26 C.F.R. § 1.1245-3

Definition of section 1245 property

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(a) In general. (1) The term section 1245 property means any property (other than livestock excluded by the effective date limitation in subparagraph (4) of this paragraph) which is or has been property of a character subject to the allowance for depreciation provided in section 167 and which is either:

(i) Personal property (within the meaning of paragraph (b) of this section),

(ii) Property described in section 1245(a)(3)(B) (see paragraph (c) of this section), or

(iii) An elevator or an escalator within the meaning of subparagraph (C) of section 48(a)(1) (relating to the definition of section 38 property for purposes of the investment credit), but without regard to the limitations in such subparagraph (C).

(2) If property is section 1245 property under a subdivision of subparagraph (1) of this paragraph, a leasehold of such property is also section 1245 property under such subdivision. Thus, for example, if A owns personal property which is section 1245 property under subparagraph (1)(i) of this paragraph, and if A leases the personal property to B, B's leasehold is also section 1245 property under such provision. For a further example, if C owns and leases to D for a single lump-sum payment of $100,000 property consisting of land and a fully equipped factory building thereon, and if 40 percent of the fair market value of such property is properly allocable to section 1245 property, then 40 percent of D's leasehold is also section 1245 property. A leasehold of land is not section 1245 property.

(3) Even though property may not be of a character subject to the allowance for depreciation in the hands of the taxpayer, such property may nevertheless be section 1245 property if the taxpayer's basis for the property is determined by reference to its basis in the hands of a prior owner of the property and such property was of a character subject to the allowance for depreciation in the hands of such prior owner, or if the taxpayer's basis for the property is determined by reference to the basis of other property that in the hands of the taxpayer was property of a character subject to the allowance for depreciation, or if the taxpayer's basis for the property is determined under section 1022 and such property was of a character subject to the allowance for depreciation in the hands of the decedent. Thus, for example, if a father uses an automobile in his trade or business during a period after December 31, 1961, and then gives the automobile to his son as a gift for the son's personal use, the automobile is section 1245 property in the hands of the son.

(4) Section 1245 property includes livestock, but only with respect to taxable years beginning after December 31, 1969. For purposes of section 1245, the term livestock includes horses, cattle, hogs, sheep, goats, and mink and other furbearing animals, irrespective of the use to which they are put or the purpose for which they are held.

(b) Personal property defined. The term personal property means:

(1) Tangible personal property (as defined in paragraph (c) of § 1.48-1, relating to the definition of section 38 property for purposes of the investment credit), and

(2) Intangible personal property.

(c) Property described in section 1245(a)(3)(B). (1) The term property described in section 1245(a)(3)(B) means tangible property of the requisite depreciable character other than personal property (and other than a building and its structural components), but only if there are adjustments reflected in the adjusted basis of the property (within the meaning of paragraph (a)(2) of § 1.1245-2) for a period during which such property (or other property):

(i) Was used as an integral part of manufacturing, production, or extraction, or as an integral part of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services by a person engaged in a trade or business of furnishing any such service, or

(ii) Constituted a research or storage facility used in connection with any of the foregoing activities.

Thus, even though during the period immediately preceding its disposition the property is not used as an integral part of an activity specified in subdivision (i) of this subparagraph and does not constitute a facility specified in subdivision (ii) of this subparagraph, such property is nevertheless property described in section 1245(a)(3)(B) if, for example, there are adjustments reflected in the adjusted basis of the property for a period during which the property was used as an integral part of manufacturing by the taxpayer or another taxpayer, or for a period during which other property (which was involuntarily converted into, or exchanged in a like kind exchange for, the property) was so used by the taxpayer or another taxpayer. For rules applicable to involuntary conversions and like kind exchanges, see paragraph (d)(3) of § 1.1245-4.

(2) The language used in subparagraph (1) (i) and (ii) of this paragraph shall have the same meaning as when used in paragraph (a) of § 1.48-1, and the terms building and structural components shall have the meanings assigned to those terms in paragraph (e) of § 1.48-1.

