Hawaii Administrative Rules
Title 18 - DEPARTMENT OF TAXATION
Chapter 235 - INCOME TAX LAW
Subchapter 6 - RETURNS AND PAYMENTS; ADMINISTRATION
Section 18-235-110.7-06 - Used section 38 property

Universal Citation: HI Admin Rules 18-235-110.7-06

Current through August, 2024

(a) For calendar year 1988 (and fiscal year taxpayer acquisitions occurring during the period beginning January 1, 1988, to December 31, 1988). Property qualifies as used section 38 property if:

(1) The property is section 38 property (as defined in section 18-235-110.7-04);

(2) The property is not new section 38 property (as defined in section 18-235-110.7-05); and

(3) The property is not used by the same person (i.e., taxpayer or a related person as defined in I.R.C. §179(d)(2)(A) or (B)) both before and after the purchase.
(A) Use by prior user. Property shall not be treated as used section 38 property if the property is used by the same person (i.e., taxpayer or a related person) both before and after its purchase.

(B) Substantial use. While used section 38 property must not be used by the same person both before and after its purchase, only substantial use before a purchase disqualifies used property for purposes of the credit. Casual use before a purchase would not disqualify used property from eligibility for the credit.

(C) Example. Subparagraph (B) is illustrated as follows:

A person rents equipment (1) for a period of 25 days and for a different 2-day period within eleven months of the first rental, and (2) then purchases the equipment. In this case, the prior use of the property will not disqualify it as used section 38 property because the prior use will be considered to have been only on a casual basis.

(D) Lease or sale-leaseback. Property sold under a sale-leaseback arrangement in the hands of the buyer/lessor does not qualify as used section 38 property because the seller/lessee continues to use the property. The same result follows where a taxpayer who has been leasing property subsequently purchases the property it had leased. Note that section 38 property which is (i) sold and leased back by the same taxpayer within three months of the date the property was originally placed in service by the taxpayer, or (ii) leased to the same taxpayer within three months of the date the property was originally placed in service by that taxpayer may qualify as new section 38 property (see section 18-235-110.7-05(2)).

(b) For calendar years beginning after December 31, 1988 (and fiscal year taxpayer acquisitions occurring after December 31, 1988). Property qualifies as used section 38 property if:

(1) The property is section 38 property (as defined in section 18-235-110.7-04); and

(2) The property is not new section 38 property (as defined in section 18-235-110.7-05).

(c) Basis. See section 18-235-110.7-11(d) for a discussion of the basis of used section 38 property.

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