Section 24349(j) - ** when Depreciation Deduction is Allowable(1) A taxpayer should deduct the proper depreciation allowance each year and may not increase its depreciation allowances in later years by reason of its failure to deduct any depreciation allowance or of its action in deducting an allowance plainly inadequate under the known facts in prior years. The inadequacy of the depreciation allowance for property in prior years shall be determined on the basis of the straight line method if no allowance has ever been claimed for such property. For rules relating to adjustments to basis, see Sections 24916 and 24917 and the regulations thereunder.(2) The period for depreciation of an asset shall begin when the asset is placed in service and shall end when the asset is retired from service. A proportionate part of one year's depreciation is allowable for that part of the first and last year during which the asset was in service. However, in the case of a multiple asset account, the amount of depreciation may be determined by using what is commonly described as an "averaging convention," that is, by using an assumed timing of additions and retirements. For example, it might be assumed that all additions and retirements to the asset account occur uniformly throughout the income year, in which case depreciation is computed on the average of the beginning and ending balances of the asset account for the income year. Among still other averaging conventions which may be used is the one under which it is assumed that all additions and retirements during the first half of a given year were made on the first day of that year and that all additions and retirements during the second half of the year were made on the first day of the following year. Thus, a full year's depreciation would be taken on additions in the first half of the year and no depreciation would be taken on additions in the second half. Moreover, under this convention, no depreciation would be taken on retirements in the first half of the year and a full year's depreciation would be taken on the retirements in the second half. An averaging convention, if used, must be consistently followed as to the account or accounts for which it is adopted, and must be applied to both additions and retirements. In any year in which an averaging convention substantially distorts the depreciation allowance for the income year, it may not be used. __________
** Except for the deletion of provisions relating to new methods of computing depreciation this regulation is substantially the same as Section 26 CFR 1.167(a)-10.
Cal. Code Regs. Tit. 18, § 24349(j)