and, 
accordingly, the applicable percentage is 99 percent. This result would 
not be changed even if the property initially had been used solely as 
the taxpayer's residence for a portion of the 21-month period. If, 
however, the property were sold on September 30, 1966, the holding 
period would be only 20 full months.
    (2) For the purpose of determining the applicable percentage in the 
case of property constructed, reconstructed, or erected by the taxpayer, 
the holding period of the property shall begin on the first day of the 
month during which the property is placed in service. See section 
1250(e)(1)(B). Thus, for example, if a taxpayer constructs section 1250 
property and places it in service on January 15, 1965, its holding 
period begins on January 1, 1965. If the taxpayer sells the property on 
December 31, 1966, its holding period on the day of sale is 24 full 
months, and, accordingly, the applicable percentage is 96 percent. For 
purposes of this subparagraph, property is placed in service on the date 
on which it is first used, whether in a trade or business, in the 
production of income, or in a personal activity. Thus, for example, a 
residence constructed by a taxpayer for his personal use is placed in 
service on the date it is occupied as a residence. For purposes of 
determining the date property is placed in service, it is immaterial 
when the period begins for depreciation with respect to the property 
under any depreciation practice under which depreciation begins in any 
month other than the month in which the property is placed in service. 
If one or more units of a single property are placed in service on 
different dates before the completion of the property, see paragraph 
(c)(3) of Sec. 1.1250-5 (relating to treatment of each such unit as an 
element).
    (c) Property with transferred basis. Under section 1250(e)(2), if 
the basis of property acquired in a transaction described in this 
subparagraph is determined by reference to its basis in the hands of the 
transferor, then the holding period of the property in the hands of the 
transferee shall include the holding period of the property in the hands 
of the transferor. The transactions described in this subparagraph are:
    (1) A gift described in section 1250(d)(1).
    (2) Certain transfers at death to the extent provided in paragraph 
(b)(2)(ii) of Sec. 1.1250-3.

[[Page 437]]

    (3) Certain tax-free transactions to which section 1250(d)(3) 
applies. For application of section 1250 (d)(3) and (e)(2) to a 
distribution by a partnership to a partner, see paragraph (f)(1) of 
Sec. 1.1250-3.
    (4) A transfer described in paragraph (e)(4) of Sec. 1.1250-3 
(relating to transaction under section 1081(d)(1)(A)).
    (d) Principal residence acquired in certain transactions. The 
holding period of a principal residence acquired in a transaction to 
which section 1034 and paragraph (g)(6) of Sec. 1.1250-3 apply includes 
the holding period of the principal residence disposed of in such 
transaction. See section 1250(e)(3). The holding period of a principal 
residence acquired does not include the period beginning on the day 
after the date of the disposition and ending on the date of the 
acquisition.
    (e) Application of transferred basis and principal residence rules. 
The determination of holding period under this section shall be made 
without regard to whether a transaction occurred prior to the effective 
date of section 1250 and without regard to whether there was any gain 
upon the transaction. Thus, for example, under paragraph (c) of this 
section a donee's holding period for property includes his donor's 
holding period notwithstanding that the gift occurred on or before 
December 31, 1963, or that there was no additional depreciation in 
respect of the property at the time of the gift.
    (f) Qualified low-income housing project acquired in certain 
transactions. The holding period of a reinvestment element (and of 
subelements thereof) of section 1250 property (as defined in paragraph 
(h) (2) of Sec. 1.1250-3) acquired in a transaction to which sections 
1039(a) and 1250(d)(8)(A) apply includes the holding period of the 
corresponding element of the section 1250 property disposed of. See 
section 1250(e)(4). The holding period of the additional cost element 
(as defined in paragraph (h)(2) of Sec. 1.1250-3) begins on the date the 
replacement project is acquired. The holding period of a reinvestment 
element of section 1250 property does not include the period beginning 
on the day after the date of the disposition and ending (1) on the date 
of the acquisition of the replacement housing project, or (2) on the 
date the replacement housing project constructed or reconstructed by the 
taxpayer is placed in service.
    (g) Cross reference. If the adjusted basis of the property in the 
hands of the transferee immediately after a transaction to which 
paragraph (c) or (d) of this section applies exceeds its adjusted basis 
in the hands of the transferor immediately before the transaction, the 
excess is an addition to capital account under paragraph (d)(2)(ii) of 
Sec. 1.1250-5 (relating to property with two or more elements).

[T.D. 7084, 36 FR 281, Jan. 8, 1971, as amended by T.D. 7400, 41 FR 
5103, Feb. 4, 1976]