7898 / Is property used outside the United States eligible for accelerated cost recovery?

The normal recovery periods and methods may not be used for recovery property used predominantly outside the United States.¹ For property placed in service after 1986, a straight line method is used over the present class life of the property (12 years if no present class life)² (see Q 716). For property placed in service before 1987, a declining balance switching to a straight line method was used over the present class life of the property (12 years if no present class life), unless an election was made for recovery property to use a straight line method over a different recovery period. The recovery period elected for pre-1987 property used predominantly outside the United States could not have been shorter than the present class life.³ Property is assigned to various class lives for purposes of depreciation in Revenue Procedure 87-56.⁴

Property is considered used predominantly outside the United States if it is physically located outside the United States during more than 50 percent of the taxable year. If the property is placed in service after the start of the taxable year, the 50 percent determination is made for the period beginning when first placed in service and ending on the last day of the taxable year. This restriction applies whether the property is used predominantly outside the United States by the lessor or lessee. The determination is made with respect to the taxable year of the lessor.⁵

There are certain listed exceptions to the restriction on use of normal recovery periods and methods for property used predominantly outside the United States.⁶ These include generally: aircraft, rolling stock, vessels, motor vehicles, and containers used partly in the United States for transportation or commerce; property used predominantly in certain possessions of the United States; certain U.S. communication satellites; submarine cable systems linking the United States and other countries; certain property used for exploring, developing, removing, or transporting resources from certain waters or land thereunder; and certain property used to generate energy for use in the United States. These may use normal periods and methods even if used outside the United States for more than 50 percent of the year.