Rev. Rul. 60-67

Advice has been requested whether a taxpayer may obtain the benefits of accelerated depreciation where he acquires and occupies a personal residence after December 31, 1953, and subsequently converts the property into rental property.

The taxpayer was the original owner of a new house purchased after December 31, 1953. After he and his family occupied the house for about two years, he rented it to a tenant. He wishes to obtain the benefits of accelerated depreciation under section 167 of the Internal Revenue Code of 1954.

Section 167(b)(2), (3), and (4) of the Code provides certain methods a taxpayer may employ in computing the allowance for depreciation.

Section 167(c)(2) of the Code limits the application of those methods and provides that they apply only in the case of tangible property which has a useful life of three years or more and which is acquired after December 31, 1953, if the original use of such property commences with the taxpayer and commences after such date.

Under section 1.167(c)-1(a)(2) of the Income Tax Regulations, the term `original use' means the first use to which the property was put, whether or not such use corresponds with the present use by the taxpayer.

The Committee Reports on section 167 of the Code, House Report No. 1337, 83d Cong., (1954) A 49, and Senate Report No. 1622, 83d Cong., (1954) 203, state that the property must be `new in use.' It must never before have been subject to depreciation in the hands of another, whether or not depreciation deductions relating to it were allowable.

Since the property, in the present case, was not previously used by another party and since this is the first taxable year in which the property may be subject to depreciation allowances by the taxpayer, the `new in use' test is met so that the taxpayer may obtain the benefits of accelerated depreciation.

Accordingly, it is held that if a taxpayer as the original purchaser and user acquires and occupies a personal residence after December 31, 1953, and subsequently converts it to rental property, then the rental property meets the `new in use' test and the taxpayer may obtain the benefits of accelerated depreciation deductions under section 167 of the Code.