[House Report 114-306]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 114-306
======================================================================
RESTAURANT AND RETAIL JOBS AND GROWTH ACT OF 2015
_______
October 23, 2015.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr.Ryan of Wisconsin, from the Committee on Ways and Means, submitted
the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 765]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 765) to amend the Internal Revenue Code of 1986 to
permanently extend the 15-year recovery period for qualified
leasehold improvement property, qualified restaurant property,
and qualified retail improvement property, having considered
the same, report favorably thereon with an amendment and
recommend that the bill as amended do pass.
CONTENTS
Page
I. SUMMARY AND BACKGROUND...........................................2
A. Purpose and Summary................................. 2
B. Background and Need for Legislation................. 2
C. Legislative History................................. 3
II. EXPLANATION OF THE BILL..........................................3
A. Making Permanent 15-year Straight-Line Cost Recovery
for Qualified Leasehold Improvements, Qualified
Restaurant Buildings and Improvements, and
Qualified Retail Improvements (sec. 168 of the
Code).............................................. 3
III. VOTES OF THE COMMITTEE...........................................6
IV. BUDGET EFFECTS OF THE BILL.......................................7
A. Committee Estimate of Budgetary Effects............. 7
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 7
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 8
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......9
A. Committee Oversight Findings and Recommendations.... 9
B. Statement of General Performance Goals and
Objectives......................................... 9
C. Information Relating to Unfunded Mandates........... 9
D. Applicability of House Rule XXI 5(b)................ 9
E. Tax Complexity Analysis............................. 9
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 10
G. Duplication of Federal Programs..................... 10
H. Disclosure of Directed Rule Makings................. 10
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........10
A. Text of Existing Law Amended or Repealed by the
Bill, as Reported.................................. 10
B. Changes in Existing Law Proposed by the Bill, as
Reported........................................... 52
VII. DISSENTING VIEWS................................................95
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Restaurant and Retail Jobs and Growth
Act of 2015''.
SEC. 2. PERMANENT EXTENSION OF TREATMENT OF QUALIFIED LEASEHOLD
IMPROVEMENT PROPERTY AS 15-YEAR PROPERTY FOR
PURPOSES OF DEPRECIATION DEDUCTION.
(a)In General.--Clause (iv) of section 168(e)(3)(E) of the Internal
Revenue Code of 1986 is amended by striking ``placed in service before
January 1, 2015''.
(b)Effective Date.--The amendment made by this section shall apply to
property placed in service after December 31, 2014.
SEC. 3. PERMANENT EXTENSION OF TREATMENT OF QUALIFIED RESTAURANT
PROPERTY AS 15-YEAR PROPERTY FOR PURPOSES OF
DEPRECIATION DEDUCTION.
(a)In General.--Clause (v) of section 168(e)(3)(E) of the Internal
Revenue Code of 1986 is amended by striking ``placed in service before
January 1, 2015''.
(b)Effective Date.--The amendment made by this section shall apply to
property placed in service after December 31, 2014.
SEC. 4. PERMANENT EXTENSION OF TREATMENT OF QUALIFIED RETAIL
IMPROVEMENT PROPERTY AS 15-YEAR PROPERTY FOR
PURPOSES OF DEPRECIATION DEDUCTION.
(a)In General.--Clause (ix) of section 168(e)(3)(E) of the Internal
Revenue Code of 1986 is amended by striking ``, and before January 1,
2015''.
(b)Effective Date.--The amendment made by this section shall apply to
property placed in service after December 31, 2014.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
H.R. 765, reported by the Committee on Ways and Means,
provides a 15-year recovery period for qualified leasehold
improvement property, qualified restaurant property, and
qualified retail improvement property. Similar temporary
provisions applied for the past 10 years, but expired for
property placed in service after December 31, 2014, causing
these improvements to be depreciable over 39 years. Under H.R.
765, the 15-year recovery period will permanently apply for
qualified property placed in service after 2014.
B. Background and Need for Legislation
While the Committee continues actively to pursue
comprehensive tax reform as a critical means of promoting
economic growth and job creation, the Committee also believes
that it is important to provide businesses permanent, immediate
tax relief to help encourage economic growth and job creation.
By restoring and making permanent for businesses the ability to
recover the costs of certain building improvements over 15
years, H.R. 765 eliminates the significant reduction in the
depreciation benefit that may result from the expiration of
these temporary provisions after 2014. Making the 15-year
recovery period permanent for these improvements provides much-
needed certainty for businesses, which have struggled through
the economic challenges of the past seven years, enabling them
to make investments critical to the growth and expansion of
their businesses and to hire new employees.
C. Legislative History
Background
H.R. 765 was introduced on February 5, 2015, and was
referred to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up H.R. 765, ``the
Restaurant and Retail Jobs and Growth Act of 2015,'' on
September 17, 2015, and ordered the bill, as amended, favorably
reported (with a quorum being present).
Committee hearings
The need for permanent rules regarding 15-year depreciation
for leasehold improvement, restaurant, and retail improvement
property was discussed at no fewer than three hearings during
the 112th Congress:
Full Committee Hearing on How Business Tax
Reform Can Encourage Job Creation (June 2, 2011);
Select Revenue Measures Subcommittee Hearing
on Certain Expiring Tax Provisions (April 26, 2012);
and
Select Revenue Measures Subcommittee Hearing
on the Framework for Evaluating Certain Expiring Tax
Provisions (June 8, 2012).
II. EXPLANATION OF THE BILL
A. Making Permanent 15-Year Straight-Line Cost Recovery for Qualified
Leasehold Improvements, Qualified Restaurant Buildings and
Improvements, and Qualified Retail Improvements (sec. 168 of the Code)
PRESENT LAW
In general
A taxpayer generally must capitalize the cost of property
used in a trade or business and recover such cost over time
through annual deductions for depreciation or amortization.
Tangible property generally is depreciated under the modified
accelerated cost recovery system (``MACRS''), which determines
depreciation by applying specific recovery periods, placed-in-
service conventions, and depreciation methods to the cost of
various types of depreciable property.\1\ The cost of
nonresidential real property is recovered using the straight-
line method of depreciation and a recovery period of 39 years.
Nonresidential real property is subject to the mid-month
placed-in-service convention. Under the mid-month convention,
the depreciation allowance for the first year in which property
is placed in service is based on the number of months the
property was in service, and property placed in service at any
time during a month is treated as having been placed in service
in the middle of the month.
---------------------------------------------------------------------------
\1\Sec. 168.
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Depreciation of leasehold improvements
Generally, depreciation allowances for improvements made on
leased property are determined under MACRS, even if the MACRS
recovery period assigned to the property is longer than the
term of the lease. This rule applies regardless of whether the
lessor or the lessee places the leasehold improvements in
service. If a leasehold improvement constitutes an addition or
improvement to nonresidential real property already placed in
service, the improvement generally is depreciated using the
straight-line method over a 39-year recovery period, beginning
in the month the addition or improvement was placed in service.
However, exceptions exist for certain qualified leasehold
improvements, qualified restaurant property, and qualified
retail improvement property.
Qualified leasehold improvement property
Section 168(e)(3)(E)(iv) provides a statutory 15-year
recovery period for qualified leasehold improvement property
placed in service before January 1, 2015. Qualified leasehold
improvement property is any improvement to an interior portion
of a building that is nonresidential real property, provided
certain requirements are met.\2\ The improvement must be made
under or pursuant to a lease either by the lessee (or
sublessee), or by the lessor, of that portion of the building
to be occupied exclusively by the lessee (or sublessee). The
improvement must be placed in service more than three years
after the date the building was first placed in service.
Qualified leasehold improvement property does not include any
improvement for which the expenditure is attributable to the
enlargement of the building, any elevator or escalator, any
structural component benefiting a common area, or the internal
structural framework of the building.\3\ If a lessor makes an
improvement that qualifies as qualified leasehold improvement
property, such improvement does not qualify as qualified
leasehold improvement property to any subsequent owner of such
improvement.\4\ An exception to the rule applies in the case of
death and certain transfers of property that qualify for non-
recognition treatment.\5\
---------------------------------------------------------------------------
\2\Sec. 168(e)(6).
\3\Sec. 168(e)(6) and (k)(3).
\4\Sec. 168(e)(6)(A).
\5\Sec. 168(e)(6)(B).
---------------------------------------------------------------------------
Qualified leasehold improvement property is generally
recovered using the straight-line method and a half-year
convention.\6\ Qualified leasehold improvement property placed
in service after December 31, 2014, is subject to the general
rules described above.
---------------------------------------------------------------------------
\6\Sec. 168(b)(3)(G) and (d). An additional first-year depreciation
deduction (``bonus depreciation'') is allowed equal to 50 percent of
the adjusted basis of qualified property acquired and placed in service
before January 1, 2015 (January 1, 2016, for certain longer-lived and
transportation property). See sec. 168(k). Qualified property eligible
for bonus depreciation includes qualified leasehold improvement
property. Sec. 168(k)(2)(A)(i)(IV).
---------------------------------------------------------------------------
Qualified restaurant property
Section 168(e)(3)(E)(v) provides a statutory 15-year
recovery period for qualified restaurant property placed in
service before January 1, 2015. Qualified restaurant property
is any section 1250 property that is a building or an
improvement to a building, if more than 50 percent of the
building's square footage is devoted to the preparation of, and
seating for on-premises consumption of, prepared meals.\7\
Qualified restaurant property is recovered using the straight-
line method and a half-year convention.\8\ Additionally,
qualified restaurant property is not eligible for bonus
depreciation unless it also satisfies the definition of
qualified leasehold improvement property.\9\ Qualified
restaurant property placed in service after December 31, 2014,
is subject to the general rules described above.
---------------------------------------------------------------------------
\7\Sec. 168(e)(7).
\8\Sec. 168(b)(3)(H) and (d).
\9\Sec. 168(e)(7)(B).
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Qualified retail improvement property
Section 168(e)(3)(E)(ix) provides a statutory 15-year
recovery period for qualified retail improvement property
placed in service before January 1, 2015. Qualified retail
improvement property is any improvement to an interior portion
of a building that is nonresidential real property if such
portion is open to the general public\10\ and is used in the
retail trade or business of selling tangible personal property
to the general public, and such improvement is placed in
service more than three years after the date the building was
first placed in service.\11\ Qualified retail improvement
property does not include any improvement for which the
expenditure is attributable to the enlargement of the building,
any elevator or escalator, any structural component benefiting
a common area, or the internal structural framework of the
building.\12\ In the case of an improvement made by the owner
of such improvement, the improvement is a qualified retail
improvement only so long as the improvement is held by such
owner.\13\
---------------------------------------------------------------------------
\10\Improvements to portions of a building not open to the general
public (e.g., stock room in back of retail space) do not qualify under
the provision.
\11\Sec. 168(e)(8).
\12\Sec. 168(e)(8)(C).
\13\Sec. 168(e)(8)(B). Rules similar to section 168(e)(6)(B) apply
in the case of death and certain transfers of property that qualify for
non-recognition treatment.
---------------------------------------------------------------------------
Retail establishments that qualify for the 15-year recovery
period include those primarily engaged in the sale of goods.
Examples of these retail establishments include, but are not
limited to, grocery stores, clothing stores, hardware stores,
and convenience stores. Establishments primarily engaged in
providing services, such as professional services, financial
services, personal services, health services, and
entertainment, do not qualify. Generally, it is intended that
businesses defined as a store retailer under the current North
American Industry Classification System (industry sub-sectors
441 through 453) qualify while those in other industry classes
do not qualify.\14\
---------------------------------------------------------------------------
\14\Joint Committee on Taxation,General Explanation of Tax
Legislation Enacted in the 110th Congress (JCS-1-09), March 2009, p.
402.
---------------------------------------------------------------------------
Qualified retail improvement property is recovered using
the straight-line method and a half-year convention.\15\
Additionally, qualified retail improvement property is not
eligible for bonus depreciation unless it also satisfies the
definition of qualified leasehold improvement property.\16\
Qualified retail improvement property placed in service after
December 31, 2014, is subject to the general rules described
above.
---------------------------------------------------------------------------
\15\Sec. 168(b)(3)(I) and (d).
\16\Sec. 168(e)(8)(D).
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REASONS FOR CHANGE
The Committee believes that the recovery period for the
costs of certain leasehold improvements should correspond more
closely to the useful life of the investment. The 39-year
recovery period for leasehold improvements for property placed
in service after December 31, 2014, extends well beyond the
useful life of such investments. The Committee believes that
lease terms for commercial real estate also are typically
shorter than the 39-year recovery period. In the interests of
simplicity and administrability, a uniform period for the
recovery of leasehold improvements is desirable. Therefore, the
provision makes permanent the 15-year recovery period for
leasehold improvements.
In addition, restaurant and retail buildings generally are
more specialized structures, typically experiencing
considerably more traffic and remaining open longer than most
commercial properties. This daily use causes rapid
deterioration of restaurant and retail properties and, thus,
restaurant and retail facilities generally have a shorter life
span than other commercial establishments. This results in
restaurant and retail business owners having to repair and
upgrade their facilities on an on-going basis. Therefore, the
provision makes permanent the 15-year recovery period for
qualified restaurant property and qualified retail
improvements.
EXPLANATION OF PROVISION
The provision makes permanent the present-law provisions
for qualified leasehold improvement property, qualified
restaurant property, and qualified retail improvement property.
EFFECTIVE DATE
The provision is effective for property placed in service
after December 31, 2014.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 765, ``the Restaurant and Retail Jobs and
Growth Act of 2015,'' on September 17, 2015.
The Chairman's amendment in the nature of a substitute was
adopted by a voice vote (with a quorum being present).
The bill, H.R. 765, was ordered favorably reported as
amended to the House of Representatives by a roll call vote of
24 yeas to 12 nays (with a quorum being present). The vote was
as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Ryan....................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Johnson.................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Brady...................... X ........ ......... Mr. McDermott.... ........ X .........
Mr. Nunes...................... X ........ ......... Mr. Lewis........ ........ X .........
Mr. Tiberi..................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Reichert................... X ........ ......... Mr. Becerra...... ........ ........ .........
Mr. Boustany................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Roskam..................... X ........ ......... Mr. Thompson..... ........ ........ .........
Mr. Price...................... X ........ ......... Mr. Larson....... ........ X .........
Mr. Buchanan................... X ........ ......... Mr. Blumenauer... ........ X .........
Mr. Smith (NE)................. X ........ ......... Mr. Kind......... ........ X .........
Ms. Jenkins.................... X ........ ......... Mr. Pascrell..... ........ X .........
Mr. Paulsen.................... X ........ ......... Mr. Crowley...... ........ ........ .........
Mr. Marchant................... X ........ ......... Mr. Davis........ ........ X .........
Ms. Black...................... X ........ ......... Ms. Sanchez...... ........ X .........
Mr. Reed....................... X ........ .........
Mr. Young...................... X ........ .........
Mr. Kelly...................... X ........ .........
Mr. Renacci.................... X ........ .........
Mr. Meehan..................... X ........ .........
Ms. Noem....................... X ........ .........
Mr. Holding.................... X ........ .........
Mr. Smith (MO)................. X ........ .........
Mr. Dold....................... X ........ .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 765, as
reported.
The bill, as reported, is estimated to have the following
effect on Federal budget receipts for fiscal years 2016-2025:
FISCAL YEARS
[Millions of Dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016-20 2016-25
--------------------------------------------------------------------------------------------------------------------------------------------------------
*-585 -960 -1,481 -2,020 -2,550 -3,078 -3,627 -4,180 -4,739 -5,207 -7,596 -28,427
--------------------------------------------------------------------------------------------------------------------------------------------------------
In compliance with clause 8 of rule XIII of the Rules of
the House of Representatives, the following statement is made
by the Joint Committee on Taxation with respect to the
provisions of the bill amending the Internal Revenue Code of
1986: The gross budgetary effect (before incorporating
macroeconomic effects) in any fiscal year is less than 0.25
percent of the current projected gross domestic product of the
United States for that fiscal year; therefore, the bill is not
``major legislation'' for purposes of requiring that the
estimate include the budgetary effects of changes in economic
output, employment, capital stock and other macroeconomic
variables.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee further states that the revenue-reducing tax
provisions involve increased tax expenditures. (See amounts in
table in Part IV.A., above.)
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 22, 2015.
Hon.Paul Ryan,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 765, the
Restaurant and Retail Jobs and Growth Act of 2015.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Peter
Huether.
Sincerely,
Keith Hall.
Enclosure.
H.R. 765--Restaurant and Retail Jobs and Growth Act of 2015
H.R. 765 would amend the Internal Revenue Code to
permanently provide a 15-year recovery period for depreciating
certain restaurant, retail improvement, and leasehold
improvement property, effective for such property placed in
service after December 31, 2014. Under current law that 15-year
recovery period expired on December 31, 2014, causing qualified
property placed in service after that date to be depreciated
over 39 years.
The staff of the Joint Committee on Taxation (JCT)
estimates that enacting H.R. 765 would reduce revenues, thus
increasing federal budget deficits, by about $28.4 billion over
the 2016-2025 period.
The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting
direct spending and revenues. Enacting H.R. 765 would result in
revenue losses in each year beginning in 2016. The estimated
increases in the deficit are shown in the following table.
JCT has determined that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Peter Huether.
The estimate was approved by David Weiner, Assistant Director
for Tax Analysis.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 765, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON SEPTEMBER 17, 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
---------------------------------------------------------------------------------------------------
2016 2017 2018 209 2020 2021 2022 2023 2024 2025 2016-2020 2016-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN THE DEFICIT
Statutory Pay-As-You-Go Effects.................... 585 960 1,481 2,020 2,550 3,078 3,627 4,180 4,739 5,207 7,596 28,427
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was as a result of the
Committee's review of the provisions of H.R. 765 that the
Committee concluded that it is appropriate to report the bill,
as amended, favorably to the House of Representatives with the
recommendation that the bill do pass.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. Applicability of House Rule XXI 5(b)
Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the bill, and states that the bill does not
involve any Federal income tax rate increases within the
meaning of the rule.
E. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service
Restructuring and Reform Act of 1998 (the ``IRS Reform Act'')
requires the staff of the Joint Committee on Taxation (in
consultation with the Internal Revenue Service and the Treasury
Department) to provide a tax complexity analysis. The
complexity analysis is required for all legislation reported by
the Senate Committee on Finance, the House Committee on Ways
and Means, or any committee of conference if the legislation
includes a provision that directly or indirectly amends the
Internal Revenue Code and has widespread applicability to
individuals or small businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the IRS Reform Act because
the bill contains no provisions that amend the Code and that
have ``widespread applicability'' to individuals or small
businesses, within the meaning of the rule.
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
G. Duplication of Federal Programs
In compliance with Sec. 3(g)(2) of H. Res. 5 (114th
Congress), the Committee states that no provision of the bill
establishes or reauthorizes: (1) a program of the Federal
Government known to be duplicative of another Federal program,
(2) a program included in any report from the Government
Accountability Office to Congress pursuant to section 21 of
Public Law 111-139, or (3) a program related to a program
identified in the most recent Catalog of Federal Domestic
Assistance, published pursuant to the Federal Program
Information Act (Public Law 95-220, as amended by Public Law
98-169).
H. Disclosure of Directed Rule Makings
In compliance with Sec. 3(i) of H. Res. 5 (114th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
A. Text of Existing Law Amended or Repealed by the Bill, as Reported
In compliance with clause 3(e)(1)(A) of rule XIII of the
Rules of the House of Representatives, the text of each section
proposed to be amended or repealed by the bill, as reported, is
shown below:
SECTION 168 OF THE INTERNAL REVENUE CODE OF 1986
SEC. 168. ACCELERATED COST RECOVERY SYSTEM.
(a) General Rule.--Except as otherwise provided in this
section, the depreciation deduction provided by section 167(a)
for any tangible property shall be determined by using--
(1) the applicable depreciation method,
(2) the applicable recovery period, and
(3) the applicable convention.
(b) Applicable Depreciation Method.--For purposes of this
section--
(1) In general.--Except as provided in paragraphs (2)
and (3), the applicable depreciation method is--
(A) the 200 percent declining balance method,
(B) switching to the straight line method for
the 1st taxable year for which using the
straight line method with respect to the
adjusted basis as of the beginning of such year
will yield a larger allowance.
(2) 150 percent declining balance method in certain
cases.--Paragraph (1) shall be applied by substituting
``150 percent'' for ``200 percent'' in the case of--
(A) any 15-year or 20-year property not
referred to in paragraph (3),
(B) any property used in a farming business
(within the meaning of section 263A(e)(4)),
(C) any property (other than property
described in paragraph (3)) which is a
qualified smart electric meter or qualified
smart electric grid system, or
(D) any property (other than property
described in paragraph (3)) with respect to
which the taxpayer elects under paragraph (5)
to have the provisions of this paragraph apply.
(3) Property to which straight line method applies.--
The applicable depreciation method shall be the
straight line method in the case of the following
property:
(A) Nonresidential real property.
(B) Residential rental property.
(C) Any railroad grading or tunnel bore.
(D) Property with respect to which the
taxpayer elects under paragraph (5) to have the
provisions of this paragraph apply.
(E) Property described in subsection
(e)(3)(D)(ii).
(F) Water utility property described in
subsection (e)(5).
(G) Qualified leasehold improvement property
described in subsection (e)(6).
(H) Qualified restaurant property described
in subsection (e)(7).
(I) Qualified retail improvement property
described in subsection (e)(8).
(4) Salvage value treated as zero.--Salvage value
shall be treated as zero.
(5) Election.--An election under paragraph (2)(D) or
(3)(D) may be made with respect to 1 or more classes of
property for any taxable year and once made with
respect to any class shall apply to all property in
such class placed in service during such taxable year.
Such an election, once made, shall be irrevocable.
(c) Applicable Recovery Period.--For purposes of this
section, the applicable recovery period shall be determined in
accordance with the following table:
------------------------------------------------------------------------
In the case of: The applicable recovery period is:
------------------------------------------------------------------------
3-year property 3 years
5-year property 5 years
7-year property 7 years
10-year property 10 years
15-year property 15 years
20-year property 20 years
Water utility property 25 years
Residential rental property 27.5 years
Nonresidential real property 39 years.
Any railroad grading or tunnel 50 years.
bore
------------------------------------------------------------------------
(d) Applicable Convention.--For purposes of this section--
(1) In general.--Except as otherwise provided in this
subsection, the applicable convention is the half-year
convention.
(2) Real property.--In the case of--
(A) nonresidential real property,
(B) residential rental property, and
(C) any railroad grading or tunnel bore, the
applicable convention is the mid-month
convention.
(3) Special rule where substantial property placed in
service during last3 months of taxable year.--
(A) In general.--Except as provided in
regulations, if during any taxable year--
(i) the aggregate bases of property
to which this section applies placed in
service during the last 3 months of the
taxable year, exceed
(ii) 40 percent of the aggregate
bases of property to which this section
applies placed in service during such
taxable year,
the applicable convention for all property to which
this section applies placed in service during such
taxable year shall be the mid-quarter convention.
(B) Certain property not taken into
account.--For purposes of subparagraph (A),
there shall not be taken into account--
(i) any nonresidential real property
residential rental property, and
railroad grading or tunnel bore, and
(ii) any other property placed in
service and disposed of during the same
taxable year.
(4) Definitions.--
(A) Half-year convention.--The half-year
convention is a convention which treats all
property placed in service during any taxable
year (or disposed of during any taxable year)
as placed in service (or disposed of) on the
mid-point of such taxable year.
(B) Mid-month convention.--The mid-month
convention is a convention which treats all
property placed in service during any month (or
disposed of during any month) as placed in
service (or disposed of) on the mid-point of
such month.
(C) Mid-quarter convention.--The mid-quarter
convention is a convention which treats all
property placed in service during any quarter
of a taxable year (or disposed of during any
quarter of a taxable year) as placed in service
(or disposed of) on the mid-point of such
quarter.
(e) Classification of Property.--For purposes of this
section--
(1) In general.--Except as otherwise provided in this
subsection, property shall be classified under the
following table:
------------------------------------------------------------------------
If such property has a class life
Property shall be treated as: (in years) of:
------------------------------------------------------------------------
3-year property 4 or less
5-year property More than 4 but less than 10
7-year property 10 or more but less than 16
10-year property 16 or more but less than 20
15-year property 20 or more but less than 25
20-year property 25 or more.
------------------------------------------------------------------------
(2) Residential rental or nonresidential real
property.--
(A) Residential rental property.--
(i) Residential rental property.--The
term ``residential rental property''
means any building or structure if 80
percent or more of the gross rental
income from such building or structure
for the taxable year is rental income
from dwelling units.
(ii) Definitions.--For purposes of
clause (i)--
(I) the term ``dwelling
unit'' means a house or
apartment used to provide
living accommodations in a
building or structure, but does
not include a unit in a hotel,
motel, or other establishment
more than one-half of the units
in which are used on a
transient basis, and
(II) if any portion of the
building or structure is
occupied by the taxpayer, the
gross rental income from such
building or structure shall
include the rental value of the
portion so occupied.
(B) Nonresidential real property.--The term
``nonresidential real property'' means section
1250 property which is not--
(i) residential rental property, or
(ii) property with a class life of
less than 27.5 years.
(3) Classification of certain property.--
(A) 3-year property.--The term ``3-year
property'' includes--
(i) any race horse--
(I) which is placed in
service before January 1, 2015,
and
(II) which is placed in
service after December 31,
2014, and which is more than 2
years old at the time such
horse is placed in service by
such purchaser,
(ii) any horse other than a race
horse which is more than 12 years old
at the time it is placed in service,
and
(iii) any qualified rent-to-own
property.
(B) 5-year property.--The term ``5-year
property'' includes--
(i) any automobile or light general
purpose truck,
(ii) any semi-conductor manufacturing
equipment,
(iii) any computer-based telephone
central office switching equipment,
(iv) any qualified technological
equipment,
(v) any section 1245 property used in
connection with research and
experimentation,
(vi) any property which--
(I) is described in
subparagraph (A) of section
48(a)(3) (or would be so
described if ``solar or wind
energy'' were substituted for
``solar energy'' in clause (i)
thereof and the last sentence
of such section did not apply
to such subparagraph),
(II) is described in
paragraph (15) of section 48(l)
(as in effect on the day before
the date of the enactment of
the Revenue Reconciliation Act
of 1990) and is a qualifying
small power production facility
within the meaning of section
3(17)(C) of the Federal Power
Act (16 U.S.C. 796(17)(C)), as
in effect on September 1, 1986,
or
(III) is described in section
48(l)(3)(A)(ix) (as in effect
on the day before the date of
the enactment of the Revenue
Reconciliation Act of 1990),
and
(vii) any machinery or equipment
(other than any grain bin, cotton
ginning asset, fence, or other land
improvement) which is used in a farming
business (as defined in section
263A(e)(4)), the original use of which
commences with the taxpayer after
December 31, 2008, and which is placed
in service before January 1, 2010.
Nothing in any provision of law shall be
construed to treat property as not being
described in clause (vi)(I) (or the
corresponding provisions of prior law) by
reason of being public utility property (within
the meaning of section 48(a)(3)).
(C) 7-year property.--The term ``7-year
property'' includes--
(i) any railroad track, and
(ii) any motorsports entertainment
complex,
(iii) any Alaska natural gas
pipeline,
(iv) any natural gas gathering line
the original use of which commences
with the taxpayer after April 11, 2005,
and
(v) any property which--
(I) does not have a class
life, and
(II) is not otherwise
classified under paragraph (2)
or this paragraph.
(D) 10-year property.--The term ``10-year
property'' includes--
(i) any single purpose agricultural
or horticultural structure (within the
meaning of subsection (i)(13)),
(ii) any tree or vine bearing fruit
or nuts,
(iii) any qualified smart electric
meter, and
(iv) any qualified smart electric
grid system.
(E) 15-year property.--The term ``15-year
property'' includes--
(i) any municipal wastewater
treatment plant,
(ii) any telephone distribution plant
and comparable equipment used for 2-way
exchange of voice and data
communications,
(iii) any section 1250 property which
is a retail motor fuels outlet (whether
or not food or other convenience items
are sold at the outlet),
(iv) any qualified leasehold
improvement property placed in service
before January 1, 2015,
(v) any qualified restaurant property
placed in service before January 1,
2015,
(vi) initial clearing and grading
land improvements with respect to gas
utility property,
(vii) any section 1245 property (as
defined in section 1245(a)(3)) used in
the transmission at 69 or more
kilovolts of electricity for sale and
the original use of which commences
with the taxpayer after April 11, 2005,
(viii) any natural gas distribution
line the original use of which
commences with the taxpayer after April
11, 2005, and which is placed in
service before January 1, 2011, and
(ix) any qualified retail improvement
property placed in service after
December 31, 2008, and before January
1, 2015.
(F) 20-year property.--The term ``20-year
property'' means initial clearing and grading
land improvements with respect to any electric
utility transmission and distribution plant.
(4) Railroad grading or tunnel bore.--The term
``railroad grading or tunnel bore'' means all
improvements resulting from excavations (including
tunneling), construction of embankments, clearings,
diversions of roads and streams, sodding of slopes, and
from similar work necessary to provide, construct,
reconstruct, alter, protect, improve, replace, or
restore a roadbed or right-of-way for railroad track.
(5) Water utility property.--The term ``water utility
property'' means property--
(A) which is an integral part of the
gathering, treatment, or commercial
distribution of water, and which, without
regard to this paragraph, would be 20-year
property, and
(B) any municipal sewer.
(6) Qualified leasehold improvement property.--The
term ``qualified leasehold improvement property'' has
the meaning given such term in section 168(k)(3) except
that the following special rules shall apply:
(A) Improvements made by lessor.--In the case
of an improvement made by the person who was
the lessor of such improvement when such
improvement was placed in service, such
improvement shall be qualified leasehold
improvement property (if at all) only so long
as such improvement is held by such person.
(B) Exception for changes in form of
business.--Property shall not cease to be
qualified leasehold improvement property under
subparagraph (A) by reason of--
(i) death,
(ii) a transaction to which section
381(a) applies,
(iii) a mere change in the form of
conducting the trade or business so
long as the property is retained in
such trade or business as qualified
leasehold improvement property and the
taxpayer retains a substantial interest
in such trade or business,
(iv) the acquisition of such property
in an exchange described in section
1031, 1033, or 1038 to the extent that
the basis of such property includes an
amount representing the adjusted basis
of other property owned by the taxpayer
or a related person, or
(v) the acquisition of such property
by the taxpayer in a transaction
described in section 332, 351, 361,
721, or 731 (or the acquisition of such
property by the taxpayer from the
transferee or acquiring corporation in
a transaction described in such
section), to the extent that the basis
of the property in the hands of the
taxpayer is determined by reference to
its basis in the hands of the
transferor or distributor.
(7) Qualified restaurant property.--
(A) In general.--The term ``qualified
restaurant property'' means any section 1250
property which is--
(i) a building, or
(ii) an improvement to a building, if
more than 50 percent of the building's
square footage is devoted to
preparation of, and seating for on-
premises consumption of, prepared
meals.
(B) Exclusion from bonus depreciation.--
Property described in this paragraph which is
not qualified leasehold improvement property
shall not be considered qualified property for
purposes of subsection (k).
(8) Qualified retail improvement property.--
(A) In general.--The term ``qualified retail
improvement property'' means any improvement to
an interior portion of a building which is
nonresidential real property if--
(i) such portion is open to the
general public and is used in the
retail trade or business of selling
tangible personal property to the
general public, and
(ii) such improvement is placed in
service more than 3 years after the
date the building was first placed in
service.
(B) Improvements made by owner.--In the case
of an improvement made by the owner of such
improvement, such improvement shall be
qualified retail improvement property (if at
all) only so long as such improvement is held
by such owner. Rules similar to the rules under
paragraph (6)(B) shall apply for purposes of
the preceding sentence.
(C) Certain improvements not included.--Such
term shall not include any improvement for
which the expenditure is attributable to--
(i) the enlargement of the building,
(ii) any elevator or escalator,
(iii) any structural component
benefitting a common area, or
(iv) the internal structural
framework of the building.
(D) Exclusion from bonus depreciation.--
Property described in this paragraph which is
not qualified leasehold improvement property
shall not be considered qualified property for
purposes of subsection (k).
(f) Property to Which Section Does Not Apply.--This section
shall not apply to--
(1) Certain methods of depreciation.--Any property
if--
(A) the taxpayer elects to exclude such
property from the application of this section,
and
(B) for the 1st taxable year for which a
depreciation deduction would be allowable with
respect to such property in the hands of the
taxpayer, the property is properly depreciated
under the unit-of-production method or any
method of depreciation not expressed in a term
of years (other than the ret method or similar
method).
(2) Certain public utility property.--Any public
utility property (within the meaning of subsection
(i)(10)) if the taxpayer does not use a normalization
method of accounting.
(3) Films and video tape.--Any motion picture film or
video tape.
(4) Sound recordings.--Any works which result from
the fixation of a series of musical, spoken, or other
sounds, regardless of the nature of the material (such
as discs, tapes, or other phonorecordings) in which
such sounds are embodied.
(5) Certain property placed in service in churning
transactions.--
(A) In general.--Property--
(i) described in paragraph (4) of
section 168(e) (as in effect before the
amendments made by the Tax Reform Act
of 1986), or
(ii) which would be described in such
paragraph if such paragraph were
applied by substituting ``1987'' for
``1981'' and ``1986'' for ``1980'' each
place such terms appear.
(B) Subparagraph(A)(ii) not to apply.--Clause
(ii) of subparagraph (A) shall not apply to--
(i) any residential rental property
or nonresidential real property,
(ii) any property if, for the 1st
taxable year in which such property is
placed in service--
(I) the amount allowable as a
deduction under this section
(as in effect before the date
of the enactment of this
paragraph) with respect to such
property is greater than,
(II) the amount allowable as
a deduction under this section
(as in effect on or after such
date and using the half-year
convention) for such taxable
year, or
(iii) any property to which this
section (as amended by the Tax Reform
Act of 1986) applied in the hands of
the transferor.
(C) Special rule.--In the case of any
property to which this section would apply but
for this paragraph, the depreciation deduction
under section 167 shall be determined under the
provisions of this section as in effect before
the amendments made by section 201 of the Tax
Reform Act of 1986.
(g) Alternative Depreciation System for Certain Property.--
(1) In general.--In the case of--
(A) any tangible property which during the
taxable year is used predominantly outside the
United States,
(B) any tax-exempt use property,
(C) any tax-exempt bond financed property,
(D) any imported property covered by an
Executive order under paragraph (6), and
(E) any property to which an election under
paragraph (7) applies,
the depreciation deduction provided by section 167(a)
shall be determined under the alternative depreciation
system.
(2) Alternative depreciation system.--For purposes of
paragraph (1), the alternative depreciation system is
depreciation determined by using--
(A) the straight line method (without regard
to salvage value),
(B) the applicable convention determined
under subsection (d), and
(C) a recovery period determined under the
following table:
------------------------------------------------------------------------
In the case of: The recovery period shall be:
------------------------------------------------------------------------
(i) Property not described in The class life.
clause (ii) or (iii)
(ii) Personal property with no 12 years.
class life
(iii) Nonresidential real and 40 years.
residential rental property
(iv) Any railroad grading or 50 years.
tunnel bore or water utility
property
------------------------------------------------------------------------
(3) Special rules for determining class life.--
(A) Tax-exempt use property subject to
lease.--In the case of any tax-exempt use
property subject to a lease, the recovery
period used for purposes of paragraph (2) shall
(notwithstanding any other subparagraph of this
paragraph) in no event be less than 125 percent
of the lease term.
