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TITLE 26-INTERNAL REVENUE CODE (4) Treatment as adjustment to basis For purposes of section 1016(b), an increase in basis under paragraph (1) shall be treated as an adjustment under section 1016(a). (5) Application to gifts before 1955 With respect to any property acquired by gift before 1955, references in this subsection to any provision of this title shall be deemed to refer to the corresponding provision of the Internal Revenue Code of 1939 or prior rev- enue laws which was effective for the year in which such gift was made. (6) Special rule for gifts made after December 31, 1976 (A) In general In the case of any gift made after Decem- ber 31, 1976, the increase in basis provided by this subsection with respect to any gift for the gift tax paid under chapter 12 shall be an amount (not in excess of the amount of tax so paid) which bears the same ratio to the amount of tax so paid as- (i) the net appreciation in value of the gift, bears to (ii) the amount of the gift. (B) Net appreciation For purposes of paragraph (1), the net ap- preciation in value of any gift is the amount by which the fair market value of the gift exceeds the donor's adjusted basis immedi- ately before the gift. (Aug. 16, 1954, ch. 736, 68A Stat. 298; Sept. 2, 1958, Pub. L. 85-866, title I, §43(a), 72 Stat. 1640; Dec. 31, 1970, Pub. L. 91-614, title I, § 102(d)(1), 84 Stat. 1841; Oct. 4, 1976, Pub. L. 94-455, title XIX, §§ 1901(a)(122), 1906(b) (13)(A), title XX, § 205(c), 90 Stat. 1784, 1834, 1877.) REFERENCES IN TEXT Section 2521, referred to in subsec. (d)(2), was re- pealed by Pub. L. 94-455, title XX, § 2001(b)(3), Oct. 4, 1976, 90 Stat. 1849. The Internal Revenue Code of 19J9, referred to in subsec. (d)(5), is act Feb. 10, 1939, ch. 2. 53 Stat. 1, as amended. Prior to the enactment of the Internal Rev- enue Code of 1954, the 1939 Code was classified to former Title 26, Internal Revenue Code. For table of comparisons of the 1939 Code to the 1954 Code, see Table I preceding section 1 of this title. AMENDMENTS 1976-Subsec. (a). Pub. L. 94-455, § 1906(b)(13)(A), struck out "or his delegate" following "Secretary" in four places. Subsec. (d)(1). Pub. L. 94-455, 1901(a)(122), substi- tuted in subpars. (A) and (B) "September 2, 1958" for "the date of enactment of the Technical Amendments Act of 1958". Subsec. (d)(6). Pub. L. 94-455, § 2005(c), added subsec. (d)(6). 1970-Subsec. (d)(2). Pub. L. 91-614 substituted "cal- endar quarter (or calendar year if the gift was made before January 1, 1971)" for "calendar year" the first place it appears and "calendar quarter or year" for "calendar year" every other place it appears therein. 1958-Subsec. (d). Pub. L. 85-866 added subsec. (d). ErEcTivE DATE OF 1976 AMEDiMENT Amendment of subsec. (d)(1) by section 1901(a)(122) of Pub. L. 94-455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under section 2 of this title. Amendment of subsec. (d)(6) by section 2005(c) of Pub. L. 94-455 applicable to gifts made after Dec. 31, 1976, see section 2005(f)(2) of Pub. L. 94-455 set out as an Effective Date note under section 1023 of this title. EFFECTIVE DATE OF 1970 AMEmNT Amendment by Pub. L. 91-614 applicable with re- spect to gifts made after Dec. 31, 1970, see section 102(e) of Pub. L. 91-614, set out as an Effective Date of 1970 Amendment note under section 2501 of this title. EmrECTxvE DATE OF 1958 AMENDMENT Subsec. (M) of this section applicable to taxable years bekinning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c) of Pub. L. 85-866, set out as an Effective Date of 1958 Amendment note under sec- tion 165 of this title. CROSS REFERENCES Basis of property after erroneous treatment of a prior transaction, see section 1312 of this title. Gift tax, see section 2501 et seq. of this title. Gifts specifically excluded from gross income, see section 102 of this title. Valuation of gifts, see section 2512 of this title. SECTION REFERRM TO IN OTHER SECTIONS This section is referred to in sections 382, 1001, 1312, 2511 of this title. § 1016. Adjustments to basis (a) General rule Proper adjustment in respect of the property shall in all cases be made- (1) for expenditures, receipts, losses, or other items, properly chargeable to capital ac- count, but no such adjustment shall be made- (A) for taxes or other carrying charges de- scribed in section 266, or (B) for expenditures described in section 173 (relating to circulation expenditures), for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years; (2) in respect of any period since February 28, 1913, for exhaustion, wear and tear, obso- lescence, amortization, and depletion, to the extent of the amount- (A) allowed as deductions in computing taxable income under this subtitle or prior income tax laws, and (B) resulting (by reason of the deductions so allowed) in a reduction for any taxable year of the taxpayer's taxes under this sub- title (other than chapter 2, relating to tax on self-employment income), or prior income, war-profits, or excess-profits tax laws, but not less than the amount allowable under this subtitle or prior income tax laws. Where no method has been adopted under section 167 (relating to depreciation deduction), the amount allowable shall be determined under section 167(b)(1). Subparagraph (B) of this paragraph shall not apply in respect of any period since February 28, 1913, and before January 1, 1952, unless an election has been made under section 1020 (as in effect before the date of the enactment of the Tax Reform Act of 1976). Where for any taxable year before the taxable year 1932 the depletion Page 637 § 1016