1. (1) the cost or other basis of the property described in paragraph (b)(5) of this section;

2. (2) the cost or other basis of the property described in paragraph (b)(6) of this section, multiplied by the taxpayer's business allocation percentage for the first year of the election.

   (b) Qualified property.

   The term qualified property means tangible property which:

3. (1) is depreciable pursuant to section 167 of the Internal Revenue Code, and
4. (2) has a situs in New York State, and
5. (3) is used in the taxpayer's trade or business, and
6. (4) the original use of which commenced with the taxpayer, commenced in New York State and commenced after December 31, 1963, and
7. (5) is acquired by purchase as defined in section 179(d) of the Internal Revenue Code, or constructed, reconstructed or erected after December 31, 1963, pursuant to a contract which was, on or before December 31, 1967, and at all times thereafter, binding on the taxpayer or, property, the physical construction, reconstruction or erection of which began on or before December 31, 1967, which was completed on or before December 31, 1969, or

8. (6) is acquired by purchase as defined in section 179(d) of the Internal Revenue Code, constructed, reconstructed or erected after December 31, 1967, pursuant to a contract which was, on or before December 31, 1968, and at all times thereafter, binding on the taxpayer or, property, the physical construction, reconstruction or erection of which began on or before December 31, 1968, which was completed on or before December 31, 1970, and which is principally used by the taxpayer in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing. For any taxable year beginning on or after January 1, 1968, a taxpayer is not allowed a deduction under subdivision (a) of this section with respect to tangible personal property leased by it to any other person or corporation. For purposes of the preceding sentence, any contract or agreement to lease or rent or for a license to use such property is considered a lease.

   (c) Carry over of unused deductions.

   If the deduction allowable for any taxable year exceeds the taxpayer's entire net income allocated to New York State, the excess may be carried over to the following taxable year or years. The taxpayer's entire net income allocated to New York State or, in the case of a combined report, combined entire net income allocated to New York State must be reduced to zero before any allowance of a carry over of any unused deduction under this section. If a carry over under this provision is claimed, complete details of the computation must be submitted with the report.

   (d) Sale or other disposition.

   In any taxable year when property on which depreciation under this section has been allowed, is sold or otherwise disposed of, entire net income before allocation must be adjusted by adding the Federal loss or subtracting the Federal gain resulting from such sale or disposition. The New York State gain resulting from such sale or disposition must be added to entire net income allocated to New York State. If a New York State loss results from such sale or disposition, it is subtracted from entire net income allocated to New York State. To determine the basis of the property, in computing the gain or loss for purposes of article 9-A the sum of the amounts allowed as depreciation under this section for all taxable years from the year of acquisition to and including the year of the sale or other disposition is subtracted from the original Federal cost or other basis. No loss shall be recognized with respect to a sale or other disposition to a person whose acquisition thereof is not a purchase as defined in section 179(d) of the Internal Revenue Code. A sale or other disposition of qualified property includes any transfer or exchange without regard to whether a gain or loss from the transaction is recognized for Federal income tax purposes. A sale or other disposition is described in subdivision (c) of section 5-2.8(c) of this Title.

9. (e) If a taxpayer has a net operating loss in a year subsequent to the first year in which optional depreciation was deducted, the New York State net operating loss must be reduced by the amount of Federal depreciation deducted in the loss year on those assets on which optional depreciation was deducted and which are fully depreciated for New York State tax purposes. The New York State net operating loss must also be adjusted to reflect any Federal gain or loss on the disposition of assets on which optional depreciation was deducted.

Tax Law, § 210(3)(d), (e)

(a) General.

For taxable years beginning on or after January 1, 1964, a taxpayer is provided an option to elect to deduct from allocated entire net income an amount not to exceed twice the amount of Federal depreciation on certain newly acquired depreciable property. The deduction is allowed only upon condition that entire net income be computed without any deduction for depreciation or amortization for qualified property. The total depreciation deduction allowed on each item of qualified property may not exceed: