Revenue ruling · 1968
Rev. Rul. 68-4
Rev. Rul. 68-4, 1968-1 C.B. 77
IRS revenue ruling
Audio summary
A short audio walkthrough of this rule: what it says and why it matters for your study.
What it holds
Under the pre-1981 asset guideline class system, taxpayers who elected to use an asset guideline class had to depreciate all assets in that class together under a single composite life. Individual assets within a class could not be cherry-picked into separate class-life schedules.
Why it matters for your study: This all-or-nothing requirement explains why component-level cost segregation was not practical before MACRS arrived in 1981. The guideline system forced grouping. MACRS replaced it with a classification structure based on asset type, which is what modern cost segregation relies on.
Where this comes from
Before the Tax Reform Act of 1986 created MACRS, businesses used an asset guideline class system to set depreciation lives. That system grouped assets into categories. Each category had a safe-harbor useful life range. You elected to use the guideline life for a class, and in return you got some protection from IRS challenge.
Revenue Ruling 68-4, issued in 1968, addressed how that election worked. If you chose to use a guideline class, you had to do it for all assets that fit that class.
What it established
The ruling said the guideline-class election is all or nothing within a class. If your assets fit a particular class, all of them go into that class and use the same composite depreciation life. You cannot take the assets you prefer out of the class for separate treatment while leaving others in.
This group-or-nothing structure prevented the kind of component-level analysis that modern cost segregation requires. If the electrical system, the plumbing, and the HVAC all fell in the same class, they all got the same life. You could not pull out the equipment-specific electrical on its own.
How it shows up in a study
This ruling does not directly affect modern studies, but it explains why the modern approach is built the way it is. MACRS replaced the guideline class system with an asset-type and activity-class framework. Under MACRS, different components of the same building can be assigned to completely different classes with completely different lives.
That is the switch that made cost segregation practical. When we cite this ruling in a study, it is to show the historical context, the old rule that MACRS replaced.
What it does not mean
Revenue Ruling 68-4 is pre-MACRS guidance. It governs property placed in service under the old guideline and ADR systems before 1981. For modern property, MACRS controls and this ruling has no direct application.
Its value is historical: it explains the legal landscape that existed before the modern cost segregation era and shows why the MACRS reforms in 1981 and 1986 were so significant for building owners.
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.