Treas. Reg. §1.1245-3

What it holds

Defines what counts as §1245 property by pointing back to the tangible-personal-property test of §1.48-1(c), and sets the limit on treating structural components as personal property.

Where this comes from

Congress enacted the section 1245 recapture rules in 1962, and Treasury issued the supporting regulations shortly after, in 1965. The statute needed a clear boundary: which assets are section 1245 property, with ordinary income recapture, and which are section 1250 real property.

Rather than invent a second definition, Treasury tied the new rules to the investment credit definitions it had just written. That cross-reference is why one set of definitions governs both areas, and why cost segregation analysis reads the two regulations together.

What it established

The regulation provides that personal property for section 1245 purposes means tangible personal property as defined in Treas. Reg. 1.48-1(c), plus intangible personal property. That single sentence is the legal bridge between the recapture statute and the classification tests used in every study.

It also addresses the rest of the section 1245 universe, including other tangible property used as an integral part of specified activities like manufacturing, production, and extraction. And it carries forward the principle that the federal test controls: whether local law would call an item a fixture or real estate does not settle its federal tax character.

How it shows up in a study

When a study concludes that an asset is 5-year or 7-year property, the citation chain usually runs: section 1245, then this regulation, then Treas. Reg. 1.48-1(c), then the case law applying those definitions. The chain is what lets a report say an item is section 1245 property with authority behind it.

The local-law point matters in the field. Deeds, appraisals, and property tax records often label everything attached to the land as real property. This regulation is the answer to an examiner or advisor who waves a county record: the federal definition, not the county's, decides depreciation treatment.

What it does not mean

The regulation does not hand out short lives. It defines the category. An asset still has to pass the factual tests for personal property, including permanence under the Whiteco factors, and then find its recovery period in Rev. Proc. 87-56.

It also is not a tool for relabeling structural components. The definitions it borrows from Treas. Reg. 1.48-1 keep walls, central building systems, and other structural parts on the building side of the line, no matter how a study would prefer to treat them.

Category

Asset classification

Applies to

All property types

Status

Vetted

This page explains a tax authority in plain words. It is not tax advice for your situation. The way this authority applies to your property is reviewed by a licensed tax professional. Citation is provided so you or your advisor can read the primary source.