Rev. Rul. 75-150

In 1974 a taxpayer placed in service a depreciable asset, in an item account, costing 100x dollars with a salvage value of 10x dollars and an estimated cost of removal of 20x dollars. The taxpayer wishes to depreciate the asset under the sum of the years-digits method using net salvage in the computation of the annual depreciation allowance. The taxpayer did not elect to apply the provisions of section 1.167(a)-11 of the Income Tax Regulations relating to depreciation allowances under the asset depreciation range system.

Held, although it is permissible to use net salvage, negative net salvage is not permissible. Therefore, in the instant case, the net salvage is zero for the purpose of computing the annual depreciation allowance and thus the depreciation computation is based on the cost of 100x dollars. Portland General Electric Company v. United States, 223 F. Supp. 111 (D.C. Ore. 1963), in which the taxpayer was allowed to use negative net salvage, will not be followed by the Internal Revenue Service.