Treas. Reg. 1.167(a)-7

Where this comes from

Treasury Regulation 1.167(a)-7 implements the general depreciation authority in IRC Section 167. It answers a procedural question: can you depreciate each asset individually, or must you group everything together?

The regulation says you can go either way. You may depreciate individual items separately. Or you may combine assets into group accounts and depreciate the group as a unit using a single rate.

What it establishes

The ability to depreciate individually is the procedural foundation for component-level cost segregation. If you could only use group accounts, you could not give a 5-year roof unit inside an electrical system its own faster schedule while the structural shell runs at 39 years.

By allowing separate treatment, this regulation makes it possible to apply each MACRS class life to the appropriate component.

How it shows up in a study

A cost segregation study produces a schedule of components, each assigned to a MACRS class. That schedule only works in practice because this regulation permits individual depreciation. Each line in your depreciation schedule has its own recovery period because of what this regulation allows.

What it does not mean

This regulation permits the choice. It does not tell you which components belong in which class. The classification rules come from Sections 1245 and 1250, the HCA case, and the ATG.

Also, if you are in a general asset account under Reg. 1.168(i)-1, the group-account rules override individual treatment for assets in that account. This regulation and the GAA rules need to be read together.