(B) Special rule for certain property
assigned to classes.--For purposes of paragraph
(2), in the case of property described in any
of the following subparagraphs of subsection
(e)(3), the class life shall be determined as
follows:
------------------------------------------------------------------------
If property is described in
subparagraph: The class life is:
------------------------------------------------------------------------
(A)(iii) 4
(B)(ii) 5
(B)(iii) 9.5
(B)(vii) 10
(C)(i) 10
(C)(iii)........... 22
(C)(iv) 14
(D)(i) 15
(D)(ii) 20
(E)(i) 24
(E)(ii) 24
(E)(iii) 20
(E)(iv) 39
(E)(v) 39
(E)(vi) 20
(E)(vii) 30
(E)(viii) 35
(E)(ix) 39
(F) 25
------------------------------------------------------------------------
(C) Qualified technological equipment.--In
the case of any qualified technological
equipment, the recovery period used for
purposes of paragraph (2) shall be 5 years.
(D) Automobiles, etc..--In the case of any
automobile or light general purpose truck, the
recovery period used for purposes of paragraph
(2) shall be 5 years.
(E) Certain real property.--In the case of
any section 1245 property which is real
property with no class life, the recovery
period used for purposes of paragraph (2) shall
be 40 years.
(4) Exception for certain property used outside
United States.--Subparagraph (A) of paragraph (1) shall
not apply to--
(A) any aircraft which is registered by the
Administrator of the Federal Aviation Agency
and which is operated to and from the United
States or is operated under contract with the
United States;
(B) rolling stock which is used within and
without the United States and which is--
(i) of a rail carrier subject to part
A of subtitle IV of title 49, or
(ii) of a United States person (other
than a corporation described in clause
(i)) but only if the rolling stock is
not leased to one or more foreign
persons for periods aggregating more
than 12 months in any 24-month period;
(C) any vessel documented under the laws of
the United States which is operated in the
foreign or domestic commerce of the United
States;
(D) any motor vehicle of a United States
person (as defined in section 7701(a)(30))
which is operated to and from the United
States;
(E) any container of a United States person
which is used in the transportation of property
to and from the United States;
(F) any property (other than a vessel or an
aircraft) of a United States person which is
used for the purpose of exploring for,
developing, removing, or transporting resources
from the outer Continental Shelf (within the
meaning of section 2 of the Outer Continental
Shelf Lands Act, as amended and supplemented;
(43 U.S.C. 1331));
(G) any property which is owned by a domestic
corporation (other than a corporation which has
an election in effect under section 936) or by
a United States citizen (other than a citizen
entitled to the benefits of section 931 or 933)
and which is used predominantly in a possession
of the United States by such a corporation or
such a citizen, or by a corporation created or
organized in, or under the law of, a possession
of the United States;
(H) any communications satellite (as defined
in section 103(3) of the Communications
Satellite Act of 1962, 47 U.S.C. 702(3)), or
any interest therein, of a United States
person;
(I) any cable, or any interest therein, of a
domestic corporation engaged in furnishing
telephone service to which section
168(i)(10)(C) applies (or of a wholly owned
domestic subsidiary of such a corporation), if
such cable is part of a submarine cable system
which constitutes part of a communication link
exclusively between the United States and one
or more foreign countries;
(J) any property (other than a vessel or an
aircraft) of a United States person which is
used in international or territorial waters
within the northern portion of the Western
Hemisphere for the purpose of exploring for,
developing, removing, or transporting resources
from ocean waters or deposits under such
waters;
(K) any property described in section
48(l)(3)(A)(ix) (as in effect on the day before
the date of the enactment of the Revenue
Reconciliation Act of 1990) which is owned by a
United States person and which is used in
international or territorial waters to generate
energy for use in the United States; and
(L) any satellite (not described in
subparagraph (H)) or other spacecraft (or any
interest therein) held by a United States
person if such satellite or other spacecraft
was launched from within the United States.
For purposes of subparagraph (J), the term ``northern
portion of the Western Hemisphere'' means the area
lying west of the 30th meridian west of Greenwich, east
of the international dateline, and north of the
Equator, but not including any foreign country which is
a country of South America.
(5) Tax-exempt bond financed property.--For purposes
of this subsection--
(A) In general.--Except as otherwise provided
in this paragraph, the term ``tax-exempt bond
financed property'' means any property to the
extent such property is financed (directly or
indirectly) by an obligation the interest on
which is exempt from tax under section 103(a).
(B) Allocation of bond proceeds.--For
purposes of subparagraph (A), the proceeds of
any obligation shall be treated as used to
finance property acquired in connection with
the issuance of such obligation in the order in
which such property is placed in service.
(C) Qualified residential rental projects.--
The term ``tax-exempt bond financed property''
shall not include any qualified residential
rental project (within the meaning of section
142(a)(7)).
(6) Imported property.--
(A) Countries maintaining trade restrictions
or engaging in discriminatory acts.--If the
President determines that a foreign country--
(i) maintains nontariff trade
restrictions, including variable import
fees, which substantially burden United
States commerce in a manner
inconsistent with provisions of trade
agreements, or
(ii) engages in discriminatory or
other acts (including tolerance of
international cartels) or policies
unjustifiably restricting United States
commerce,
the President may by Executive order provide
for the application of paragraph (1)(D) to any
article or class of articles manufactured or
produced in such foreign country for such
period as may be provided by such Executive
order. Any period specified in the preceding
sentence shall not apply to any property
ordered before (or the construction,
reconstruction, or erection of which began
before) the date of the Executive order unless
the President determines an earlier date to be
in the public interest and specifies such date
in the Executive order.
(B) Imported property.--For purposes of this
subsection, the term ``imported property''
means any property if--
(i) such property was completed
outside the United States, or
(ii) less than 50 percent of the
basis of such property is attributable
to value added within the United
States.
For purposes of this subparagraph, the term
``United States'' includes the Commonwealth of
Puerto Rico and the possessions of the United
States.
(7) Election to use alternative depreciation
system.--
(A) In general.--If the taxpayer makes an
election under this paragraph with respect to
any class of property for any taxable year, the
alternative depreciation system under this
subsection shall apply to all property in such
class placed in service during such taxable
year. Notwithstanding the preceding sentence,
in the case of nonresidential real property or
residential rental property, such election may
be made separately with respect to each
property.
(B) Election irrevocable.--An election under
subparagraph (A), once made, shall be
irrevocable.
(h) Tax-Exempt Use Property.--
(1) In general.--For purposes of this section--
(A) Property other than nonresidential real
property.--Except as otherwise provided in this
subsection, the term ``tax-exempt use
property'' means that portion of any tangible
property (other than nonresidential real
property) leased to a tax-exempt entity.
(B) Nonresidential real property.--
(i) In general.--In the case of
nonresidential real property, the term
``tax-exempt use property'' means that
portion of the property leased to a
tax-exempt entity in a disqualified
lease.
(ii) Disqualified lease.--For
purposes of this subparagraph, the term
``disqualified lease'' means any lease
of the property to a tax-exempt entity,
but only if--
(I) part or all of the
property was financed (directly
or indirectly) by an obligation
the interest on which is exempt
from tax under section 103(a)
and such entity (or a related
entity) participated in such
financing,
(II) under such lease there
is a fixed or determinable
price purchase or sale option
which involves such entity (or
a related entity) or there is
the equivalent of such an
option,
(III) such lease has a lease
term in excess of 20 years, or
(IV) such lease occurs after
a sale (or other transfer) of
the property by, or lease of
the property from, such entity
(or a related entity) and such
property has been used by such
entity (or a related entity)
before such sale (or other
transfer) or lease.
(iii) 35-percent threshold test.--
Clause (i) shall apply to any property
only if the portion of such property
leased to tax-exempt entities in
disqualified leases is more than 35
percent of the property.
(iv) Treatment of improvements.--For
purposes of this subparagraph,
improvements to a property (other than
land) shall not be treated as a
separate property.
(v) Leasebacks during1st3 months of
use not taken into account.--Subclause
(IV) of clause (ii) shall not apply to
any property which is leased within 3
months after the date such property is
first used by the tax-exempt entity (or
a related entity).
(C) Exception for short-term leases.--
(i) In general.--Property shall not
be treated as tax-exempt use property
merely by reason of a short-term lease.
(ii) Short-term lease.--For purposes
of clause (i), the term ``short-term
lease'' means any lease the term of
which is--
(I) less than 3 years, and
(II) less than the greater of
1 year or 30 percent of the
property's present class life.
In the case of nonresidential real property
and property with no present class life,
subclause (II) shall not apply.
(D) Exception where property used in
unrelated trade or business.--The term ``tax-
exempt use property'' shall not include any
portion of a property if such portion is
predominantly used by the tax-exempt entity
(directly or through a partnership of which
such entity is a partner) in an unrelated trade
or business the income of which is subject to
tax under section 511. For purposes of
subparagraph (B)(iii), any portion of a
property so used shall not be treated as leased
to a tax-exempt entity in a disqualified lease.
(E) Nonresidential real property defined.--
For purposes of this paragraph, the term
``nonresidential real property'' includes
residential rental property.
(2) Tax-exempt entity.--
(A) In general.--For purposes of this
subsection, the term ``tax-exempt entity''
means--
(i) the United States, any State or
political subdivision thereof, any
possession of the United States, or any
agency or instrumentality of any of the
foregoing,
(ii) an organization (other than a
cooperative described in section 521)
which is exempt from tax imposed by
this chapter,
(iii) any foreign person or entity,
and
(iv) any Indian tribal government
described in section 7701(a)(40).
For purposes of applying this subsection, any
Indian tribal government referred to in clause
(iv) shall be treated in the same manner as a
State.
(B) Exception for certain property subject to
United States tax and used by foreign person or
entity.--Clause (iii) of subparagraph (A) shall
not apply with respect to any property if more
than 50 percent of the gross income for the
taxable year derived by the foreign person or
entity from the use of such property is--
(i) subject to tax under this
chapter, or
(ii) included under section 951 in
the gross income of a United States
shareholder for the taxable year with
or within which ends the taxable year
of the controlled foreign corporation
in which such income was derived.
For purposes of the preceding sentence, any
exclusion or exemption shall not apply for
purposes of determining the amount of the gross
income so derived, but shall apply for purposes
of determining the portion of such gross income
subject to tax under this chapter.
(C) Foreign person or entity.--For purposes
of this paragraph, the term ``foreign person or
entity'' means--
(i) any foreign government, any
international organization, or any
agency or instrumentality of any of the
foregoing, and
(ii) any person who is not a United
States person.
Such term does not include any foreign
partnership or other foreign pass-thru entity.
(D) Treatment of certain taxable
instrumentalities.--For purposes of this
subsection, a corporation shall not be treated
as an instrumentality of the United States or
of any State or political subdivision thereof
if--
(i) all of the activities of such
corporation are subject to tax under
this chapter, and
(ii) a majority of the board of
directors of such corporation is not
selected by the United States or any
State or political subdivision thereof.
(E) Certain previously tax-exempt
organizations.--
(i) In general.--For purposes of this
subsection, an organization shall be
treated as an organization described in
subparagraph (A)(ii) with respect to
any property (other than property held
by such organization) if such
organization was an organization (other
than a cooperative described in section
521) exempt from tax imposed by this
chapter at any time during the 5-year
period ending on the date such property
was first used by such organization.
The preceding sentence and subparagraph
(D)(ii) shall not apply to the Federal
Home Loan Mortgage Corporation.
(ii) Election not to have clause(i)
apply.--
(I) In general.--In the case
of an organization formerly
exempt from tax under section
501(a) as an organization
described in section
501(c)(12), clause (i) shall
not apply to such organization
with respect to any property if
such organization elects not to
be exempt from tax under
section 501(a) during the tax-
exempt use period with respect
to such property.
(II) Tax-exempt use period.--
For purposes of subclause (I),
the term ``tax-exempt use
period'' means the period
beginning with the taxable year
in which the property described
in subclause (I) is first used
by the organization and ending
with the close of the 15th
taxable year following the last
taxable year of the applicable
recovery period of such
property.
(III) Election.--Any election
under subclause (I), once made,
shall be irrevocable.
(iii) Treatment of successor
organizations.--Any organization which
is engaged in activities substantially
similar to those engaged in by a
predecessor organization shall succeed
to the treatment under this
subparagraph of such predecessor
organization.
(iv) First used.--For purposes of
this subparagraph, property shall be
treated as first used by the
organization--
(I) when the property is
first placed in service under a
lease to such organization, or
(II) in the case of property
leased to (or held by) a
partnership (or other pass-thru
entity) in which the
organization is a member, the
later of when such property is
first used by such partnership
or pass-thru entity or when
such organization is first a
member of such partnership or
pass-thru entity.
(3) Special rules for certain high technology
equipment.--
(A) Exemption where lease term is5 years or
less.--For purposes of this section, the term
``tax-exempt use property'' shall not include
any qualified technological equipment if the
lease to the tax-exempt entity has a lease term
of 5 years or less. Notwithstanding subsection
(i)(3)(A)(i), in determining a lease term for
purposes of the preceding sentence, there shall
not be taken into account any option of the
lessee to renew at the fair market value rent
determined at the time of renewal; except that
the aggregate period not taken into account by
reason of this sentence shall not exceed 24
months.
(B) Exception for certain property.--
(i) In general.--For purposes of
subparagraph (A), the term ``qualified
technological equipment'' shall not
include any property leased to a tax-
exempt entity if--
(I) part or all of the
property was financed (directly
or indirectly) by an obligation
the interest on which is exempt
from tax under section 103(a),
(II) such lease occurs after
a sale (or other transfer) of
the property by, or lease of
such property from, such entity
(or related entity) and such
property has been used by such
entity (or a related entity)
before such sale (or other
transfer) or lease, or
(III) such tax-exempt entity
is the United States or any
agency or instrumentality of
the United States.
(ii) Leasebacks during1st3 months of
use not taken into account.--Subclause
(II) of clause (i) shall not apply to
any property which is leased within 3
months after the date such property is
first used by the tax-exempt entity (or
a related entity).
(4) Related entities.--For purposes of this
subsection--
(A)(i) Each governmental unit and each agency
or instrumentality of a governmental unit is
related to each other such unit, agency, or
instrumentality which directly or indirectly
derives its powers, rights, and duties in whole
or in part from the same sovereign authority.
(ii) For purposes of clause (i), the
United States, each State, and each
possession of the United States shall
be treated as a separate sovereign
authority.
(B) Any entity not described in subparagraph
(A)(i) is related to any other entity if the 2
entities have--
(i) significant common purposes and
substantial common membership, or
(ii) directly or indirectly
substantial common direction or
control.
(C)(i) An entity is related to another entity
if either entity owns (directly or through 1 or
more entities) a 50 percent or greater interest
in the capital or profits of the other entity.
(ii) For purposes of clause (i),
entities treated as related under
subparagraph (A) or (B) shall be
treated as 1 entity.
(D) An entity is related to another entity
with respect to a transaction if such
transaction is part of an attempt by such
entities to avoid the application of this
subsection.
(5) Tax-exempt use of property leased to
partnerships, etc., determined at partner level.--For
purposes of this subsection--
(A) In general.--In the case of any property
which is leased to a partnership, the
determination of whether any portion of such
property is tax-exempt use property shall be
made by treating each tax-exempt entity
partner's proportionate share (determined under
paragraph (6)(C)) of such property as being
leased to such partner.
(B) Other pass-thru entities; tiered
entities.--Rules similar to the rules of
subparagraph (A) shall also apply in the case
of any pass-thru entity other than a
partnership and in the case of tiered
partnerships and other entities.
(C) Presumption with respect to foreign
entities.--Unless it is otherwise established
to the satisfaction of the Secretary, it shall
be presumed that the partners of a foreign
partnership (and the beneficiaries of any other
foreign pass-thru entity) are persons who are
not United States persons.
(6) Treatment of property owned by partnerships,
etc..--
(A) In general.--For purposes of this
subsection, if--
(i) any property which (but for this
subparagraph) is not tax-exempt use
property is owned by a partnership
which has both a tax-exempt entity and
a person who is not a tax-exempt entity
as partners, and
(ii) any allocation to the tax-exempt
entity of partnership items is not a
qualified allocation,
an amount equal to such tax-exempt entity's
proportionate share of such property shall
(except as provided in paragraph (1)(D)) be
treated as tax-exempt use property.
(B) Qualified allocation.--For purposes of
subparagraph (A), the term ``qualified
allocation'' means any allocation to a tax-
exempt entity which--
(i) is consistent with such entity's
being allocated the same distributive
share of each item of income, gain,
loss, deduction, credit, and basis and
such share remains the same during the
entire period the entity is a partner
in the partnership, and
(ii) has substantial economic effect
within the meaning of section
704(b)(2).
For purposes of this subparagraph, items
allocated under section 704(c) shall not be
taken into account.
(C) Determination of proportionate share.--
(i) In general.--For purposes of
subparagraph (A), a tax-exempt entity's
proportionate share of any property
owned by a partnership shall be
determined on the basis of such
entity's share of partnership items of
income or gain (excluding gain
allocated under section 704(c)),
whichever results in the largest
proportionate share.
(ii) Determination where allocations
vary.--For purposes of clause (i), if a
tax-exempt entity's share of
partnership items of income or gain
(excluding gain allocated under section
704(c)) may vary during the period such
entity is a partner in the partnership,
such share shall be the highest share
such entity may receive.
(D) Determination of whether property used in
unrelated trade or business.--For purposes of
this subsection, in the case of any property
which is owned by a partnership which has both
a tax-exempt entity and a person who is not a
tax-exempt entity as partners, the
determination of whether such property is used
in an unrelated trade or business of such an
entity shall be made without regard to section
514.
(E) Other pass-thru entities; tiered
entities.--Rules similar to the rules of
subparagraphs (A), (B), (C), and (D) shall also
apply in the case of any pass-thru entity other
than a partnership and in the case of tiered
partnerships and other entities.
(F) Treatment of certain taxable entities.--
(i) In general.--For purposes of this
paragraph and paragraph (5), except as
otherwise provided in this
subparagraph, any tax-exempt controlled
entity shall be treated as a tax-exempt
entity.
