Example.
Asset No. | Basis (or cost) | Estimated useful life |
1 (new) | $30,000 | 4 years. |
2 (new) | 30,000 | 4 years. |
3 (new) | 30,000 | 8 years. |
4 (used) | 12,000 | 6 years. |
5 (used) | 12,000 | 6 years. |
6 (used) | 12,000 | 8 years. |
On December 31, 1962, X Corporation has 10 shares of stock outstanding which are owned as follows: A owns 3 shares, B owns 2 shares, and C owns 5 shares.
Useful life category | New-4 to 6 years | New-8 years or more | Used-6 to 8 years | Used-8 years or more |
Total bases or total cost | $60,000 | $30,000 | $24,000 | $12,000 |
Shareholder A (3/10) | 18,000 | 9,000 | 7,200 | 3,600 |
Shareholder B (2/10) | 12,000 | 6,000 | 4,800 | 2,400 |
Shareholder C (5/10) | 30,000 | 15,000 | 12,000 | 6,000 |
Assume that shareholders A, B and C did not place in service during their taxable years in which falls December 31, 1962 (the last day of X Corporation's taxable year) any section 38 property and that such shareholders did not own any interests in other electing small business corporations, partnerships, estates, or trusts. Under section 46(c), the qualified investment of shareholder A is $23,400, of shareholder B is $15,600, and of shareholder C is $39,000, computed as follows:
Basis (or cost) | Applicable percentage | Qualified investment |
SHAREHOLDER A | ||
$18,000 (new) | 331/3 | $6,000 |
$9,000 (new) | 100 | 9,000 |
$7,200 (used) | 662/3 | 4,800 |
$3,600 (used) | 100 | 3,600 |
Total | 23,400 | |
SHAREHOLDER B | ||
$12,000 (new) | 331/3 | $4,000 |
$6,000 (new) | 100 | 6,000 |
$4,800 (used) | 662/3 | 3,200 |
$2,400 (used) | 100 | 2,400 |
Total | 15,600 | |
SHAREHOLDER C | ||
$30,000 (new) | 331/3 | $10,000 |
$15,000 (new) | 100 | 15,000 |
$12,000 (used) | 662/3 | 8,000 |
$6,000 (used) | 100 | 6,000 |
Total | 39,000 |
26 C.F.R. §1.48-5