Taxterity research

Placed in service: the evidence that proves readiness and availability

Reviewed 2026-09-15 · AI-assisted draft and editing; sources and limitations remain visible for independent review.

Answer: Placed in service is a condition, not a line on an invoice. Regulation section 1.167(a)-11(e)(1)(i) states that property is first placed in service when it is first placed in a condition or state of readiness and availability for a specifically assigned function, whether in a trade or business, in the production of income, in a tax-exempt activity, or in a personal activity, and it routes the date determination to regulation section 1.46-3(d)(1)(ii) and (d)(2). Those investment-credit rules add a second trigger: property is placed in service in the earlier of the year readiness and availability are reached and the year in which, under the taxpayer's own depreciation practice, the depreciation period begins. Actual use is not required and neither is revenue. Publication 946 states the rule in the same terms and illustrates it with a machine delivered one year but not installed and operational until the next, a rental house made ready and advertised for rent in July, and a modified truck accepted on January 10. The date is not a formality: it fixes the deduction year, the applicable convention, whether a first-year allowance is available at all, and, for an asset near a statutory cut-off, which version of the law applies. It is therefore an evidence problem before it is a legal one, and the evidence has to exist contemporaneously.

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Scope

Jurisdiction: United States — federal

Tax periods: Not period-specific; checked 2026-09-15, Property placed in service after 1970

Assumptions

Exclusions

The rule contains two tests, not one

Most summaries give only the readiness test. Regulation section 1.46-3(d)(1) sets out two, and the earlier of them controls: the taxable year in which, under the taxpayer's depreciation practice, the period for depreciation begins, or the taxable year in which the property is placed in a condition or state of readiness and availability for a specifically assigned function. The regulation then says expressly that property meeting the readiness test in a year is placed in service that year even though the depreciation period begins later because of an averaging convention, a multiple asset account, the completed contract method, the unit of production method, or the retirement method.

Regulation section 1.167(a)-11(e)(1)(i) makes a second distinction that is easy to lose. The term refers to the time the property is first placed in service by this taxpayer, not the first time the property was ever placed in service by anyone. It also states that the date depreciation begins under a convention or a particular method does not determine the placed-in-service date. Used property therefore gets a fresh date in the hands of a new owner, and a convention is a computational device applied after the date, not a substitute for it.

Where the regulations say readiness exists, and where it does not

Regulation section 1.46-3(d)(2) gives four examples of property in a condition or state of readiness and availability for a specifically assigned function. Parts acquired and set aside during the year as replacements for a particular machine, to avoid operational time loss, qualify. Operational farm equipment acquired during the year qualifies even though it is not practicable to use it for its assigned function until the following year. Equipment acquired for an assigned function that is operational but undergoing testing to eliminate defects qualifies. Reforestation expenditures incurred during the year in connection with qualified timber property qualify.

The same paragraph supplies two express counterexamples, and they are the ones that decide real cases. Fruit-bearing trees and vines are not in a condition or state of readiness and availability until they have reached an income-producing stage. Materials and parts acquired to be used in the construction of an item of equipment are not in such a condition. So an asset can be delivered, paid for, capitalized and even insured and still not be placed in service, while an idle spare part in a storeroom can be.

Buildings are dated separately from what they contain

Regulation section 1.167(a)-11(e)(1)(i) addresses a building intended to house machinery and equipment and constructed, reconstructed or erected by or for the taxpayer for the taxpayer's own use. Such a building is ordinarily placed in service on the date construction is substantially complete and the building is in a condition or state of readiness and availability. The regulation then makes the point directly: for a factory building, readiness and availability are determined without regard to whether the machinery the building houses, or is intended to house, has been placed in service.

The exception is narrow but real. Where the building is essentially an item of machinery or equipment, or its use is so closely related to the use of the machinery that it can be expected to be replaced or retired when that property is replaced or retired, readiness of the building is determined by taking the machinery's readiness into account. That is a fact question about the structure's function, and it should be documented at the time rather than reconstructed later.

A fact-intake checklist for fixing the date

Start with identity and function. Record what the asset is, the specifically assigned function the taxpayer intends it to perform, and the activity it serves. A date cannot be defended without a stated function, because readiness is readiness for something.