(ii) Election.--If a tax-exempt
controlled entity makes an election
under this clause--
(I) such entity shall not be
treated as a tax-exempt entity
for purposes of this paragraph
and paragraph (5), and
(II) any gain recognized by a
tax-exempt entity on any
disposition of an interest in
such entity (and any dividend
or interest received or accrued
by a tax-exempt entity from
such tax-exempt controlled
entity) shall be treated as
unrelated business taxable
income for purposes of section
511.
Any such election shall be irrevocable
and shall bind all tax-exempt entities
holding interests in such tax-exempt
controlled entity. For purposes of
subclause (II), there shall only be
taken into account dividends which are
properly allocable to income of the
tax-exempt controlled entity which was
not subject to tax under this chapter.
(iii) Tax-exempt controlled entity.--
(I) In general.--The term
``tax-exempt controlled
entity'' means any corporation
(which is not a tax-exempt
entity determined without
regard to this subparagraph and
paragraph (2)(E)) if 50 percent
or more (in value) of the stock
in such corporation is held by
1 or more tax-exempt entities
(other than a foreign person or
entity).
(II) Only5-percent
shareholders taken into account
in case of publicly traded
stock.--For purposes of
subclause (I), in the case of a
corporation the stock of which
is publicly traded on an
established securities market,
stock held by a tax-exempt
entity shall not be taken into
account unless such entity
holds at least 5 percent (in
value) of the stock in such
corporation. For purposes of
this subclause, related
entities (within the meaning of
paragraph (4)) shall be treated
as 1 entity.
(III) Section318 to apply.--
For purposes of this clause, a
tax-exempt entity shall be
treated as holding stock which
it holds through application of
section 318 (determined without
regard to the 50-percent
limitation contained in
subsection (a)(2)(C) thereof).
(G) Regulations.--For purposes of determining
whether there is a qualified allocation under
subparagraph (B), the regulations prescribed
under paragraph (8) for purposes of this
paragraph--
(i) shall set forth the proper
treatment for partnership guaranteed
payments, and
(ii) may provide for the exclusion or
segregation of items.
(7) Lease.--For purposes of this subsection, the term
``lease'' includes any grant of a right to use
property.
(8) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry
out the purposes of this subsection.
(i) Definitions and Special Rules.--For purposes of this
section--
(1) Class life.--Except as provided in this section,
the term ``class life'' means the class life (if any)
which would be applicable with respect to any property
as of January 1, 1986, under subsection (m) of section
167 (determined without regard to paragraph (4) and as
if the taxpayer had made an election under such
subsection). The Secretary, through an office
established in the Treasury, shall monitor and analyze
actual experience with respect to all depreciable
assets. The reference in this paragraph to subsection
(m) of section 167 shall be treated as a reference to
such subsection as in effect on the day before the date
of the enactment of the Revenue Reconciliation Act of
1990.
(2) Qualified technological equipment.--
(A) In general.--The term ``qualified
technological equipment'' means--
(i) any computer or peripheral
equipment,
(ii) any high technology telephone
station equipment installed on the
customer's premises, and
(iii) any high technology medical
equipment.
(B) Computer or peripheral equipment
defined.--For purposes of this paragraph--
(i) In general.--The term ``computer
or peripheral equipment'' means--
(I) any computer, and
(II) any related peripheral
equipment.
(ii) Computer.--The term ``computer''
means a programmable electronically
activated device which--
(I) is capable of accepting
information, applying
prescribed processes to the
information, and supplying the
results of these processes with
or without human intervention,
and
(II) consists of a central
processing unit containing
extensive storage, logic,
arithmetic, and control
capabilities.
(iii) Related peripheral equipment.--
The term ``related peripheral
equipment'' means any auxiliary machine
(whether on-line or off-line) which is
designed to be placed under the control
of the central processing unit of a
computer.
(iv) Exceptions.--The term ``computer
or peripheral equipment'' shall not
include--
(I) any equipment which is an
integral part of other property
which is not a computer,
(II) typewriters,
calculators, adding and
accounting machines, copiers,
duplicating equipment, and
similar equipment, and
(III) equipment of a kind
used primarily for amusement or
entertainment of the user.
(C) High technology medical equipment.--For
purposes of this paragraph, the term ``high
technology medical equipment'' means any
electronic, electromechanical, or computer-
based high technology equipment used in the
screening, monitoring, observation, diagnosis,
or treatment of patients in a laboratory,
medical, or hospital environment.
(3) Lease term.--
(A) In general.--In determining a lease
term--
(i) there shall be taken into account
options to renew,
(ii) the term of a lease shall
include the term of any service
contract or similar arrangement
(whether or not treated as a lease
under section 7701(e))--
(I) which is part of the same
transaction (or series of
related transactions) which
includes the lease, and
(II) which is with respect to
the property subject to the
lease or substantially similar
property, and
(iii) 2 or more successive leases
which are part of the same transaction
(or a series of related transactions)
with respect to the same or
substantially similar property shall be
treated as 1 lease.
(B) Special rule for fair rental options on
nonresidential real property or residential
rental property.--For purposes of clause (i) of
subparagraph (A), in the case of nonresidential
real property or residential rental property,
there shall not be taken into account any
option to renew at fair market value,
determined at the time of renewal.
(4) General asset accounts.--Under regulations, a
taxpayer may maintain 1 or more general asset accounts
for any property to which this section applies. Except
as provided in regulations, all proceeds realized on
any disposition of property in a general asset account
shall be included in income as ordinary income.
(5) Changes in use.--The Secretary shall, by
regulations, provide for the method of determining the
deduction allowable under section 167(a) with respect
to any tangible property for any taxable year (and the
succeeding taxable years) during which such property
changes status under this section but continues to be
held by the same person.
(6) Treatments of additions or improvements to
property.--In the case of any addition to (or
improvement of) any property--
(A) any deduction under subsection (a) for
such addition or improvement shall be computed
in the same manner as the deduction for such
property would be computed if such property had
been placed in service at the same time as such
addition or improvement, and
(B) the applicable recovery period for such
addition or improvement shall begin on the
later of--
(i) the date on which such addition
(or improvement) is placed in service,
or
(ii) the date on which the property
with respect to which such addition (or
improvement) was made is placed in
service.
(7) Treatment of certain transferees.--
(A) In general.--In the case of any property
transferred in a transaction described in
subparagraph (B), the transferee shall be
treated as the transferor for purposes of
computing the depreciation deduction determined
under this section with respect to so much of
the basis in the hands of the transferee as
does not exceed the adjusted basis in the hands
of the transferor. In any case where this
section as in effect before the amendments made
by section 201 of the Tax Reform Act of 1986
applied to the property in the hands of the
transferor, the reference in the preceding
sentence to this section shall be treated as a
reference to this section as so in effect.
(B) Transactions covered.--The transactions
described in this subparagraph are--
(i) any transaction described in
section 332, 351, 361, 721, or 731, and
(ii) any transaction between members
of the same affiliated group during any
taxable year for which a consolidated
return is made by such group.
Subparagraph (A) shall not apply in the case of
a termination of a partnership under section
708(b)(1)(B).
(C) Property reacquired by the taxpayer.--
Under regulations, property which is disposed
of and then reacquired by the taxpayer shall be
treated for purposes of computing the deduction
allowable under subsection (a) as if such
property had not been disposed of.
(8) Treatment of leasehold improvements.--
(A) In general.--In the case of any building
erected (or improvements made) on leased
property, if such building or improvement is
property to which this section applies, the
depreciation deduction shall be determined
under the provisions of this section.
(B) Treatment of lessor improvements which
are abandoned at termination of lease.--An
improvement--
(i) which is made by the lessor of
leased property for the lessee of such
property, and
(ii) which is irrevocably disposed of
or abandoned by the lessor at the
termination of the lease by such
lessee,
shall be treated for purposes of determining
gain or loss under this title as disposed of by
the lessor when so disposed of or abandoned.
(C) Cross reference.--For treatment of
qualified long-term real property constructed
or improved in connection with cash or rent
reduction from lessor to lessee, see section
110(b).
(9) Normalization rules.--
(A) In general.--In order to use a
normalization method of accounting with respect
to any public utility property for purposes of
subsection (f)(2)--
(i) the taxpayer must, in computing
its tax expense for purposes of
establishing its cost of service for
ratemaking purposes and reflecting
operating results in its regulated
books of account, use a method of
depreciation with respect to such
property that is the same as, and a
depreciation period for such property
that is no shorter than, the method and
period used to compute its depreciation
expense for such purposes; and
(ii) if the amount allowable as a
deduction under this section with
respect to such property (respecting
all elections made by the taxpayer
under this section) differs from the
amount that would be allowable as a
deduction under section 167 using the
method (including the period, first and
last year convention, and salvage
value) used to compute regulated tax
expense under clause (i), the taxpayer
must make adjustments to a reserve to
reflect the deferral of taxes resulting
from such difference.
(B) Use of inconsistent estimates and
projections, etc..--
(i) In general.--One way in which the
requirements of subparagraph (A) are
not met is if the taxpayer, for
ratemaking purposes, uses a procedure
or adjustment which is inconsistent
with the requirements of subparagraph
(A).
(ii) Use of inconsistent estimates
and projections.--The procedures and
adjustments which are to be treated as
inconsistent for purposes of clause (i)
shall include any procedure or
adjustment for ratemaking purposes
which uses an estimate or projection of
the taxpayer's tax expense,
depreciation expense, or reserve for
deferred taxes under subparagraph
(A)(ii) unless such estimate or
projection is also used, for ratemaking
purposes, with respect to the other 2
such items and with respect to the rate
base.
(iii) Regulatory authority.--The
Secretary may by regulations prescribe
procedures and adjustments (in addition
to those specified in clause (ii))
which are to be treated as inconsistent
for purposes of clause (i).
(C) Public utility property which does not
meet normalization rules.--In the case of any
public utility property to which this section
does not apply by reason of subsection (f)(2),
the allowance for depreciation under section
167(a) shall be an amount computed using the
method and period referred to in subparagraph
(A)(i).
(10) Public utility property.--The term ``public
utility property'' means property used predominantly in
the trade or business of the furnishing or sale of--
(A) electrical energy, water, or sewage
disposal services,
(B) gas or steam through a local distribution
system,
(C) telephone services, or other
communication services if furnished or sold by
the Communications Satellite Corporation for
purposes authorized by the Communications
Satellite Act of 1962 (47 U.S.C. 701), or
(D) transportation of gas or steam by
pipeline, if the rates for such furnishing or
sale, as the case may be, have been established
or approved by a State or political subdivision
thereof, by any agency or instrumentality of
the United States, or by a public service or
public utility commission or other similar body
of any State or political subdivision thereof.
(11) Research and experimentation.--The term
``research and experimentation'' has the same meaning
as the term research and experimental has under section
174.
(12) Section1245 and1250 property.--The terms
``section 1245 property'' and ``section 1250 property''
have the meanings given such terms by sections
1245(a)(3) and 1250(c), respectively.
(13) Single purpose agricultural or horticultural
structure.--
(A) In general.--The term ``single purpose
agricultural or horticultural structure''
means--
(i) a single purpose livestock
structure, and
(ii) a single purpose horticultural
structure.
(B) Definitions.--For purposes of this
paragraph--
(i) Single purpose livestock
structure.--The term ``single purpose
livestock structure'' means any
enclosure or structure specifically
designed, constructed, and used--
(I) for housing, raising, and
feeding a particular type of
livestock and their produce,
and
(II) for housing the
equipment (including any
replacements) necessary for the
housing, raising, and feeding
referred to in subclause (I).
(ii) Single purpose horticultural
structure.--The term ``single purpose
horticultural structure'' means--
(I) a greenhouse specifically
designed, constructed, and used
for the commercial production
of plants, and
(II) a structure specifically
designed, constructed, and used
for the commercial production
of mushrooms.
(iii) Structures which include work
space.--An enclosure or structure which
provides work space shall be treated as
a single purpose agricultural or
horticultural structure only if such
work space is solely for--
(I) the stocking, caring for,
or collecting of livestock or
plants (as the case may be) or
their produce,
(II) the maintenance of the
enclosure or structure, and
(III) the maintenance or
replacement of the equipment or
stock enclosed or housed
therein.
(iv) Livestock.--The term
``livestock'' includes poultry.
(14) Qualified rent-to-own property.--
(A) In general.--The term ``qualified rent-
to-own property'' means property held by a
rent-to-own dealer for purposes of being
subject to a rent-to-own contract.
(B) Rent-to-own dealer.--The term ``rent-to-
own dealer'' means a person that, in the
ordinary course of business, regularly enters
into rent-to-own contracts with customers for
the use of consumer property, if a substantial
portion of those contracts terminate and the
property is returned to such person before the
receipt of all payments required to transfer
ownership of the property from such person to
the customer.
(C) Consumer property.--The term ``consumer
property'' means tangible personal property of
a type generally used within the home for
personal use.
(D) Rent-to-own contract.--The term ``rent-
to-own contract'' means any lease for the use
of consumer property between a rent-to-own
dealer and a customer who is an individual
which--
(i) is titled ``Rent-to-Own
Agreement'' or ``Lease Agreement with
Ownership Option,'' or uses other
similar language,
(ii) provides for level (or
decreasing where no payment is less
than 40 percent of the largest
payment), regular periodic payments
(for a payment period which is a week
or month),
(iii) provides that legal title to
such property remains with the rent-to-
own dealer until the customer makes all
the payments described in clause (ii)
or early purchase payments required
under the contract to acquire legal
title to the item of property,
(iv) provides a beginning date and a
maximum period of time for which the
contract may be in effect that does not
exceed 156 weeks or 36 months from such
beginning date (including renewals or
options to extend),
(v) provides for payments within the
156-week or 36-month period that, in
the aggregate, generally exceed the
normal retail price of the consumer
property plus interest,
(vi) provides for payments under the
contract that, in the aggregate, do not
exceed $10,000 per item of consumer
property,
(vii) provides that the customer does
not have any legal obligation to make
all the payments referred to in clause
(ii) set forth under the contract, and
that at the end of each payment period
the customer may either continue to use
the consumer property by making the
payment for the next payment period or
return such property to the rent-to-own
dealer in good working order, in which
case the customer does not incur any
further obligations under the contract
and is not entitled to a return of any
payments previously made under the
contract, and
(viii) provides that the customer has
no right to sell, sublease, mortgage,
pawn, pledge, encumber, or otherwise
dispose of the consumer property until
all the payments stated in the contract
have been made.
(15) Motorsports entertainment complex.--
(A) In general.--The term ``motorsports
entertainment complex'' means a racing track
facility which--
(i) is permanently situated on land,
and
(ii) during the 36-month period
following the first day of the month in
which the asset is placed in service,
hosts 1 or more racing events for
automobiles (of any type), trucks, or
motorcycles which are open to the
public for the price of admission.
(B) Ancillary and support facilities.--Such
term shall include, if owned by the taxpayer
who owns the complex and provided for the
benefit of patrons of the complex--
(i) ancillary facilities and land
improvements in support of the
complex's activities (including parking
lots, sidewalks, waterways, bridges,
fences, and landscaping),
(ii) support facilities (including
food and beverage retailing, souvenir
vending, and other nonlodging
accommodations), and
(iii) appurtenances associated with
such facilities and related attractions
and amusements (including ticket
booths, race track surfaces, suites and
hospitality facilities, grandstands and
viewing structures, props, walls,
facilities that support the delivery of
entertainment services, other special
purpose structures, facades, shop
interiors, and buildings).
(C) Exception.--Such term shall not include
any transportation equipment, administrative
services assets, warehouses, administrative
buildings, hotels, or motels.
(D) Termination.--Such term shall not include
any property placed in service after December
31, 2014.
(16) Alaska natural gas pipeline.--The term ``Alaska
natural gas pipeline'' means the natural gas pipeline
system located in the State of Alaska which--
(A) has a capacity of more than
500,000,000,000 Btu of natural gas per day, and
(B) is--
(i) placed in service after December
31, 2013, or
(ii) treated as placed in service on
January 1, 2014, if the taxpayer who
places such system in service before
January 1, 2014, elects such treatment.
Such term includes the pipe, trunk lines, related
equipment, and appurtenances used to carry natural gas,
but does not include any gas processing plant.
(17) Natural gas gathering line.--The term ``natural
gas gathering line'' means--
(A) the pipe, equipment, and appurtenances
determined to be a gathering line by the
Federal Energy Regulatory Commission, and
(B) the pipe, equipment, and appurtenances
used to deliver natural gas from the wellhead
or a commonpoint to the point at which such gas
first reaches--
(i) a gas processing plant,
(ii) an interconnection with a
transmission pipeline for which a
certificate as an interstate
transmission pipeline has been issued
by the Federal Energy Regulatory
Commission,
(iii) an interconnection with an
intrastate transmission pipeline, or
(iv) a direct interconnection with a
local distribution company, a gas
storage facility, or an industrial
consumer.
(18) Qualified smart electric meters.--
(A) In general.--The term ``qualified smart
electric meter'' means any smart electric meter
which--
(i) is placed in service by a
taxpayer who is a supplier of electric
energy or a provider of electric energy
services, and
(ii) does not have a class life
(determined without regard to
subsection (e)) of less than 16 years.
(B) Smart electric meter.--For purposes of
subparagraph (A), the term ``smart electric
meter'' means any time-based meter and related
communication equipment which is capable of
being used by the taxpayer as part of a system
that--
(i) measures and records electricity
usage data on a time-differentiated
basis in at least 24 separate time
segments per day,
(ii) provides for the exchange of
information between supplier or
provider and the customer's electric
meter in support of time-based rates or
other forms of demand response,
(iii) provides data to such supplier
or provider so that the supplier or
provider can provide energy usage
information to customers
electronically, and
(iv) provides net metering.
