§65. Deductions from gross income; depreciation
A. In computing net income, a reasonable allowance for the exhaustion, wear and tear of property used in the trade or business or of property held for the production of income, including a reasonable allowance for obsolescence, shall be allowed as a deduction.
B. Use of certain methods and rates: For taxable years beginning after December 31, 1955, the term "reasonable allowance" as used in Subsection A shall include (but shall not be limited to) an allowance computed in accordance with regulations prescribed by the collector under any of the following methods:
(1) the straight line method;
(2) The declining balance method, using a rate not exceeding twice the rate which would have been used had the annual allowance been computed under the method described in paragraph (1);
(3) the sum of the years-digits method, and
(4) any other consistent method productive of an annual allowance, which, when added to all allowances for the period commencing with the taxpayer's use of the property and including the taxable year, does not, during the first two-thirds of the useful life of the property, exceed the total of such allowances which would have been used had such allowances been computed under the method described in paragraph (2).
Nothing in this Subsection shall be construed to limit or reduce an allowance otherwise allowable under Subsection A.
C. Limitations on use of certain methods and rates--
Paragraphs (2), (3) and (4) of Subsection B shall apply only in the case of property (other than intangible property) described in Subsection A with a useful life of 3 years or more--
(1) the construction, reconstruction, or erection of which is completed after December 31, 1953, and then only to that portion of the basis which is properly attributable to such construction, reconstruction, or erection after December 31, 1953, or
(2) acquired after December 31, 1953, if the original use of such property commences with the taxpayer and commences after such date.
D. Agreement as to useful life on which depreciation rate is based--
Where, under regulations prescribed by the collector, the taxpayer and the collector have, after the date of enactment of this title, entered into an agreement in writing specifically dealing with the useful life and rate of depreciation of any property, the rate so agreed upon shall be binding on both the taxpayer and the collector in the absence of facts or circumstances not taken into consideration in the adoption of such agreement. The responsibility of establishing the existence of such facts and circumstances shall rest with the party initiating the modification. Any change in the agreed rate and useful life specified in the agreement shall not be effective for taxable years before the taxable year in which notice in writing by registered mail is served by the party to the agreement initiating such change.
E. Change in method--
(1) A taxpayer may elect for the first taxable year beginning after December 31, 1955, to change to any of the methods described in paragraphs (2), (3) or (4) of Subsection B in respect of any property for which such methods would have been available if Subsection B had been effective for taxable years ending after December 31, 1953.
(2) In the absence of an agreement under Subsection D containing a provision to the contrary, a taxpayer may at any time elect in accordance with regulations prescribed by the collector to change from the method of depreciation described in Subsection B(2) to the method described in Subsection B(1).
F. Basis for depreciation--
(1) Except as otherwise provided in paragraph (2) of this Subsection, the basis on which exhaustion, wear and tear and obsolescence are to be allowed in respect of any property shall be as provided in R.S. 47:157.
(2) The basis on which exhaustion, wear and tear and obsolescence are to be allowed in respect of any property for which such allowance is computed in accordance with any of the methods described in paragraphs (2), (3) or (4) of Subsection B shall be the basis for such property that would have resulted from the use of such method for such allowance for all taxable years ending after December 31, 1953.
G. Carry forward of basis adjustment--
An amount equal to one-fifth of the amount by which the basis of any property is reduced under the provision of paragraph (2) of Subsection F shall be allowed as a deduction for exhaustion, wear and tear and obsolescence for the year for which the basis adjustment is first made and for each of the subsequent four taxable years; provided that in the case of property subject to the carry forward allowance which is retired or otherwise disposed of before the recovery of the amount authorized to be recovered over a five-year period, no amount shall be allowed as a carry forward adjustment period, no amount shall be allowed as a carry forward adjustment with respect to such property for the years after the year in which the retirement or other disposition of such property occurs.
H. Life tenants and beneficiaries of trusts and estates--
In case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each.
I. Option with respect to defense facilities--
Where, under the income tax laws of the United States, amortization of a war, defense or other emergency facility is allowed or allowable in lieu of depreciation, such amortization deduction for such facilities that are completed in taxable years beginning after December 31, 1955, shall, at the taxpayer's election, be deemed a reasonable allowance for exhaustion, wear and tear as used in Subsection A; provided that in no event shall the amortization period be less than sixty months.
Amended by Acts 1950, No. 445, §1; Acts 1956, No. 242, §1.