#### § 1.167(b)-1 Straight line method.

(a) *In general.* Under the straight line method the cost or other basis of the property less its estimated salvage value is deductible in equal annual amounts over the period of the estimated useful life of the property. The allowance for depreciation for the taxable year is determined by dividing the adjusted basis of the property at the beginning of the taxable year, less salvage value, by the remaining useful life of the property at such time. For convenience, the allowance so determined may be reduced to a percentage or fraction. The straight line method may be used in determining a reasonable allowance for depreciation for any property which is subject to depreciation under section 167 and it shall be used in all cases where the taxpayer has not adopted a different acceptable method with respect to such property.

(b) *Illustrations.* The straight line method is illustrated by the following examples:

# Example 1.

Under the straight line method items may be depreciated separately:

| Year and item | Cost or other basis less salaries | Useful life (years) | Depreciation allowable |
| --- | --- | --- | --- |
| 1954 | 1955 | 1956 |
| 1954: | | | | | |
| Asset A | $1,600 | 4 | 1 $200 | $400 | $400 |
| Asset B | 12,000 | 40 | 1 150 | 300 | 300 |
| 1 In this example it is assumed that the assets were placed in service on July 1, 1954. |

# Example 2.

In group, classified, or composite accounting, a number of assets with the same or different useful lives may be combined into one account, and a single rate of depreciation, *i.e.*, the group, classified, or composite rate used for the entire account. In the case of group accounts, *i.e.*, accounts containing assets which are similar in kind and which have approximately the same estimated useful lives, the group rate is determined from the average of the useful lives of the assets. In the case of classified or composite accounts, the classified or composite rate is generally computed by determining the amount of one year's depreciation for each item or each group of similar items, and by dividing the total depreciation thus obtained by the total cost or other basis of the assets. The average rate so obtained is to be used as long as subsequent additions, retirements, or replacements do not substantially alter the relative proportions of different types of assets in the account. An example of the computation of a classified or composite rate follows:

| Cost or other basis | Estimated useful life (years) | Annual depreciation |
| --- | --- | --- |
| $10,000 | 5 | $2,000 |
| 10,000 | 15 | 667 |
| 20,000 | | 2,667 |

Average rate is 13.33 percent ($2,667 ÷ $20,000) unadjusted for salvage. Assuming the estimated salvage value is 10 percent of the cost or other basis, the rate adjusted for salvage will be 13.33 percent minus 10 percent of 13.33 percent (13.33%−1.33%), or 12 percent.

# Example 3.

The use of the straight line method for group, classified, or composite accounts is illustrated by the following example: A taxpayer filing his returns on a calendar year basis maintains an asset account for which a group rate of 20 percent has been determined, before adjustment for salvage. Estimated salvage is determined to be 62⁄3 percent, resulting in an adjusted rate of 18.67 percent. During the years illustrated, the initial investment, additions, retirements, and salvage recoveries, which were determined not to change the composition of the group sufficiently to require a change in rate, were assumed to have been made as follows:

1954—Initial investment of $12,000.

1957—Retirement $2,000, salvage realized $200.

1958—Retirement $2,000, salvage realized $200.

1959—Retirement $4,000, salvage realized $400.

1959—Additions $10,000.

1960—Retirement $2,000, no salvage realized.

1961—Retirement $2,000, no salvage realized.

| Year | Asset balance Jan. 1 | Current additions | Current retirements | Asset balance Dec. 31 | Average balance | Rate (percent) | Allowable depreciation |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 1954 | | $12,000 | | $12,000 | $6,000 | 18.67 | $1,120 |
| 1955 | $12,000 | | | 12,000 | 12,000 | 18.67 | 2,240 |
| 1956 | 12,000 | | | 12,000 | 12,000 | 18.67 | 2,240 |
| 1957 | 12,000 | | $2,000 | 10,000 | 11,000 | 18.67 | 2,054 |
| 1958 | 10,000 | | 2,000 | 8,000 | 9,000 | 18.67 | 1,680 |
| 1959 | 8,000 | 10,000 | 4,000 | 14,000 | 11,000 | 18.67 | 2,054 |
| 1960 | 14,000 | | 2,000 | 12,000 | 13,000 | 18.67 | 2,427 |
| 1961 | 12,000 | | 2,000 | 10,000 | 11,000 | 18.67 | 2,054 |

Depreciable Asset Account and Depreciation Computation on Average Balances

| Year | Depreciation reserve Jan. 1 | Depreciation allowable | Current retirements | Salvage realized | Depreciation reserve Dec. 31 |
| --- | --- | --- | --- | --- | --- |
| 1954 | | $1,120 | | | $1,120 |
| 1955 | $1,120 | 2,240 | | | 3,360 |
| 1956 | 3,360 | 2,240 | | | 5,600 |
| 1957 | 5,600 | 2,054 | $2,000 | $200 | 5,854 |
| 1958 | 5,854 | 1,680 | 2,000 | 200 | 5,734 |
| 1959 | 5,734 | 2,054 | 4,000 | 400 | 4,188 |
| 1960 | 4,188 | 2,427 | 2,000 | | 4,615 |
| 1961 | 4,615 | 2,054 | 2,000 | | 4,669 |

Corresponding Depreciation Reserve Account