(19) Qualified smart electric grid systems.--
(A) In general.--The term ``qualified smart
electric grid system'' means any smart grid
property which--
(i) is used as part of a system for
electric distribution grid
communications, monitoring, and
management placed in service by a
taxpayer who is a supplier of electric
energy or a provider of electric energy
services, and
(ii) does not have a class life
(determined without regard to
subsection (e)) of less than 16 years.
(B) Smart grid property.--For the purposes of
subparagraph (A), the term ``smart grid
property'' means electronics and related
equipment that is capable of--
(i) sensing, collecting, and
monitoring data of or from all portions
of a utility's electric distribution
grid,
(ii) providing real-time, two-way
communications to monitor or manage
such grid, and
(iii) providing real time analysis of
and event prediction based upon
collected data that can be used to
improve electric distribution system
reliability, quality, and performance.
(j) Property on Indian Reservations.--
(1) In general.--For purposes of subsection (a), the
applicable recovery period for qualified Indian
reservation property shall be determined in accordance
with the table contained in paragraph (2) in lieu of
the table contained in subsection (c).
(2) Applicable recovery period for Indian reservation
property.--For purposes of paragraph (1)--
------------------------------------------------------------------------
In the case of: The applicable recovery period is:
------------------------------------------------------------------------
3-year property 2 years
5-year property 3 years
7-year property 4 years
10-year property 6 years
15-year property 9 years
20-year property 12 years
Nonresidential real property 22 years.
------------------------------------------------------------------------
(3) Deduction allowed in computing minimum tax.--For
purposes of determining alternative minimum taxable
income under section 55, the deduction under subsection
(a) for property to which paragraph (1) applies shall
be determined under this section without regard to any
adjustment under section 56.
(4) Qualified Indian reservation property defined.--
For purposes of this subsection--
(A) In general.--The term ``qualified Indian
reservation property'' means property which is
property described in the table in paragraph
(2) and which is--
(i) used by the taxpayer
predominantly in the active conduct of
a trade or business within an Indian
reservation,
(ii) not used or located outside the
Indian reservation on a regular basis,
(iii) not acquired (directly or
indirectly) by the taxpayer from a
person who is related to the taxpayer
(within the meaning of section
465(b)(3)(C)), and
(iv) not property (or any portion
thereof) placed in service for purposes
of conducting or housing class I, II,
or III gaming (as defined in section 4
of the Indian Regulatory Act (25 U.S.C.
2703)).
(B) Exception for alternative depreciation
property.--The term ``qualified Indian
reservation property'' does not include any
property to which the alternative depreciation
system under subsection (g) applies,
determined--
(i) without regard to subsection
(g)(7) (relating to election to use
alternative depreciation system), and
(ii) after the application of section
280F(b) (relating to listed property
with limited business use).
(C) Special rule for reservation
infrastructure investment.--
(i) In general.--Subparagraph (A)(ii)
shall not apply to qualified
infrastructure property located outside
of the Indian reservation if the
purpose of such property is to connect
with qualified infrastructure property
located within the Indian reservation.
(ii) Qualified infrastructure
property.--For purposes of this
subparagraph, the term ``qualified
infrastructure property'' means
qualified Indian reservation property
(determined without regard to
subparagraph (A)(ii)) which--
(I) benefits the tribal
infrastructure,
(II) is available to the
general public, and
(III) is placed in service in
connection with the taxpayer's
active conduct of a trade or
business within an Indian
reservation.
Such term includes, but is not limited
to, roads, power lines, water systems,
railroad spurs, and communications
facilities.
(5) Real estate rentals.--For purposes of this
subsection, the rental to others of real property
located within an Indian reservation shall be treated
as the active conduct of a trade or business within an
Indian reservation.
(6) Indian reservation defined.--For purposes of this
subsection, the term ``Indian reservation'' means a
reservation, as defined in--
(A) section 3(d) of the Indian Financing Act
of 1974 (25 U.S.C. 1452(d)), or
(B) section 4(10) of the Indian Child Welfare
Act of 1978 (25 U.S.C. 1903(10)).
For purposes of the preceding sentence, such section
3(d) shall be applied by treating the term ``former
Indian reservations in Oklahoma'' as including only
lands which are within the jurisdictional area of an
Oklahoma Indian tribe (as determined by the Secretary
of the Interior) and are recognized by such Secretary
as eligible for trust land status under 25 CFR Part 151
(as in effect on the date of the enactment of this
sentence).
(7) Coordination with nonrevenue laws.--Any reference
in this subsection to a provision not contained in this
title shall be treated for purposes of this subsection
as a reference to such provision as in effect on the
date of the enactment of this paragraph.
(8) Termination.--This subsection shall not apply to
property placed in service after December 31, 2014.
(k) Special Allowance for Certain Property Acquired After
December 31, 2007, and Before January 1, 2015.--
(1) Additional allowance.--In the case of any
qualified property--
(A) the depreciation deduction provided by
section 167(a) for the taxable year in which
such property is placed in service shall
include an allowance equal to 50 percent of the
adjusted basis of the qualified property, and
(B) the adjusted basis of the qualified
property shall be reduced by the amount of such
deduction before computing the amount otherwise
allowable as a depreciation deduction under
this chapter for such taxable year and any
subsequent taxable year.
(2) Qualified property.--For purposes of this
subsection--
(A) In general.--The term ``qualified
property'' means property--
(i)(I) to which this section applies
which has a recovery period of 20 years
or less,
(II) which is computer
software (as defined in section
167(f)(1)(B)) for which a
deduction is allowable under
section 167(a) without regard
to this subsection,
(III) which is water utility
property, or
(IV) which is qualified
leasehold improvement property,
(ii) the original use of which
commences with the taxpayer after
December 31, 2007,
(iii) which is--
(I) acquired by the taxpayer
after December 31, 2007, and
before January 1, 2015, but
only if no written binding
contract for the acquisition
was in effect before January 1,
2008, or
(II) acquired by the taxpayer
pursuant to a written binding
contract which was entered into
after December 31, 2007, and
before January 1, 2015, and
(iv) which is placed in service by
the taxpayer before January 1, 2015,
or, in the case of property described
in subparagraph (B) or (C), before
January 1, 2016.
(B) Certain property having longer production
periods treated as qualified property.--
(i) In general.--The term ``qualified
property'' includes any property if
such property--
(I) meets the requirements of
clauses (i), (ii), (iii), and
(iv) of subparagraph (A),
(II) has a recovery period of
at least 10 years or is
transportation property,
(III) is subject to section
263A, and
(IV) meets the requirements
of clause (iii) of section
263A(f)(1)(B) (determined as if
such clause also applies to
property which has a long
useful life (within the meaning
of section 263A(f))).
(ii) Only pre-january 1, 2015, basis
eligible for additional allowance.--In
the case of property which is qualified
property solely by reason of clause
(i), paragraph (1) shall apply only to
the extent of the adjusted basis
thereof attributable to manufacture,
construction, or production before
January 1, 2015.
(iii) Transportation property.--For
purposes of this subparagraph, the term
``transportation property'' means
tangible personal property used in the
trade or business of transporting
persons or property.
(iv) Application of subparagraph.--
This subparagraph shall not apply to
any property which is described in
subparagraph (C).
(C) Certain aircraft.--The term ``qualified
property'' includes property--
(i) which meets the requirements of
clauses (ii), (iii), and (iv) of
subparagraph (A),
(ii) which is an aircraft which is
not a transportation property (as
defined in subparagraph (B)(iii)) other
than for agricultural or firefighting
purposes,
(iii) which is purchased and on which
such purchaser, at the time of the
contract for purchase, has made a
nonrefundable deposit of the lesser
of--
(I) 10 percent of the cost,
or
(II) $100,000, and
(iv) which has--
(I) an estimated production
period exceeding 4 months, and
(II) a cost exceeding
$200,000.
(D) Exceptions.--
(i) Alternative depreciation
property.--The term ``qualified
property'' shall not include any
property to which the alternative
depreciation system under subsection
(g) applies, determined--
(I) without regard to
paragraph (7) of subsection (g)
(relating to election to have
system apply), and
(II) after application of
section 280F(b) (relating to
listed property with limited
business use).
(ii) Qualified New York Liberty Zone
leasehold improvement property.--The
term ``qualified property'' shall not
include any qualified New York Liberty
Zone leasehold improvement property (as
defined in section 1400L(c)(2)).
(iii) Election out.--If a taxpayer
makes an election under this clause
with respect to any class of property
for any taxable year, this subsection
shall not apply to all property in such
class placed in service during such
taxable year.
(E) Special rules.--
(i) Self-constructed property.--In
the case of a taxpayer manufacturing,
constructing, or producing property for
the taxpayer's own use, the
requirements of clause (iii) of
subparagraph (A) shall be treated as
met if the taxpayer begins
manufacturing, constructing, or
producing the property after December
31, 2007, and before January 1, 2015.
(ii) Sale-leasebacks.--For purposes
of clause (iii) and subparagraph
(A)(ii), if property is--
(I) originally placed in
service after December 31,
2007, by a person, and
(II) sold and leased back by
such person within 3 months
after the date such property
was originally placed in
service,
such property shall be treated as
originally placed in service not
earlier than the date on which such
property is used under the leaseback
referred to in subclause (II).
(iii) Syndication.--For purposes of
subparagraph (A)(ii), if--
(I) property is originally
placed in service after
December 31, 2007, by the
lessor of such property,
(II) such property is sold by
such lessor or any subsequent
purchaser within 3 months after
the date such property was
originally placed in service
(or, in the case of multiple
units of property subject to
the same lease, within 3 months
after the date the final unit
is placed in service, so long
as the period between the time
the first unit is placed in
service and the time the last
unit is placed in service does
not exceed 12 months), and
(III) the user of such
property after the last sale
during such 3-month period
remains the same as when such
property was originally placed
in service,
such property shall be treated as
originally placed in service not
earlier than the date of such last
sale.
(iv) Limitations related to users and
related parties.--The term ``qualified
property'' shall not include any
property if--
(I) the user of such property
(as of the date on which such
property is originally placed
in service) or a person which
is related (within the meaning
of section 267(b) or 707(b)) to
such user or to the taxpayer
had a written binding contract
in effect for the acquisition
of such property at any time on
or before December 31, 2007, or
(II) in the case of property
manufactured, constructed, or
produced for such user's or
person's own use, the
manufacture, construction, or
production of such property
began at any time on or before
December 31, 2007.
(F) Coordination with section280F.--For
purposes of section 280F--
(i) Automobiles.--In the case of a
passenger automobile (as defined in
section 280F(d)(5)) which is qualified
property, the Secretary shall increase
the limitation under section
280F(a)(1)(A)(i) by $8,000.
(ii) Listed property.--The deduction
allowable under paragraph (1) shall be
taken into account in computing any
recapture amount under section
280F(b)(2).
(G) Deduction allowed in computing minimum
tax.--For purposes of determining alternative
minimum taxable income under section 55, the
deduction under subsection (a) for qualified
property shall be determined under this section
without regard to any adjustment under section
56.
(3) Qualified leasehold improvement property.--For
purposes of this subsection--
(A) In general.--The term ``qualified
leasehold improvement property'' means any
improvement to an interior portion of a
building which is nonresidential real property
if--
(i) such improvement is made under or
pursuant to a lease (as defined in
subsection (h)(7))--
(I) by the lessee (or any
sublessee) of such portion, or
(II) by the lessor of such
portion,
(ii) such portion is to be occupied
exclusively by the lessee (or any
sublessee) of such portion, and
(iii) such improvement is placed in
service more than 3 years after the
date the building was first placed in
service.
(B) Certain improvements not included.--Such
term shall not include any improvement for
which the expenditure is attributable to--
(i) the enlargement of the building,
(ii) any elevator or escalator,
(iii) any structural component
benefiting a common area, and
(iv) the internal structural
framework of the building.
(C) Definitions and special rules.--For
purposes of this paragraph--
(i) Commitment to lease treated as
lease.--A commitment to enter into a
lease shall be treated as a lease, and
the parties to such commitment shall be
treated as lessor and lessee,
respectively.
(ii) Related persons.--A lease
between related persons shall not be
considered a lease. For purposes of the
preceding sentence, the term ``related
persons'' means--
(I) members of an affiliated
group (as defined in section
1504), and
(II) persons having a
relationship described in
subsection (b) of section 267;
except that, for purposes of
this clause, the phrase ``80
percent or more'' shall be
substituted for the phrase
``more than 50 percent'' each
place it appears in such
subsection.
(4) Election to accelerate the amt and research
credits in lieu of bonus depreciation.--
(A) In general.--If a corporation elects to
have this paragraph apply for the first taxable
year of the taxpayer ending after March 31,
2008, in the case of such taxable year and each
subsequent taxable year--
(i) paragraph (1) shall not apply to
any eligible qualified property placed
in service by the taxpayer,
(ii) the applicable depreciation
method used under this section with
respect to such property shall be the
straight line method, and
(iii) each of the limitations
described in subparagraph (B) for any
such taxable year shall be increased by
the bonus depreciation amount which
is--
(I) determined for such
taxable year under subparagraph
(C), and
(II) allocated to such
limitation under subparagraph
(E).
(B) Limitations to be increased.--The
limitations described in this subparagraph
are--
(i) the limitation imposed by section
38(c), and
(ii) the limitation imposed by
section 53(c).
(C) Bonus depreciation amount.--For purposes
of this paragraph--
(i) In general.--The bonus
depreciation amount for any taxable
year is an amount equal to 20 percent
of the excess (if any) of--
(I) the aggregate amount of
depreciation which would be
allowed under this section for
eligible qualified property
placed in service by the
taxpayer during such taxable
year if paragraph (1) applied
to all such property, over
(II) the aggregate amount of
depreciation which would be
allowed under this section for
eligible qualified property
placed in service by the
taxpayer during such taxable
year if paragraph (1) did not
apply to any such property.
The aggregate amounts determined under
subclauses (I) and (II) shall be
determined without regard to any
election made under subsection
(b)(2)(D), (b)(3)(D), or (g)(7) and
without regard to subparagraph (A)(ii).
(ii) Maximum amount.--The bonus
depreciation amount for any taxable
year shall not exceed the maximum
increase amount under clause (iii),
reduced (but not below zero) by the sum
of the bonus depreciation amounts for
all preceding taxable years.
(iii) Maximum increase amount.--For
purposes of clause (ii), the term
``maximum increase amount'' means, with
respect to any corporation, the lesser
of--
(I) $30,000,000, or
(II) 6 percent of the sum of
the business credit increase
amount, and the AMT credit
increase amount, determined
with respect to such
corporation under subparagraph
(E).
(iv) Aggregation rule.--All
corporations which are treated as a
single employer under section 52(a)
shall be treated--
(I) as 1 taxpayer for
purposes of this paragraph, and
(II) as having elected the
application of this paragraph
if any such corporation so
elects.
(D) Eligible qualified property.--For
purposes of this paragraph, the term ``eligible
qualified property'' means qualified property
under paragraph (2), except that in applying
paragraph (2) for purposes of this paragraph--
(i) ``March 31, 2008'' shall be
substituted for ``December 31, 2007''
each place it appears in subparagraph
(A) and clauses (i) and (ii) of
subparagraph (E) thereof,
(ii) ``April 1, 2008'' shall be
substituted for ``January 1, 2008'' in
subparagraph (A)(iii)(I) thereof, and
(iii) only adjusted basis
attributable to manufacture,
construction, or production--
(I) after March 31, 2008, and
before January 1, 2010, and
(II) after December 31, 2010,
and before January 1, 2015,
shall be taken into account
under subparagraph (B)(ii)
thereof.
(E) Allocation of bonus depreciation
amounts.--
(i) In general.--Subject to clauses
(ii) and (iii), the taxpayer shall, at
such time and in such manner as the
Secretary may prescribe, specify the
portion (if any) of the bonus
depreciation amount for the taxable
year which is to be allocated to each
of the limitations described in
subparagraph (B) for such taxable year.
(ii) Limitation on allocations.--The
portion of the bonus depreciation
amount which may be allocated under
clause (i) to the limitations described
in subparagraph (B) for any taxable
year shall not exceed--
(I) in the case of the
limitation described in
subparagraph (B)(i), the excess
of the business credit increase
amount over the bonus
depreciation amount allocated
to such limitation for all
preceding taxable years, and
(II) in the case of the
limitation described in
subparagraph (B)(ii), the
excess of the AMT credit
increase amount over the bonus
depreciation amount allocated
to such limitation for all
preceding taxable years.
(iii) Business credit increase
amount.--For purposes of this
paragraph, the term ``business credit
increase amount'' means the amount
equal to the portion of the credit
allowable under section 38 (determined
without regard to subsection (c)
thereof) for the first taxable year
ending after March 31, 2008, which is
allocable to business credit
carryforwards to such taxable year
which are--
(I) from taxable years
beginning before January 1,
2006, and
(II) properly allocable
(determined under the rules of
section 38(d)) to the research
credit determined under section
41(a).
(iv) AMT credit increase amount.--For
purposes of this paragraph, the term
``AMT credit increase amount'' means
the amount equal to the portion of the
minimum tax credit under section 53(b)
for the first taxable year ending after
March 31, 2008, determined by taking
into account only the adjusted net
minimum tax for taxable years beginning
before January 1, 2006. For purposes of
the preceding sentence, credits shall
be treated as allowed on a first-in,
first- out basis.
(F) Credit refundable.--For purposes of
section 6401(b), the aggregate increase in the
credits allowable under part IV of subchapter A
for any taxable year resulting from the
application of this paragraph shall be treated
as allowed under subpart C of such part (and
not any other subpart).
(G) Other rules.--
(i) Election.--Any election under
this paragraph (including any
allocation under subparagraph (E)) may
be revoked only with the consent of the
Secretary.
(ii) Partnerships with electing
partners.--In the case of a corporation
making an election under subparagraph
(A) and which is a partner in a
partnership, for purposes of
determining such corporation's
distributive share of partnership items
under section 702--
(I) paragraph (1) shall not
apply to any eligible qualified
property, and
(II) the applicable
depreciation method used under
this section with respect to
such property shall be the
straight line method.
