However, if the property is used predominantly in the United States during a tax year, all depreciation deductions allowable for that year are treated as U.S. depreciation adjustments. But there are some exceptions for certain transportation, communications, and other property used internationally. Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were inventory property, as discussed above. However, if the property was used predominantly in the United States, the entire loss reduces U.S. source income. You can choose to apply this rule to losses recognized in tax years beginning after 1986.
Depreciation is an amount deducted to recover the cost or other basis of a trade or business asset.
The amount you can deduct depends on the property's cost, when you began using the property, how long it will take to recover your cost, and which depreciation method you use. A depreciation deduction is any deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense. Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. Income from the sale of intangible property that is contingent on the productivity, use, or disposition of the property is sourced in the country where the property is used. If the income is not contingent on the productivity, use, or disposition of the property, the income is sourced according to the seller's tax home as discussed earlier.