Rev. Rul. 73-410

Where this comes from

Revenue Ruling 66-111 (1966) had imposed a firm limit: buyers of used buildings had to use a single composite useful life for the whole property. Only original builders could depreciate component by component.

That restriction created an unequal playing field. Someone who built a warehouse from scratch could assign separate lives to the electrical system, the HVAC, and the structural shell. Someone who bought the same warehouse second-hand got one life for everything. Revenue Ruling 73-410, issued in 1973, carved an exception.

What it established

The ruling said the restriction in Rev. Rul. 66-111 could be overcome. If the buyer hired a qualified appraiser to allocate the total purchase price among the building's individual components, and if that appraiser assigned a separate useful life to each component based on its actual condition at the time of acquisition, the buyer could depreciate each component on its own schedule.

Two requirements drove the exception. First, a proper professional allocation, not a guess or a spreadsheet estimate, but a real appraisal that tied specific dollar amounts to specific parts. Second, condition-based useful lives. A roof already fifteen years old at the time of purchase does not get treated as new. The life reflects what you actually bought.

Those two requirements are still the heart of how cost segregation works on acquired property today.

How it shows up in a study

When you buy a commercial building and commission a cost segregation study, the study is doing the work this ruling requires: allocating the purchase price among components and assigning each one a class life based on its nature and condition.

The engineering methodology used in a modern study, the site visit, the cost data, the detailed component schedules, is the modern version of the qualified-appraiser allocation this ruling called for. The principle that a proper professional analysis enables component classification on acquired property traces back to 1973.

What it does not mean

This ruling pre-dates MACRS. Under MACRS, the class lives are fixed by statute and Rev. Proc. 87-56, not by an appraiser's estimate of useful life. But the foundational principle, that a qualified professional must do a proper allocation of acquisition cost, carried forward into the modern cost segregation framework.

The ruling also did not settle what recovery period any specific component deserves. That question comes from Section 1245, the investment credit regulations, and cases like Whiteco and HCA. Rev. Rul. 73-410 says you can do the analysis; the other authorities say how.