(iii) Special rule for passenger
aircraft.--In the case of any passenger
aircraft, the written binding contract
limitation under paragraph
(2)(A)(iii)(I) shall not apply for
purposes of subparagraphs (C)(i)(I) and
(D).
(H) Special rules for extension property.--
(i) Taxpayers previously electing
acceleration.--In the case of a
taxpayer who made the election under
subparagraph (A) for its first taxable
year ending after March 31, 2008--
(I) the taxpayer may elect
not to have this paragraph
apply to extension property,
but
(II) if the taxpayer does not
make the election under
subclause (I), in applying this
paragraph to the taxpayer a
separate bonus depreciation
amount, maximum amount, and
maximum increase amount shall
be computed and applied to
eligible qualified property
which is extension property and
to eligible qualified property
which is not extension
property.
(ii) Taxpayers not previously
electing acceleration.--In the case of
a taxpayer who did not make the
election under subparagraph (A) for its
first taxable year ending after March
31, 2008--
(I) the taxpayer may elect to
have this paragraph apply to
its first taxable year ending
after December 31, 2008, and
each subsequent taxable year,
and
(II) if the taxpayer makes
the election under subclause
(I), this paragraph shall only
apply to eligible qualified
property which is extension
property.
(iii) Extension property.--For
purposes of this subparagraph, the term
``extension property'' means property
which is eligible qualified property
solely by reason of the extension of
the application of the special
allowance under paragraph (1) pursuant
to the amendments made by section
1201(a) of the American Recovery and
Reinvestment Tax Act of 2009 (and the
application of such extension to this
paragraph pursuant to the amendment
made by section 1201(b)(1) of such
Act).
(I) Special rules for round 2 extension
property.--
(i) In general.--In the case of round
2 extension property, this paragraph
shall be applied without regard to--
(I) the limitation described
in subparagraph (B)(i) thereof,
and
(II) the business credit
increase amount under
subparagraph (E)(iii) thereof.
(ii) Taxpayers previously electing
acceleration.--In the case of a
taxpayer who made the election under
subparagraph (A) for its first taxable
year ending after March 31, 2008, or a
taxpayer who made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008--
(I) the taxpayer may elect
not to have this paragraph
apply to round 2 extension
property, but
(II) if the taxpayer does not
make the election under
subclause (I), in applying this
paragraph to the taxpayer the
bonus depreciation amount,
maximum amount, and maximum
increase amount shall be
computed and applied to
eligible qualified property
which is round 2 extension
property.
The amounts described in subclause (II)
shall be computed separately from any
amounts computed with respect to
eligible qualified property which is
not round 2 extension property.
(iii) Taxpayers not previously
electing acceleration.--In the case of
a taxpayer who neither made the
election under subparagraph (A) for its
first taxable year ending after March
31, 2008, nor made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008--
(I) the taxpayer may elect to
have this paragraph apply to
its first taxable year ending
after December 31, 2010, and
each subsequent taxable year,
and
(II) if the taxpayer makes
the election under subclause
(I), this paragraph shall only
apply to eligible qualified
property which is round 2
extension property.
(iv) Round 2 extension property.--For
purposes of this subparagraph, the term
``round 2 extension property'' means
property which is eligible qualified
property solely by reason of the
extension of the application of the
special allowance under paragraph (1)
pursuant to the amendments made by
section 401(a) of the Tax Relief,
Unemployment Insurance Reauthorization,
and Job Creation Act of 2010 (and the
application of such extension to this
paragraph pursuant to the amendment
made by section 401(c)(1) of such Act).
(J) Special rules for round 3 extension
property.--
(i) In general.--In the case of round
3 extension property, this paragraph
shall be applied without regard to--
(I) the limitation described
in subparagraph (B)(i) thereof,
and
(II) the business credit
increase amount under
subparagraph (E)(iii) thereof.
(ii) Taxpayers previously electing
acceleration.--In the case of a
taxpayer who made the election under
subparagraph (A) for its first taxable
year ending after March 31, 2008, a
taxpayer who made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008, or a taxpayer who made the
election under subparagraph (I)(iii)
for its first taxable year ending after
December 31, 2010--
(I) the taxpayer may elect
not to have this paragraph
apply to round 3 extension
property, but
(II) if the taxpayer does not
make the election under
subclause (I), in applying this
paragraph to the taxpayer the
bonus depreciation amount,
maximum amount, and maximum
increase amount shall be
computed and applied to
eligible qualified property
which is round 3 extension
property.
The amounts described in subclause (II)
shall be computed separately from any
amounts computed with respect to
eligible qualified property which is
not round 3 extension property.
(iii) Taxpayers not previously
electing acceleration.--In the case of
a taxpayer who neither made the
election under subparagraph (A) for its
first taxable year ending after March
31, 2008, nor made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008, nor made the election under
subparagraph (I)(iii) for its first
taxable year ending after December 31,
2010--
(I) the taxpayer may elect to
have this paragraph apply to
its first taxable year ending
after December 31, 2012, and
each subsequent taxable year,
and
(II) if the taxpayer makes
the election under subclause
(I), this paragraph shall only
apply to eligible qualified
property which is round 3
extension property.
(iv) Round 3 extension property.--For
purposes of this subparagraph, the term
``round 3 extension property'' means
property which is eligible qualified
property solely by reason of the
extension of the application of the
special allowance under paragraph (1)
pursuant to the amendments made by
section 331(a) of the American Taxpayer
Relief Act of 2012 (and the application
of such extension to this paragraph
pursuant to the amendment made by
section 331(c)(1) of such Act).
(K) Special rules for round 4 extension
property.--
(i) In general.--In the case of round
4 extension property, in applying this
paragraph to any taxpayer--
(I) the limitation described
in subparagraph (B)(i) and the
business credit increase amount
under subparagraph (E)(iii)
thereof shall not apply, and
(II) the bonus depreciation
amount, maximum amount, and
maximum increase amount shall
be computed separately from
amounts computed with respect
to eligible qualified property
which is not round 4 extension
property.
(ii) Election.--
(I) A taxpayer who has an
election in effect under this
paragraph for round 3 extension
property shall be treated as
having an election in effect
for round 4 extension property
unless the taxpayer elects to
not have this paragraph apply
to round 4 extension property.
(II) A taxpayer who does not
have an election in effect
under this paragraph for round
3 extension property may elect
to have this paragraph apply to
round 4 extension property.
(iii) Round 4 extension property.--
For purposes of this subparagraph, the
term `round 4 extension property' means
property which is eligible qualified
property solely by reason of the
extension of the application of the
special allowance under paragraph (1)
pursuant to the amendments made by
section 125(a) of the Tax Increase
Prevention Act of 2014 (and the
application of such extension to this
paragraph pursuant to the amendment
made by section 125(c) of such Act).
(5) Special rule for property acquired during certain
pre-2012 periods.--In the case of qualified property
acquired by the taxpayer (under rules similar to the
rules of clauses (ii) and (iii) of paragraph (2)(A))
after September 8, 2010, and before January 1, 2012,
and which is placed in service by the taxpayer before
January 1, 2012 (January 1, 2013, in the case of
property described in subparagraph (2)(B) or (2)(C)),
paragraph (1)(A) shall be applied by substituting ``100
percent'' for ``50 percent''.
(l) Special Allowance for Second Generation Biofuel Plant
Property.--
(1) Additional allowance.--In the case of any
qualified second generation biofuel plant property--
(A) the depreciation deduction provided by
section 167(a) for the taxable year in which
such property is placed in service shall
include an allowance equal to 50 percent of the
adjusted basis of such property, and
(B) the adjusted basis of such property shall
be reduced by the amount of such deduction
before computing the amount otherwise allowable
as a depreciation deduction under this chapter
for such taxable year and any subsequent
taxable year.
(2) Qualified second generation biofuel plant
property.--The term ``qualified second generation
biofuel plant property'' means property of a character
subject to the allowance for depreciation--
(A) which is used in the United States solely
to produce second generation biofuel (as
defined in section 40(b)(6)(E)),
(B) the original use of which commences with
the taxpayer after the date of the enactment of
this subsection,
(C) which is acquired by the taxpayer by
purchase (as defined in section 179(d)) after
the date of the enactment of this subsection,
but only if no written binding contract for the
acquisition was in effect on or before the date
of the enactment of this subsection, and
(D) which is placed in service by the
taxpayer before January 1, 2015.
(3) Exceptions.--
(A) Bonus depreciation property under
subsection(k).--Such term shall not include any
property to which section 168(k) applies.
(B) Alternative depreciation property.--Such
term shall not include any property described
in section 168(k)(2)(D)(i).
(C) Tax-exempt bond-financed property.--Such
term shall not include any property any portion
of which is financed with the proceeds of any
obligation the interest on which is exempt from
tax under section 103.
(D) Election out.--If a taxpayer makes an
election under this subparagraph with respect
to any class of property for any taxable year,
this subsection shall not apply to all property
in such class placed in service during such
taxable year.
(4) Special rules.--For purposes of this subsection,
rules similar to the rules of subparagraph (E) of
section 168(k)(2) shall apply, except that such
subparagraph shall be applied--
(A) by substituting ``the date of the
enactment of subsection (l)'' for ``December
31, 2007'' each place it appears therein, and
(B) by substituting ``qualified second
generation biofuel plant property'' for
``qualified property'' in clause (iv) thereof.
(5) Allowance against alternative minimum tax.--For
purposes of this subsection, rules similar to the rules
of section 168(k)(2)(G) shall apply.
(6) Recapture.--For purposes of this subsection,
rules similar to the rules under section 179(d)(10)
shall apply with respect to any qualified second
generation biofuel plant property which ceases to be
qualified second generation biofuel plant property.
(7) Denial of double benefit.--Paragraph (1) shall
not apply to any qualified second generation biofuel
plant property with respect to which an election has
been made under section 179C (relating to election to
expense certain refineries).
(m) Special Allowance for Certain Reuse and Recycling
Property.--
(1) In general.--In the case of any qualified reuse
and recycling property--
(A) the depreciation deduction provided by
section 167(a) for the taxable year in which
such property is placed in service shall
include an allowance equal to 50 percent of the
adjusted basis of the qualified reuse and
recycling property, and
(B) the adjusted basis of the qualified reuse
and recycling property shall be reduced by the
amount of such deduction before computing the
amount otherwise allowable as a depreciation
deduction under this chapter for such taxable
year and any subsequent taxable year.
(2) Qualified reuse and recycling property.--For
purposes of this subsection--
(A) In general.--The term ``qualified reuse
and recycling property'' means any reuse and
recycling property--
(i) to which this section applies,
(ii) which has a useful life of at
least 5 years,
(iii) the original use of which
commences with the taxpayer after
August 31, 2008, and
(iv) which is--
(I) acquired by purchase (as
defined in section 179(d)(2))
by the taxpayer after August
31, 2008, but only if no
written binding contract for
the acquisition was in effect
before September 1, 2008, or
(II) acquired by the taxpayer
pursuant to a written binding
contract which was entered into
after August 31, 2008.
(B) Exceptions.--
(i) Bonus depreciation property under
subsection(k).--The term ``qualified
reuse and recycling property'' shall
not include any property to which
subsection (k) (determined without
regard to paragraph (4) thereof)
applies.
(ii) Alternative depreciation
property.--The term ``qualified reuse
and recycling property'' shall not
include any property to which the
alternative depreciation system under
subsection (g) applies, determined
without regard to paragraph (7) of
subsection (g) (relating to election to
have system apply).
(iii) Election out.--If a taxpayer
makes an election under this clause
with respect to any class of property
for any taxable year, this subsection
shall not apply to all property in such
class placed in service during such
taxable year.
(C) Special rule for self-constructed
property.--In the case of a taxpayer
manufacturing, constructing, or producing
property for the taxpayer's own use, the
requirements of clause (iv) of subparagraph (A)
shall be treated as met if the taxpayer begins
manufacturing, constructing, or producing the
property after August 31, 2008.
(D) Deduction allowed in computing minimum
tax.--For purposes of determining alternative
minimum taxable income under section 55, the
deduction under subsection (a) for qualified
reuse and recycling property shall be
determined under this section without regard to
any adjustment under section 56.
(3) Definitions.--For purposes of this subsection--
(A) Reuse and recycling property.--
(i) In general.--The term ``reuse and
recycling property'' means any
machinery and equipment (not including
buildings or real estate), along with
all appurtenances thereto, including
software necessary to operate such
equipment, which is used exclusively to
collect, distribute, or recycle
qualified reuse and recyclable
materials.
(ii) Exclusion.--Such term does not
include rolling stock or other
equipment used to transport reuse and
recyclable materials.
(B) Qualified reuse and recyclable
materials.--
(i) In general.--The term ``qualified
reuse and recyclable materials'' means
scrap plastic, scrap glass, scrap
textiles, scrap rubber, scrap
packaging, recovered fiber, scrap
ferrous and nonferrous metals, or
electronic scrap generated by an
individual or business.
(ii) Electronic scrap.--For purposes
of clause (i), the term ``electronic
scrap'' means--
(I) any cathode ray tube,
flat panel screen, or similar
video display device with a
screen size greater than 4
inches measured diagonally, or
(II) any central processing
unit.
(C) Recycling or recycle.--The term
``recycling'' or ``recycle'' means that process
(including sorting) by which worn or
superfluous materials are manufactured or
processed into specification grade commodities
that are suitable for use as a replacement or
substitute for virgin materials in
manufacturing tangible consumer and commercial
products, including packaging.
(n) Special Allowance for Qualified Disaster Assistance
Property.--
(1) In general.--In the case of any qualified
disaster assistance property--
(A) the depreciation deduction provided by
section 167(a) for the taxable year in which
such property is placed in service shall
include an allowance equal to 50 percent of the
adjusted basis of the qualified disaster
assistance property, and
(B) the adjusted basis of the qualified
disaster assistance property shall be reduced
by the amount of such deduction before
computing the amount otherwise allowable as a
depreciation deduction under this chapter for
such taxable year and any subsequent taxable
year.
(2) Qualified disaster assistance property.--For
purposes of this subsection--
(A) In general.--The term ``qualified
disaster assistance property'' means any
property--
(i)(I) which is described in
subsection (k)(2)(A)(i), or
(II) which is nonresidential
real property or residential
rental property,
(ii) substantially all of the use of
which is--
(I) in a disaster area with
respect to a federally declared
disaster occurring before
January 1, 2010, and
(II) in the active conduct of
a trade or business by the
taxpayer in such disaster area,
(iii) which--
(I) rehabilitates property
damaged, or replaces property
destroyed or condemned, as a
result of such federally
declared disaster, except that,
for purposes of this clause,
property shall be treated as
replacing property destroyed or
condemned if, as part of an
integrated plan, such property
replaces property which is
included in a continuous area
which includes real property
destroyed or condemned, and
(II) is similar in nature to,
and located in the same county
as, the property being
rehabilitated or replaced,
(iv) the original use of which in
such disaster area commences with an
eligible taxpayer on or after the
applicable disaster date,
(v) which is acquired by such
eligible taxpayer by purchase (as
defined in section 179(d)) on or after
the applicable disaster date, but only
if no written binding contract for the
acquisition was in effect before such
date, and
(vi) which is placed in service by
such eligible taxpayer on or before the
date which is the last day of the third
calendar year following the applicable
disaster date (the fourth calendar year
in the case of nonresidential real
property and residential rental
property).
(B) Exceptions.--
(i) Other bonus depreciation
property.--The term ``qualified
disaster assistance property'' shall
not include--
(I) any property to which
subsection (k) (determined
without regard to paragraph
(4)), (l), or (m) applies,
(II) any property to which
section 1400N(d) applies, and
(III) any property described
in section 1400N(p)(3).
(ii) Alternative depreciation
property.--The term ``qualified
disaster assistance property'' shall
not include any property to which the
alternative depreciation system under
subsection (g) applies, determined
without regard to paragraph (7) of
subsection (g) (relating to election to
have system apply).
(iii) Tax-exempt bond financed
property.--Such term shall not include
any property any portion of which is
financed with the proceeds of any
obligation the interest on which is
exempt from tax under section 103.
(iv) Qualified revitalization
buildings.--Such term shall not include
any qualified revitalization building
with respect to which the taxpayer has
elected the application of paragraph
(1) or (2) of section 1400I(a).
(v) Election out.--If a taxpayer
makes an election under this clause
with respect to any class of property
for any taxable year, this subsection
shall not apply to all property in such
class placed in service during such
taxable year.
(C) Special rules.--For purposes of this
subsection, rules similar to the rules of
subparagraph (E) of subsection (k)(2) shall
apply, except that such subparagraph shall be
applied--
(i) by substituting ``the applicable
disaster date'' for ``December 31,
2007'' each place it appears therein,
(ii) without regard to ``and before
January 1, 2015'' in clause (i)
thereof, and
(iii) by substituting ``qualified
disaster assistance property'' for
``qualified property'' in clause (iv)
thereof.
(D) Allowance against alternative minimum
tax.--For purposes of this subsection, rules
similar to the rules of subsection (k)(2)(G)
shall apply.
(3) Other definitions.--For purposes of this
subsection--
(A) Applicable disaster date.--The term
``applicable disaster date'' means, with
respect to any federally declared disaster, the
date on which such federally declared disaster
occurs.
(B) Federally declared disaster.--The term
``federally declared disaster'' has the meaning
given such term under section 165(h)(3)(C)(i).
(C) Disaster area.--The term ``disaster
area'' has the meaning given such term under
section 165(h)(3)(C)(ii).
(D) Eligible taxpayer.--The term ``eligible
taxpayer'' means a taxpayer who has suffered an
economic loss attributable to a federally
declared disaster.
(4) Recapture.--For purposes of this subsection,
rules similar to the rules under section 179(d)(10)
shall apply with respect to any qualified disaster
assistance property which ceases to be qualified
disaster assistance property.