(d) Effective/applicability date. This section applies on and after January 19, 2017. For rules before January 19, 2017, see § 1.1245-3 as contained in 26 CFR part 1 revised as of April 1, 2016.

[T.D. 6832, 30 FR 8580, July 7, 1965, as amended by T.D. 7141, 36 FR 18794, Sept. 22, 1971; T.D. 9811, 82 FR 6241, Jan. 19, 2017]

Notes of Decisions

Cited in 13 cases, 1974–2012 · leading case: Hosp. Corp. of Am. v. Comm'r, 109 T.C. 21 (Tax Ct. 1997).

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Hosp. Corp. of Am. v. Comm'r, 109 T.C. 21 (Tax Ct. 1997). · cites it 16× “1245-3(b)(1), Income Tax Regs. , defines personal property as "(1) Tangible personal property (as defined in paragraph (c) of § 1.”

Kingsbury v. Comm'r, 65 T.C. 1068 (Tax Ct. 1976). · cites it 4× “Petitioner's rights under the operating agreement, which we have characterized as a lease, included: (1) Use *193 and possession of the land and building; (2) use and possession of certain personal property located on the premises; and (3) use of the cardroom license. The latter…”

AmeriSouth XXXII, Ltd. v. Comm'r, 2012 T.C. Memo. 67 (Tax Ct. 2012). · cites it 6× “, to define tangible personal property: "Tangible personal property includes all property ( other than structural components ) which is contained in or attached to a building", sec.”

Alexander v. Comm'r, 95 T.C. 467 (Tax Ct. 1990). · cites it 2× “" The term "personal property" is defined in the regulations as including both tangible and intangible personal property. Sec. 1.1245-3(b), Income Tax Regs.”

Valmont Indus., Inc. v. Comm'r, 73 T.C. 1059 (Tax Ct. 1980). · cites it 2× “1245-3(c)(2), Income Tax *1079 Regs. , provides that "building" is defined by reference to its meaning for investment credit purposes.”

Newton Insert Co. v. Comm'r, 61 T.C. 570 (Tax Ct. 1974). · cites it 6× “er 31, 1962, the excess of *578 (1) the recomputed basis of the property, or (2) in case of a sale, exchange, or involuntary conversion, the amount realized, or (3) in the case of any other disposition, the fair market value of the property over the adjusted basis of the…”

Peco Foods, Inc. & Subsidiaries v. Comm'r, 2012 T.C. Memo. 18 (Tax Ct. 2012). · cites it 2× “, which in turn specifies that the terms "building" and "structural components" have the meanings assigned to those terms in section 1.”

Schrum v. Comm'r, 65 T.C.M. 2207 (Tax Ct. 1993). · cites it 2× “, defines "personal property" to mean "tangible personal property" as defined in section 1.”

JFM, Inc. v. Comm'r, 67 T.C.M. 3020 (Tax Ct. 1994). · cites it 2× “1245-3(b)(1), Income Tax Regs. "Tangible personal property" is defined in section 1.”

City of Woodway, McLennan Cnty., Texas v. United States, 681 F.2d 975 (5th Cir. 1982). “26 CFR § 1.1245-3 (a). Since Midway was a private corporation during that period, it may not now take advantage of section 115 to avoid tax liability on the recaptured depreciation.”

Everhart v. Comm'r, 44 T.C.M. 459 (Tax Ct. 1982). · cites it 4× “uilding or its structural components) but only if such other property is tangible and has an adjusted basis in which there are reflected adjustments described in paragraph (2) for a period in which such property (or other property) -- (i) was used as an integral part of…”

Smith v. Comm'r, 2010 T.C. Memo. 162 (Tax Ct. 2010). · cites it 4× “1245-3(b)(1), Income Tax Regs. The regulations promulgated under section 1250 incorporate the meanings for "building" and "structural components" as defined by section 1.”

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