Rev. Rul. 58-131

Advice has been requested regarding the proper treatment to be accorded estimated salvage value of depreciable assets which are partially certified as emergency facilities.

The relation of the salvage value to cases involving emergency facilities and the problem resulting therefrom may best be illustrated by the following case:

Assume an 80 percent necessity certificate is issued on an emergency facility costing 100 x dollars of which 80 percent will be amortized over a period of 60 months. The balance of 20 percent will be depreciable over a normal expected life of 25 years. The salvage recovery on the entire asset is estimated to 10 percent of the entire cost.

The problem for consideration based on the above facts is whether the salvage value on the entire facility is to be taken into account with respect to the uncertified portion, that is, that portion which may be depreciated under section 168(f) of the Internal Revenue Code of 1954.

Section 168 of the Code, relating to amortization of emergency facilities, provides in part as follows:

(a) GENERAL RULE.-Every person, at his election, shall be entitled to a reduction with respect to the amortization of the adjusted basis (for determining gain) of any emergency facility * * * based on a period of 60 months. Such amortization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the adjusted basis of the facility at the end of such month divided by the number of months * * * remaining in the period. * * * The amortization deduction above provided with respect to any month shall, except to the extent provided in subsection (f), be in lieu of the depreciation deduction with respect to such facility for such month provided by section 167. * * *

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(f) Depreciation deduction. If the adjusted basis of the emergency facility (computed without regard to this section) is in excess of the adjusted basis computed under subsection (e), the depreciation deduction provided by section 167 shall, despite the provisions of subsection (a) of this section, be allowed with respect to such emergency facility as if its adjusted basis for the purpose of such deduction were an amount equal to the amount of such excess.

Thus, it is apparent that in those cases, where only a portion of a facility is certified, the balance of the depreciable property will be subject to the allowance for depreciation.

The deduction for amortization of a properly certified emergency facility is allowed in lieu of the deduction for exhaustion, wear and tear and obsolescence otherwise allowable under the depreciation provisions of the Code. No provision has been made in section 168 for the treatment of any salvage value of the certified part of such facility, neither is there any provision requiring that the salvage value on the certified part be taken into account in determining the depreciation allowance for the uncertified part.

Accordingly, it is held that the uncertified cost of the emergency facility is considered separately and, therefore, the estimated salvage value on the uncertified part only is to be taken into account in determining the depreciation allowance attributable to such uncertified cost.