B. Changes in Existing Law Proposed by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
proposed by the bill, as reported, are shown as follows
(existing law proposed to be omitted is enclosed in black
brackets, new matter is printed in italics, existing law in
which no change is proposed is shown in roman):
SECTION 168 OF THE INTERNAL REVENUE CODE OF 1986
SEC. 168. ACCELERATED COST RECOVERY SYSTEM.
(a) General Rule.--Except as otherwise provided in this
section, the depreciation deduction provided by section 167(a)
for any tangible property shall be determined by using--
(1) the applicable depreciation method,
(2) the applicable recovery period, and
(3) the applicable convention.
(b) Applicable Depreciation Method.--For purposes of this
section--
(1) In general.--Except as provided in paragraphs (2)
and (3), the applicable depreciation method is--
(A) the 200 percent declining balance method,
(B) switching to the straight line method for
the 1st taxable year for which using the
straight line method with respect to the
adjusted basis as of the beginning of such year
will yield a larger allowance.
(2) 150 percent declining balance method in certain
cases.--Paragraph (1) shall be applied by substituting
``150 percent'' for ``200 percent'' in the case of--
(A) any 15-year or 20-year property not
referred to in paragraph (3),
(B) any property used in a farming business
(within the meaning of section 263A(e)(4)),
(C) any property (other than property
described in paragraph (3)) which is a
qualified smart electric meter or qualified
smart electric grid system, or
(D) any property (other than property
described in paragraph (3)) with respect to
which the taxpayer elects under paragraph (5)
to have the provisions of this paragraph apply.
(3) Property to which straight line method applies.--
The applicable depreciation method shall be the
straight line method in the case of the following
property:
(A) Nonresidential real property.
(B) Residential rental property.
(C) Any railroad grading or tunnel bore.
(D) Property with respect to which the
taxpayer elects under paragraph (5) to have the
provisions of this paragraph apply.
(E) Property described in subsection
(e)(3)(D)(ii).
(F) Water utility property described in
subsection (e)(5).
(G) Qualified leasehold improvement property
described in subsection (e)(6).
(H) Qualified restaurant property described
in subsection (e)(7).
(I) Qualified retail improvement property
described in subsection (e)(8).
(4) Salvage value treated as zero.--Salvage value
shall be treated as zero.
(5) Election.--An election under paragraph (2)(D) or
(3)(D) may be made with respect to 1 or more classes of
property for any taxable year and once made with
respect to any class shall apply to all property in
such class placed in service during such taxable year.
Such an election, once made, shall be irrevocable.
(c) Applicable Recovery Period.--For purposes of this
section, the applicable recovery period shall be determined in
accordance with the following table:
------------------------------------------------------------------------
In the case of: The applicable recovery period is:
------------------------------------------------------------------------
3-year property 3 years
5-year property 5 years
7-year property 7 years
10-year property 10 years
15-year property 15 years
20-year property 20 years
Water utility property 25 years
Residential rental property 27.5 years
Nonresidential real property 39 years.
Any railroad grading or tunnel 50 years.
bore
------------------------------------------------------------------------
(d) Applicable Convention.--For purposes of this section--
(1) In general.--Except as otherwise provided in this
subsection, the applicable convention is the half-year
convention.
(2) Real property.--In the case of--
(A) nonresidential real property,
(B) residential rental property, and
(C) any railroad grading or tunnel bore, the
applicable convention is the mid-month
convention.
(3) Special rule where substantial property placed in
service during last3 months of taxable year.--
(A) In general.--Except as provided in
regulations, if during any taxable year--
(i) the aggregate bases of property
to which this section applies placed in
service during the last 3 months of the
taxable year, exceed
(ii) 40 percent of the aggregate
bases of property to which this section
applies placed in service during such
taxable year,
the applicable convention for all property to which
this section applies placed in service during such
taxable year shall be the mid-quarter convention.
(B) Certain property not taken into
account.--For purposes of subparagraph (A),
there shall not be taken into account--
(i) any nonresidential real property
residential rental property, and
railroad grading or tunnel bore, and
(ii) any other property placed in
service and disposed of during the same
taxable year.
(4) Definitions.--
(A) Half-year convention.--The half-year
convention is a convention which treats all
property placed in service during any taxable
year (or disposed of during any taxable year)
as placed in service (or disposed of) on the
mid-point of such taxable year.
(B) Mid-month convention.--The mid-month
convention is a convention which treats all
property placed in service during any month (or
disposed of during any month) as placed in
service (or disposed of) on the mid-point of
such month.
(C) Mid-quarter convention.--The mid-quarter
convention is a convention which treats all
property placed in service during any quarter
of a taxable year (or disposed of during any
quarter of a taxable year) as placed in service
(or disposed of) on the mid-point of such
quarter.
(e) Classification of Property.--For purposes of this
section--
(1) In general.--Except as otherwise provided in this
subsection, property shall be classified under the
following table:
------------------------------------------------------------------------
If such property has a class life
Property shall be treated as: (in years) of:
------------------------------------------------------------------------
3-year property 4 or less
5-year property More than 4 but less than 10
7-year property 10 or more but less than 16
10-year property 16 or more but less than 20
15-year property 20 or more but less than 25
20-year property 25 or more.
------------------------------------------------------------------------
(2) Residential rental or nonresidential real
property.--
(A) Residential rental property.--
(i) Residential rental property.--The
term ``residential rental property''
means any building or structure if 80
percent or more of the gross rental
income from such building or structure
for the taxable year is rental income
from dwelling units.
(ii) Definitions.--For purposes of
clause (i)--
(I) the term ``dwelling
unit'' means a house or
apartment used to provide
living accommodations in a
building or structure, but does
not include a unit in a hotel,
motel, or other establishment
more than one-half of the units
in which are used on a
transient basis, and
(II) if any portion of the
building or structure is
occupied by the taxpayer, the
gross rental income from such
building or structure shall
include the rental value of the
portion so occupied.
(B) Nonresidential real property.--The term
``nonresidential real property'' means section
1250 property which is not--
(i) residential rental property, or
(ii) property with a class life of
less than 27.5 years.
(3) Classification of certain property.--
(A) 3-year property.--The term ``3-year
property'' includes--
(i) any race horse--
(I) which is placed in
service before January 1, 2015,
and
(II) which is placed in
service after December 31,
2014, and which is more than 2
years old at the time such
horse is placed in service by
such purchaser,
(ii) any horse other than a race
horse which is more than 12 years old
at the time it is placed in service,
and
(iii) any qualified rent-to-own
property.
(B) 5-year property.--The term ``5-year
property'' includes--
(i) any automobile or light general
purpose truck,
(ii) any semi-conductor manufacturing
equipment,
(iii) any computer-based telephone
central office switching equipment,
(iv) any qualified technological
equipment,
(v) any section 1245 property used in
connection with research and
experimentation,
(vi) any property which--
(I) is described in
subparagraph (A) of section
48(a)(3) (or would be so
described if ``solar or wind
energy'' were substituted for
``solar energy'' in clause (i)
thereof and the last sentence
of such section did not apply
to such subparagraph),
(II) is described in
paragraph (15) of section 48(l)
(as in effect on the day before
the date of the enactment of
the Revenue Reconciliation Act
of 1990) and is a qualifying
small power production facility
within the meaning of section
3(17)(C) of the Federal Power
Act (16 U.S.C. 796(17)(C)), as
in effect on September 1, 1986,
or
(III) is described in section
48(l)(3)(A)(ix) (as in effect
on the day before the date of
the enactment of the Revenue
Reconciliation Act of 1990),
and
(vii) any machinery or equipment
(other than any grain bin, cotton
ginning asset, fence, or other land
improvement) which is used in a farming
business (as defined in section
263A(e)(4)), the original use of which
commences with the taxpayer after
December 31, 2008, and which is placed
in service before January 1, 2010.
Nothing in any provision of law shall be
construed to treat property as not being
described in clause (vi)(I) (or the
corresponding provisions of prior law) by
reason of being public utility property (within
the meaning of section 48(a)(3)).
(C) 7-year property.--The term ``7-year
property'' includes--
(i) any railroad track, and
(ii) any motorsports entertainment
complex,
(iii) any Alaska natural gas
pipeline,
(iv) any natural gas gathering line
the original use of which commences
with the taxpayer after April 11, 2005,
and
(v) any property which--
(I) does not have a class
life, and
(II) is not otherwise
classified under paragraph (2)
or this paragraph.
(D) 10-year property.--The term ``10-year
property'' includes--
(i) any single purpose agricultural
or horticultural structure (within the
meaning of subsection (i)(13)),
(ii) any tree or vine bearing fruit
or nuts,
(iii) any qualified smart electric
meter, and
(iv) any qualified smart electric
grid system.
(E) 15-year property.--The term ``15-year
property'' includes--
(i) any municipal wastewater
treatment plant,
(ii) any telephone distribution plant
and comparable equipment used for 2-way
exchange of voice and data
communications,
(iii) any section 1250 property which
is a retail motor fuels outlet (whether
or not food or other convenience items
are sold at the outlet),
(iv) any qualified leasehold
improvement property [placed in service
before January 1, 2015],
(v) any qualified restaurant property
[placed in service before January 1,
2015],
(vi) initial clearing and grading
land improvements with respect to gas
utility property,
(vii) any section 1245 property (as
defined in section 1245(a)(3)) used in
the transmission at 69 or more
kilovolts of electricity for sale and
the original use of which commences
with the taxpayer after April 11, 2005,
(viii) any natural gas distribution
line the original use of which
commences with the taxpayer after April
11, 2005, and which is placed in
service before January 1, 2011, and
(ix) any qualified retail improvement
property placed in service after
December 31, 2008[, and before January
1, 2015].
(F) 20-year property.--The term ``20-year
property'' means initial clearing and grading
land improvements with respect to any electric
utility transmission and distribution plant.
(4) Railroad grading or tunnel bore.--The term
``railroad grading or tunnel bore'' means all
improvements resulting from excavations (including
tunneling), construction of embankments, clearings,
diversions of roads and streams, sodding of slopes, and
from similar work necessary to provide, construct,
reconstruct, alter, protect, improve, replace, or
restore a roadbed or right-of-way for railroad track.
(5) Water utility property.--The term ``water utility
property'' means property--
(A) which is an integral part of the
gathering, treatment, or commercial
distribution of water, and which, without
regard to this paragraph, would be 20-year
property, and
(B) any municipal sewer.
(6) Qualified leasehold improvement property.--The
term ``qualified leasehold improvement property'' has
the meaning given such term in section 168(k)(3) except
that the following special rules shall apply:
(A) Improvements made by lessor.--In the case
of an improvement made by the person who was
the lessor of such improvement when such
improvement was placed in service, such
improvement shall be qualified leasehold
improvement property (if at all) only so long
as such improvement is held by such person.
(B) Exception for changes in form of
business.--Property shall not cease to be
qualified leasehold improvement property under
subparagraph (A) by reason of--
(i) death,
(ii) a transaction to which section
381(a) applies,
(iii) a mere change in the form of
conducting the trade or business so
long as the property is retained in
such trade or business as qualified
leasehold improvement property and the
taxpayer retains a substantial interest
in such trade or business,
(iv) the acquisition of such property
in an exchange described in section
1031, 1033, or 1038 to the extent that
the basis of such property includes an
amount representing the adjusted basis
of other property owned by the taxpayer
or a related person, or
(v) the acquisition of such property
by the taxpayer in a transaction
described in section 332, 351, 361,
721, or 731 (or the acquisition of such
property by the taxpayer from the
transferee or acquiring corporation in
a transaction described in such
section), to the extent that the basis
of the property in the hands of the
taxpayer is determined by reference to
its basis in the hands of the
transferor or distributor.
(7) Qualified restaurant property.--
(A) In general.--The term ``qualified
restaurant property'' means any section 1250
property which is--
(i) a building, or
(ii) an improvement to a building, if
more than 50 percent of the building's
square footage is devoted to
preparation of, and seating for on-
premises consumption of, prepared
meals.
(B) Exclusion from bonus depreciation.--
Property described in this paragraph which is
not qualified leasehold improvement property
shall not be considered qualified property for
purposes of subsection (k).
(8) Qualified retail improvement property.--
(A) In general.--The term ``qualified retail
improvement property'' means any improvement to
an interior portion of a building which is
nonresidential real property if--
(i) such portion is open to the
general public and is used in the
retail trade or business of selling
tangible personal property to the
general public, and
(ii) such improvement is placed in
service more than 3 years after the
date the building was first placed in
service.
(B) Improvements made by owner.--In the case
of an improvement made by the owner of such
improvement, such improvement shall be
qualified retail improvement property (if at
all) only so long as such improvement is held
by such owner. Rules similar to the rules under
paragraph (6)(B) shall apply for purposes of
the preceding sentence.
(C) Certain improvements not included.--Such
term shall not include any improvement for
which the expenditure is attributable to--
(i) the enlargement of the building,
(ii) any elevator or escalator,
(iii) any structural component
benefitting a common area, or
(iv) the internal structural
framework of the building.
(D) Exclusion from bonus depreciation.--
Property described in this paragraph which is
not qualified leasehold improvement property
shall not be considered qualified property for
purposes of subsection (k).
(f) Property to Which Section Does Not Apply.--This section
shall not apply to--
(1) Certain methods of depreciation.--Any property
if--
(A) the taxpayer elects to exclude such
property from the application of this section,
and
(B) for the 1st taxable year for which a
depreciation deduction would be allowable with
respect to such property in the hands of the
taxpayer, the property is properly depreciated
under the unit-of-production method or any
method of depreciation not expressed in a term
of years (other than the ret method or similar
method).
(2) Certain public utility property.--Any public
utility property (within the meaning of subsection
(i)(10)) if the taxpayer does not use a normalization
method of accounting.
(3) Films and video tape.--Any motion picture film or
video tape.
(4) Sound recordings.--Any works which result from
the fixation of a series of musical, spoken, or other
sounds, regardless of the nature of the material (such
as discs, tapes, or other phonorecordings) in which
such sounds are embodied.
(5) Certain property placed in service in churning
transactions.--
(A) In general.--Property--
(i) described in paragraph (4) of
section 168(e) (as in effect before the
amendments made by the Tax Reform Act
of 1986), or
(ii) which would be described in such
paragraph if such paragraph were
applied by substituting ``1987'' for
``1981'' and ``1986'' for ``1980'' each
place such terms appear.
(B) Subparagraph(a)(ii) not to apply.--Clause
(ii) of subparagraph (A) shall not apply to--
(i) any residential rental property
or nonresidential real property,
(ii) any property if, for the 1st
taxable year in which such property is
placed in service--
(I) the amount allowable as a
deduction under this section
(as in effect before the date
of the enactment of this
paragraph) with respect to such
property is greater than,
(II) the amount allowable as
a deduction under this section
(as in effect on or after such
date and using the half-year
convention) for such taxable
year, or
(iii) any property to which this
section (as amended by the Tax Reform
Act of 1986) applied in the hands of
the transferor.
(C) Special rule.--In the case of any
property to which this section would apply but
for this paragraph, the depreciation deduction
under section 167 shall be determined under the
provisions of this section as in effect before
the amendments made by section 201 of the Tax
Reform Act of 1986.
(g) Alternative Depreciation System for Certain Property.--
(1) In general.--In the case of--
(A) any tangible property which during the
taxable year is used predominantly outside the
United States,
(B) any tax-exempt use property,
(C) any tax-exempt bond financed property,
(D) any imported property covered by an
Executive order under paragraph (6), and
(E) any property to which an election under
paragraph (7) applies,
the depreciation deduction provided by section 167(a)
shall be determined under the alternative depreciation
system.
(2) Alternative depreciation system.--For purposes of
paragraph (1), the alternative depreciation system is
depreciation determined by using--
(A) the straight line method (without regard
to salvage value),
(B) the applicable convention determined
under subsection (d), and
(C) a recovery period determined under the
following table:
------------------------------------------------------------------------
In the case of: The recovery period shall be:
------------------------------------------------------------------------
(i) Property not described in The class life.
clause (ii) or (iii)
(ii) Personal property with no 12 years.
class life
(iii) Nonresidential real and 40 years.
residential rental property
(iv) Any railroad grading or 50 years.
tunnel bore or water utility
property
------------------------------------------------------------------------
(3) Special rules for determining class life.--
(A) Tax-exempt use property subject to
lease.--In the case of any tax-exempt use
property subject to a lease, the recovery
period used for purposes of paragraph (2) shall
(notwithstanding any other subparagraph of this
paragraph) in no event be less than 125 percent
of the lease term.
(B) Special rule for certain property
assigned to classes.--For purposes of paragraph
(2), in the case of property described in any
of the following subparagraphs of subsection
(e)(3), the class life shall be determined as
follows:
------------------------------------------------------------------------
If property is described in
subparagraph: The class life is:
------------------------------------------------------------------------
(A)(iii) 4
(B)(ii) 5
(B)(iii) 9.5
(B)(vii) 10
(C)(i) 10
(C)(iii)........... 22
(C)(iv) 14
(D)(i) 15
(D)(ii) 20
(E)(i) 24
(E)(ii) 24
(E)(iii) 20
(E)(iv) 39
(E)(v) 39
(E)(vi) 20
(E)(vii) 30
(E)(viii) 35
(E)(ix) 39
(F) 25
------------------------------------------------------------------------
(C) Qualified technological equipment.--In
the case of any qualified technological
equipment, the recovery period used for
purposes of paragraph (2) shall be 5 years.
(D) Automobiles, etc..--In the case of any
automobile or light general purpose truck, the
recovery period used for purposes of paragraph
(2) shall be 5 years.
(E) Certain real property.--In the case of
any section 1245 property which is real
property with no class life, the recovery
period used for purposes of paragraph (2) shall
be 40 years.