Then gather the events that bear on readiness, each with a date and a document: the purchase or construction contract; delivery and acceptance records; installation, hookup, commissioning and calibration records; permits, inspections and any certificate of occupancy; safety or regulatory sign-offs; test logs and the date defects were cleared; operator training completion; the first listing, advertisement or availability notice for property held for rent; utility connection dates; and the first actual use if there was one. For a building, add the date construction was substantially complete and any punch-list items that bore on usability rather than aesthetics.

Finally, record what the taxpayer's own books did, because it is the second test. Note the date the depreciation period began in the fixed-asset ledger, the convention applied, and whether the asset sits in a multiple asset account or is depreciated under a method that starts later. Where the ledger date and the readiness date differ, the earlier one governs, and the file should say which one was used and why. Flag gaps rather than filling them: a missing commissioning record is a research finding, not a rounding error.

Do not let the placed-in-service date absorb the acquisition date

Two different dates do two different jobs, and a first-year allowance can turn on either. Regulation section 1.168(k)-2(b)(5)(ii)(A) treats property as acquired when the taxpayer acquires it or acquires it under a written binding contract, and paragraph (b)(5)(ii)(B) sets the acquisition date for contract acquisitions as the latest of the date the contract was entered into, the date it became enforceable under state law, the date all cancellation periods end, and the date all conditions under contingency clauses are satisfied. Paragraph (b)(5)(iv) treats self-constructed property as acquired when manufacture, construction or production begins, which the regulation defines as when physical work of a significant nature begins, expressly excluding preliminary activities such as planning, designing, securing financing, exploring or researching. Read those paragraphs for what they are: paragraph (b)(5)(i) states that they supply the acquisition rules for section 13201(h) of the 2017 act, and the section has not been conformed to the 2025 amendment, which carries its own written binding contract rule in the amending act.

The statute adds one more timing rule that can move the placed-in-service date itself. Under section 168(k)(2)(E)(ii), where a lessor's use is the first use of the property, the property is sold by that lessor or a subsequent purchaser within three months after the date it was originally placed in service, and the user after the last sale in that period is unchanged, the property is treated as originally placed in service not earlier than the date of that last sale. Sale-leaseback and similar syndication patterns should be checked against that rule before the original in-service date is accepted.

Scope, and the sibling page that continues the analysis

This page dates an asset. It does not decide which cost-recovery provision applies to it, and it does not determine whether an expenditure belongs in the asset's basis at all. The sibling page Section 179 or bonus depreciation: pinning the rule to the acquisition date takes the dated asset and works out which provision and which version of the statute govern it.

Where a date is genuinely contested, the useful output is a short memorandum that states the assigned function, lists the dated evidence, and names the regulation paragraph each fact goes to. Ask Taxterity a research question about the readiness facts you actually have, or have it draft a Federal Tax Memo on the date, and then confirm every regulatory citation against the regulation text before the file is closed.

Related research

Official sources

  1. 26 CFR 1.167(a)-11 — Depreciation based on class lives and asset depreciation ranges — Paragraph (e)(1)(i), definition of first placed in service, including the condition or state of readiness and availability standard, the building rule, and the cross-reference to § 1.46-3(d)(1)(ii) and (d)(2)
  2. 26 CFR 1.46-3 — Qualified investment — Paragraph (d)(1)(i) and (d)(1)(ii), the two placed-in-service tests, and paragraph (d)(2), the four examples of readiness and the exclusions for fruit-bearing trees and vines and for construction materials and parts
  3. IRS Publication 946 (2025), How To Depreciate Property — Chapter 1, When Does Depreciation Begin and End?, headings Placed in Service (Examples 1 to 3), Conversion to business use, and Idle Property
  4. 26 CFR 1.168(k)-2 — Additional first year depreciation deduction — Paragraph (b)(5)(ii)(A) and (B), acquisition date and the written binding contract later-of test, and paragraph (b)(5)(iv)(A) and (B)(1), self-constructed property and physical work of a significant nature
  5. 26 U.S.C. § 168 — Accelerated cost recovery system — § 168(k)(2)(E)(ii), syndication rule treating property sold within three months after the date originally placed in service as placed in service not earlier than the date of the last sale

Limitations