Property located outside United States subject to different depreciation rules.

• Author: Flynn, Maura P.

In 1981, Congress enacted accelerated write-offs of capitalized assets by adopting the accelerated cost recovery system {ACRS}. Assets were assigned to one of eight recovery classes, depending on their present class lives (as established under Rev. Proc. 83-35}. These recovery classes consisted of three-, five-, 10-, 15-, 18- and 19-year property, 15-year public utility property and 15-year lowincome housing property. However, Congress expanded the number of recovery classes/or property predominantly used outside the United States. Instead of eight recovery periods, property used predominantly outside the United States was assigned to a recovery period equal to its class life. As a result there were 37 different recovery periods for this type of property. Depending on what type of property was involved, there could be a significant difference in its depreciation deduction.

Property predominantly used outside the United States is defined under Prop. Regs. Sec. 1.1682(g)(5)(i) and iii}. The number of days the property is physically outside the United States is compared to the number of days the property is physically inside the United States. If the latter exceeds the former, use is not predominantly outside the United States. There are, however, 11 safe harbor categories that would cause the property to be considered as used domestically. See Example l on page 516.

Under current law, the modified accelerated cost recovery system (MACRS} continues unequal treatment for property used outside the United...