"Original use" of tangible property refers to the first use to which the property is put, whether or not that use corresponds to the use of the property by the taxpayer. This means that the property must be placed in service in a manner that would start depreciation or amortization if the property were being used in a trade or business. The original use of tangible property is in a Qualified Opportunity Zone (QOZ) if the property has not previously been placed in service in the QOZ. Thus, tangible property that had been placed in service outside of the QOZ (that is, used property) can be considered original use property if the Qualified Opportunity Fund (QOF) or QOZ business is the first to place it in service in the QOZ.
For purposes of the additional first year depreciation deduction under section 168(k), original use means the first use to which the property is put by any taxpayer in connection with a trade or business or for the production of income. Additional capital expenditures paid or incurred by a taxpayer to recondition or rebuild property acquired or owned by the taxpayer satisfy the original use requirement to the extent of the amount of the expenditures paid or incurred by a taxpayer. However, a taxpayer's cost to acquire property reconditioned or rebuilt by another taxpayer does not satisfy the original use requirement. Whether property is reconditioned or rebuilt property will be determined based on the facts and circumstances.
If a taxpayer initially acquires new property for personal use and subsequently uses the property in the taxpayer's trade or business or for the taxpayer's production of income, the taxpayer is considered the original user of the property. If a person initially acquires new property for personal use and a taxpayer subsequently acquires the property from the person for use in the taxpayer's trade or business or for the taxpayer's production of income, the taxpayer is not considered the original user of the property.
If a taxpayer initially acquires new property and holds the property primarily for sale to customers in the ordinary course of the taxpayer's business and subsequently withdraws the property from inventory and uses the property primarily in the taxpayer's trade or business or primarily for the taxpayer's production of income, the taxpayer is considered the original user of the property. If a person initially acquires new property and holds the property primarily for sale to customers in the ordinary course of the person's business and a taxpayer subsequently acquires the property from the person for use primarily in the taxpayer's trade or business or primarily for the taxpayer's production of income, the taxpayer is considered the original user of the property. For purposes of this rule, the original use of the property by the taxpayer commences on the date on which the taxpayer first uses the property primarily in the taxpayer's trade or business or primarily for the taxpayer's production of income.
In the case of fractional interests in property, if, in the ordinary course of its business, a taxpayer sells fractional interests in new property to third parties unrelated to the taxpayer, each first fractional owner of the property is considered as the original user of its proportionate share of the property. Furthermore, if the taxpayer uses the property before all of the fractional interests of the property are sold but the property continues to be held primarily for sale by the taxpayer, the original use of any fractional interest sold to a third party unrelated to the taxpayer subsequent to the taxpayer's use of the property begins with the first purchaser of that fractional interest.
Sources:
§ 168. Accelerated cost recovery system
§ 1.168(k)-1. Additional first year depreciation deduction.
Rev. Proc. 2021-26
§ 1.168(k)-2. Additional first year depreciation deduction for property acquired and placed in service after September 27, 2017.
IRS Proposed Regulations REG-120653-22
T.D. 9874
