Placed-in-Service Rules
Property is placed in service when it is first ready and available for its specifically assigned function. That date starts depreciation, sets the convention, and helps determine which bonus rules apply. Actual use is not required. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Treas. Reg. §1.167(a)-11(e)(1) uses readiness and availability for a specifically assigned function.
- Actual use is not required. Publication 946 says property can be in service even if not yet used.
- A rental house is placed in service when it is ready and available for rent, such as after repairs and advertising.
- Building components may be placed in service on different dates than the building.
- The regulation cross-references §1.46-3(d), which was not reviewed for this page.
Treas. Reg. §1.167(a)-11(e)(1) treats property as 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. Publication 946 describes this as ready and available for a specific use, even if not yet used, and gives the example of a rental house placed in service when it is ready and available for rent.
For buildings, evidence may include a certificate of occupancy, completion of systems needed for operation, marketing for rent, or the first lease. The closing date on a purchase contract is not, by itself, the placed-in-service date if the building still needs work before it can be used for its assigned function. Conversely, a building can be in service before the first tenant moves in if it is ready and held out for rent.
The placed-in-service date drives the convention (the month for buildings; the quarter for the mid-quarter test), the start of the recovery period, and which year’s bonus rules apply. Acquisition date is a separate question for the 100 percent versus phase-down split under Public Law 119-21. A building can be acquired in 2024 under a binding contract and placed in service in 2026.
In multi-building or phased developments, each building or phase may be placed in service separately. Tenant improvements completed after a building opens may have their own date. A study that forces every component onto the certificate-of-occupancy date can be wrong when later work is a separate asset.
This page is educational information, not tax advice. Close cases should be reviewed by the taxpayer’s CPA. The regulation cross-references investment-credit placed-in-service rules in §1.46-3(d), which we have not reviewed for this page.
Readiness versus first use
Publication 946’s rental-house example is the IRS’s plain statement that advertising after repairs can be enough. The house does not have to be occupied. It has to be ready and available for its assigned rental function.
A machine sitting in a crate is generally not ready. A machine installed, tested, and capable of its assigned function can be in service even if the production line has not yet run a commercial shift. The regulation’s words are readiness and availability, not first revenue.
Personal-use conversion in the acquisition year can take property out of bonus eligibility even if a placed-in-service date could otherwise be assigned. Eligibility and placed-in-service are related but not identical.
Phased projects and improvements
If a taxpayer places an improvement or addition in service after the original asset, Treas. Reg. §1.168(i)-8 treats the improvement as a separate asset. That separate asset has its own placed-in-service date and its own convention computation.
Qualified improvement property must be placed in service after the building was first placed in service. Using the same date for the building and the interior build-out defeats the QIP definition.
Self-constructed property can be acquired, for bonus-rate purposes, when physical work of a significant nature begins, and yet not be placed in service until the project is ready for its function. Do not collapse those two dates.
Conventions and bonus
The month of placed-in-service sets the mid-month fraction for a building. The quarter of placed-in-service feeds the 40 percent mid-quarter test for personal property. A December ready-for-rent date and a January ready-for-rent date are different computations.
As of October 16, 2026, qualified property acquired after January 19, 2025 takes 100 percent bonus when placed in service. Property acquired earlier takes the phase-down rate for the calendar year of placement (40 percent in 2025, 20 percent in 2026). Both dates matter.
Property placed in service and disposed of in the same year is generally left out of the mid-quarter test and generally produces no depreciation. That is a convention result.
What we have not verified
The class-life regulation cross-references §1.46-3(d)(1)(ii) and (d)(2) for the placed-in-service date. That investment-credit regulation was not fetched for this page. Building-specific examples in that text are therefore not restated here.
State certificates of occupancy are evidence, not a federal definition. A temporary certificate may or may not match readiness for the assigned function. That is a facts question.
Until §1.46-3(d) is opened, close construction cases should be reviewed against both Publication 946 and the unreviewed regulation, by the taxpayer’s CPA.
Sources
- 1
- 2IRS Publication 946 — How To Depreciate Property (2025)(opens in a new tab)
Appendix B reproduces the Rev. Proc. 87-56 class lives.
- 3