Code section · 1954
IRC Section 167
IRC Section 167
Internal Revenue Code
Audio summary
A short audio walkthrough of this rule: what it says and why it matters for your study.
What it holds
Authorizes the depreciation deduction for property used in a trade or business or held for the production of income. The deduction covers exhaustion, wear, tear, and obsolescence. Section 167 is the foundational authority for all depreciation, including the MACRS system under Section 168.
Why it matters for your study: Every depreciation deduction you take on real estate, including the accelerated deductions a cost segregation study produces, ultimately rests on the authority Congress created in Section 167. MACRS is the method. Section 167 is the source.
Where this comes from
The right to deduct depreciation was established in the modern Internal Revenue Code when Congress enacted the 1954 Code. Section 167 gave taxpayers the deduction for exhaustion, wear, tear, and obsolescence of property used in a trade or business or held for the production of income.
This basic authority has been in the Code ever since. The methods for computing depreciation have changed many times, from straight-line to ADR to ACRS to MACRS. But the underlying statutory grant of a deduction comes from Section 167.
What it establishes
Section 167 says that a reasonable depreciation allowance for the exhaustion, wear, and tear of property used in the trade or business, or held for the production of income, shall be allowed as a deduction.
The two conditions are important. The property must be used in a trade or business or held for the production of income. Personal-use property does not qualify. And the property must have a determinable useful life. Land does not depreciate. Buildings and their components do.
How it shows up in a study
Section 167 is the background authority for everything a cost segregation study does. The study identifies components and places them in MACRS classes. Those MACRS classes are in Section 168. But the right to take a deduction for those components at all comes from Section 167.
Cost segregation is sometimes described as accelerating depreciation that you were going to take anyway. That description is accurate. Section 167 lets you take the deduction. Cost segregation makes sure you take it as fast as the law allows.
What it does not mean
Section 167 is the right to deduct. It does not set the method, the recovery period, or the convention. Those are all in Section 168.
Also, Section 167 is not self-executing. You still have to follow the MACRS rules in Section 168 and the IRS procedures for method changes when applicable. Section 167 is the authority. Sections 168 and the Treasury regulations tell you how to use it.
Primary source
Read the official text for yourself, or share it with your advisor.
- Category
- Asset classification
- Applies to
- All property types
- Status
- Vetted
This page explains a tax authority in plain words. It is not tax advice for your situation. The way this authority applies to your property is reviewed by a licensed tax professional. Citation is provided so you or your advisor can read the primary source.