(4) Exception for certain property used outside
United States.--Subparagraph (A) of paragraph (1) shall
not apply to--
(A) any aircraft which is registered by the
Administrator of the Federal Aviation Agency
and which is operated to and from the United
States or is operated under contract with the
United States;
(B) rolling stock which is used within and
without the United States and which is--
(i) of a rail carrier subject to part
A of subtitle IV of title 49, or
(ii) of a United States person (other
than a corporation described in clause
(i)) but only if the rolling stock is
not leased to one or more foreign
persons for periods aggregating more
than 12 months in any 24-month period;
(C) any vessel documented under the laws of
the United States which is operated in the
foreign or domestic commerce of the United
States;
(D) any motor vehicle of a United States
person (as defined in section 7701(a)(30))
which is operated to and from the United
States;
(E) any container of a United States person
which is used in the transportation of property
to and from the United States;
(F) any property (other than a vessel or an
aircraft) of a United States person which is
used for the purpose of exploring for,
developing, removing, or transporting resources
from the outer Continental Shelf (within the
meaning of section 2 of the Outer Continental
Shelf Lands Act, as amended and supplemented;
(43 U.S.C. 1331));
(G) any property which is owned by a domestic
corporation (other than a corporation which has
an election in effect under section 936) or by
a United States citizen (other than a citizen
entitled to the benefits of section 931 or 933)
and which is used predominantly in a possession
of the United States by such a corporation or
such a citizen, or by a corporation created or
organized in, or under the law of, a possession
of the United States;
(H) any communications satellite (as defined
in section 103(3) of the Communications
Satellite Act of 1962, 47 U.S.C. 702(3)), or
any interest therein, of a United States
person;
(I) any cable, or any interest therein, of a
domestic corporation engaged in furnishing
telephone service to which section
168(i)(10)(C) applies (or of a wholly owned
domestic subsidiary of such a corporation), if
such cable is part of a submarine cable system
which constitutes part of a communication link
exclusively between the United States and one
or more foreign countries;
(J) any property (other than a vessel or an
aircraft) of a United States person which is
used in international or territorial waters
within the northern portion of the Western
Hemisphere for the purpose of exploring for,
developing, removing, or transporting resources
from ocean waters or deposits under such
waters;
(K) any property described in section
48(l)(3)(A)(ix) (as in effect on the day before
the date of the enactment of the Revenue
Reconciliation Act of 1990) which is owned by a
United States person and which is used in
international or territorial waters to generate
energy for use in the United States; and
(L) any satellite (not described in
subparagraph (H)) or other spacecraft (or any
interest therein) held by a United States
person if such satellite or other spacecraft
was launched from within the United States.
For purposes of subparagraph (J), the term ``northern
portion of the Western Hemisphere'' means the area
lying west of the 30th meridian west of Greenwich, east
of the international dateline, and north of the
Equator, but not including any foreign country which is
a country of South America.
(5) Tax-exempt bond financed property.--For purposes
of this subsection--
(A) In general.--Except as otherwise provided
in this paragraph, the term ``tax-exempt bond
financed property'' means any property to the
extent such property is financed (directly or
indirectly) by an obligation the interest on
which is exempt from tax under section 103(a).
(B) Allocation of bond proceeds.--For
purposes of subparagraph (A), the proceeds of
any obligation shall be treated as used to
finance property acquired in connection with
the issuance of such obligation in the order in
which such property is placed in service.
(C) Qualified residential rental projects.--
The term ``tax-exempt bond financed property''
shall not include any qualified residential
rental project (within the meaning of section
142(a)(7)).
(6) Imported property.--
(A) Countries maintaining trade restrictions
or engaging in discriminatory acts.--If the
President determines that a foreign country--
(i) maintains nontariff trade
restrictions, including variable import
fees, which substantially burden United
States commerce in a manner
inconsistent with provisions of trade
agreements, or
(ii) engages in discriminatory or
other acts (including tolerance of
international cartels) or policies
unjustifiably restricting United States
commerce,
the President may by Executive order provide
for the application of paragraph (1)(D) to any
article or class of articles manufactured or
produced in such foreign country for such
period as may be provided by such Executive
order. Any period specified in the preceding
sentence shall not apply to any property
ordered before (or the construction,
reconstruction, or erection of which began
before) the date of the Executive order unless
the President determines an earlier date to be
in the public interest and specifies such date
in the Executive order.
(B) Imported property.--For purposes of this
subsection, the term ``imported property''
means any property if--
(i) such property was completed
outside the United States, or
(ii) less than 50 percent of the
basis of such property is attributable
to value added within the United
States.
For purposes of this subparagraph, the term
``United States'' includes the Commonwealth of
Puerto Rico and the possessions of the United
States.
(7) Election to use alternative depreciation
system.--
(A) In general.--If the taxpayer makes an
election under this paragraph with respect to
any class of property for any taxable year, the
alternative depreciation system under this
subsection shall apply to all property in such
class placed in service during such taxable
year. Notwithstanding the preceding sentence,
in the case of nonresidential real property or
residential rental property, such election may
be made separately with respect to each
property.
(B) Election irrevocable.--An election under
subparagraph (A), once made, shall be
irrevocable.
(h) Tax-Exempt Use Property.--
(1) In general.--For purposes of this section--
(A) Property other than nonresidential real
property.--Except as otherwise provided in this
subsection, the term ``tax-exempt use
property'' means that portion of any tangible
property (other than nonresidential real
property) leased to a tax-exempt entity.
(B) Nonresidential real property.--
(i) In general.--In the case of
nonresidential real property, the term
``tax-exempt use property'' means that
portion of the property leased to a
tax-exempt entity in a disqualified
lease.
(ii) Disqualified lease.--For
purposes of this subparagraph, the term
``disqualified lease'' means any lease
of the property to a tax-exempt entity,
but only if--
(I) part or all of the
property was financed (directly
or indirectly) by an obligation
the interest on which is exempt
from tax under section 103(a)
and such entity (or a related
entity) participated in such
financing,
(II) under such lease there
is a fixed or determinable
price purchase or sale option
which involves such entity (or
a related entity) or there is
the equivalent of such an
option,
(III) such lease has a lease
term in excess of 20 years, or
(IV) such lease occurs after
a sale (or other transfer) of
the property by, or lease of
the property from, such entity
(or a related entity) and such
property has been used by such
entity (or a related entity)
before such sale (or other
transfer) or lease.
(iii) 35-percent threshold test.--
Clause (i) shall apply to any property
only if the portion of such property
leased to tax-exempt entities in
disqualified leases is more than 35
percent of the property.
(iv) Treatment of improvements.--For
purposes of this subparagraph,
improvements to a property (other than
land) shall not be treated as a
separate property.
(v) Leasebacks during1st3 months of
use not taken into account.--Subclause
(IV) of clause (ii) shall not apply to
any property which is leased within 3
months after the date such property is
first used by the tax-exempt entity (or
a related entity).
(C) Exception for short-term leases.--
(i) In general.--Property shall not
be treated as tax-exempt use property
merely by reason of a short-term lease.
(ii) Short-term lease.--For purposes
of clause (i), the term ``short-term
lease'' means any lease the term of
which is--
(I) less than 3 years, and
(II) less than the greater of
1 year or 30 percent of the
property's present class life.
In the case of nonresidential real property
and property with no present class life,
subclause (II) shall not apply.
(D) Exception where property used in
unrelated trade or business.--The term ``tax-
exempt use property'' shall not include any
portion of a property if such portion is
predominantly used by the tax-exempt entity
(directly or through a partnership of which
such entity is a partner) in an unrelated trade
or business the income of which is subject to
tax under section 511. For purposes of
subparagraph (B)(iii), any portion of a
property so used shall not be treated as leased
to a tax-exempt entity in a disqualified lease.
(E) Nonresidential real property defined.--
For purposes of this paragraph, the term
``nonresidential real property'' includes
residential rental property.
(2) Tax-exempt entity.--
(A) In general.--For purposes of this
subsection, the term ``tax-exempt entity''
means--
(i) the United States, any State or
political subdivision thereof, any
possession of the United States, or any
agency or instrumentality of any of the
foregoing,
(ii) an organization (other than a
cooperative described in section 521)
which is exempt from tax imposed by
this chapter,
(iii) any foreign person or entity,
and
(iv) any Indian tribal government
described in section 7701(a)(40).
For purposes of applying this subsection, any
Indian tribal government referred to in clause
(iv) shall be treated in the same manner as a
State.
(B) Exception for certain property subject to
United States tax and used by foreign person or
entity.--Clause (iii) of subparagraph (A) shall
not apply with respect to any property if more
than 50 percent of the gross income for the
taxable year derived by the foreign person or
entity from the use of such property is--
(i) subject to tax under this
chapter, or
(ii) included under section 951 in
the gross income of a United States
shareholder for the taxable year with
or within which ends the taxable year
of the controlled foreign corporation
in which such income was derived.
For purposes of the preceding sentence, any
exclusion or exemption shall not apply for
purposes of determining the amount of the gross
income so derived, but shall apply for purposes
of determining the portion of such gross income
subject to tax under this chapter.
(C) Foreign person or entity.--For purposes
of this paragraph, the term ``foreign person or
entity'' means--
(i) any foreign government, any
international organization, or any
agency or instrumentality of any of the
foregoing, and
(ii) any person who is not a United
States person.
Such term does not include any foreign
partnership or other foreign pass-thru entity.
(D) Treatment of certain taxable
instrumentalities.--For purposes of this
subsection, a corporation shall not be treated
as an instrumentality of the United States or
of any State or political subdivision thereof
if--
(i) all of the activities of such
corporation are subject to tax under
this chapter, and
(ii) a majority of the board of
directors of such corporation is not
selected by the United States or any
State or political subdivision thereof.
(E) Certain previously tax-exempt
organizations.--
(i) In general.--For purposes of this
subsection, an organization shall be
treated as an organization described in
subparagraph (A)(ii) with respect to
any property (other than property held
by such organization) if such
organization was an organization (other
than a cooperative described in section
521) exempt from tax imposed by this
chapter at any time during the 5-year
period ending on the date such property
was first used by such organization.
The preceding sentence and subparagraph
(D)(ii) shall not apply to the Federal
Home Loan Mortgage Corporation.
(ii) Election not to have clause(i)
apply.--
(I) In general.--In the case
of an organization formerly
exempt from tax under section
501(a) as an organization
described in section
501(c)(12), clause (i) shall
not apply to such organization
with respect to any property if
such organization elects not to
be exempt from tax under
section 501(a) during the tax-
exempt use period with respect
to such property.
(II) Tax-exempt use period.--
For purposes of subclause (I),
the term ``tax-exempt use
period'' means the period
beginning with the taxable year
in which the property described
in subclause (I) is first used
by the organization and ending
with the close of the 15th
taxable year following the last
taxable year of the applicable
recovery period of such
property.
(III) Election.--Any election
under subclause (I), once made,
shall be irrevocable.
(iii) Treatment of successor
organizations.--Any organization which
is engaged in activities substantially
similar to those engaged in by a
predecessor organization shall succeed
to the treatment under this
subparagraph of such predecessor
organization.
(iv) First used.--For purposes of
this subparagraph, property shall be
treated as first used by the
organization--
(I) when the property is
first placed in service under a
lease to such organization, or
(II) in the case of property
leased to (or held by) a
partnership (or other pass-thru
entity) in which the
organization is a member, the
later of when such property is
first used by such partnership
or pass-thru entity or when
such organization is first a
member of such partnership or
pass-thru entity.
(3) Special rules for certain high technology
equipment.--
(A) Exemption where lease term is5 years or
less.--For purposes of this section, the term
``tax-exempt use property'' shall not include
any qualified technological equipment if the
lease to the tax-exempt entity has a lease term
of 5 years or less. Notwithstanding subsection
(i)(3)(A)(i), in determining a lease term for
purposes of the preceding sentence, there shall
not be taken into account any option of the
lessee to renew at the fair market value rent
determined at the time of renewal; except that
the aggregate period not taken into account by
reason of this sentence shall not exceed 24
months.
(B) Exception for certain property.--
(i) In general.--For purposes of
subparagraph (A), the term ``qualified
technological equipment'' shall not
include any property leased to a tax-
exempt entity if--
(I) part or all of the
property was financed (directly
or indirectly) by an obligation
the interest on which is exempt
from tax under section 103(a),
(II) such lease occurs after
a sale (or other transfer) of
the property by, or lease of
such property from, such entity
(or related entity) and such
property has been used by such
entity (or a related entity)
before such sale (or other
transfer) or lease, or
(III) such tax-exempt entity
is the United States or any
agency or instrumentality of
the United States.
(ii) Leasebacks during1st3 months of
use not taken into account.--Subclause
(II) of clause (i) shall not apply to
any property which is leased within 3
months after the date such property is
first used by the tax-exempt entity (or
a related entity).
(4) Related entities.--For purposes of this
subsection--
(A)(i) Each governmental unit and each agency
or instrumentality of a governmental unit is
related to each other such unit, agency, or
instrumentality which directly or indirectly
derives its powers, rights, and duties in whole
or in part from the same sovereign authority.
(ii) For purposes of clause (i), the
United States, each State, and each
possession of the United States shall
be treated as a separate sovereign
authority.
(B) Any entity not described in subparagraph
(A)(i) is related to any other entity if the 2
entities have--
(i) significant common purposes and
substantial common membership, or
(ii) directly or indirectly
substantial common direction or
control.
(C)(i) An entity is related to another entity
if either entity owns (directly or through 1 or
more entities) a 50 percent or greater interest
in the capital or profits of the other entity.
(ii) For purposes of clause (i),
entities treated as related under
subparagraph (A) or (B) shall be
treated as 1 entity.
(D) An entity is related to another entity
with respect to a transaction if such
transaction is part of an attempt by such
entities to avoid the application of this
subsection.
(5) Tax-exempt use of property leased to
partnerships, etc., determined at partner level.--For
purposes of this subsection--
(A) In general.--In the case of any property
which is leased to a partnership, the
determination of whether any portion of such
property is tax-exempt use property shall be
made by treating each tax-exempt entity
partner's proportionate share (determined under
paragraph (6)(C)) of such property as being
leased to such partner.
(B) Other pass-thru entities; tiered
entities.--Rules similar to the rules of
subparagraph (A) shall also apply in the case
of any pass-thru entity other than a
partnership and in the case of tiered
partnerships and other entities.
(C) Presumption with respect to foreign
entities.--Unless it is otherwise established
to the satisfaction of the Secretary, it shall
be presumed that the partners of a foreign
partnership (and the beneficiaries of any other
foreign pass-thru entity) are persons who are
not United States persons.
(6) Treatment of property owned by partnerships,
etc..--
(A) In general.--For purposes of this
subsection, if--
(i) any property which (but for this
subparagraph) is not tax-exempt use
property is owned by a partnership
which has both a tax-exempt entity and
a person who is not a tax-exempt entity
as partners, and
(ii) any allocation to the tax-exempt
entity of partnership items is not a
qualified allocation,
an amount equal to such tax-exempt entity's
proportionate share of such property shall
(except as provided in paragraph (1)(D)) be
treated as tax-exempt use property.
(B) Qualified allocation.--For purposes of
subparagraph (A), the term ``qualified
allocation'' means any allocation to a tax-
exempt entity which--
(i) is consistent with such entity's
being allocated the same distributive
share of each item of income, gain,
loss, deduction, credit, and basis and
such share remains the same during the
entire period the entity is a partner
in the partnership, and
(ii) has substantial economic effect
within the meaning of section
704(b)(2).
For purposes of this subparagraph, items
allocated under section 704(c) shall not be
taken into account.
(C) Determination of proportionate share.--
(i) In general.--For purposes of
subparagraph (A), a tax-exempt entity's
proportionate share of any property
owned by a partnership shall be
determined on the basis of such
entity's share of partnership items of
income or gain (excluding gain
allocated under section 704(c)),
whichever results in the largest
proportionate share.
(ii) Determination where allocations
vary.--For purposes of clause (i), if a
tax-exempt entity's share of
partnership items of income or gain
(excluding gain allocated under section
704(c)) may vary during the period such
entity is a partner in the partnership,
such share shall be the highest share
such entity may receive.
(D) Determination of whether property used in
unrelated trade or business.--For purposes of
this subsection, in the case of any property
which is owned by a partnership which has both
a tax-exempt entity and a person who is not a
tax-exempt entity as partners, the
determination of whether such property is used
in an unrelated trade or business of such an
entity shall be made without regard to section
514.
(E) Other pass-thru entities; tiered
entities.--Rules similar to the rules of
subparagraphs (A), (B), (C), and (D) shall also
apply in the case of any pass-thru entity other
than a partnership and in the case of tiered
partnerships and other entities.
(F) Treatment of certain taxable entities.--
(i) In general.--For purposes of this
paragraph and paragraph (5), except as
otherwise provided in this
subparagraph, any tax-exempt controlled
entity shall be treated as a tax-exempt
entity.
(ii) Election.--If a tax-exempt
controlled entity makes an election
under this clause--
(I) such entity shall not be
treated as a tax-exempt entity
for purposes of this paragraph
and paragraph (5), and
(II) any gain recognized by a
tax-exempt entity on any
disposition of an interest in
such entity (and any dividend
or interest received or accrued
by a tax-exempt entity from
such tax-exempt controlled
entity) shall be treated as
unrelated business taxable
income for purposes of section
511.
Any such election shall be irrevocable
and shall bind all tax-exempt entities
holding interests in such tax-exempt
controlled entity. For purposes of
subclause (II), there shall only be
taken into account dividends which are
properly allocable to income of the
tax-exempt controlled entity which was
not subject to tax under this chapter.
(iii) Tax-exempt controlled entity.--
(I) In general.--The term
``tax-exempt controlled
entity'' means any corporation
(which is not a tax-exempt
entity determined without
regard to this subparagraph and
paragraph (2)(E)) if 50 percent
or more (in value) of the stock
in such corporation is held by
1 or more tax-exempt entities
(other than a foreign person or
entity).
(II) Only 5-percent
shareholders taken into account
in case of publicly traded
stock.--For purposes of
subclause (I), in the case of a
corporation the stock of which
is publicly traded on an
established securities market,
stock held by a tax-exempt
entity shall not be taken into
account unless such entity
holds at least 5 percent (in
value) of the stock in such
corporation. For purposes of
this subclause, related
entities (within the meaning of
paragraph (4)) shall be treated
as 1 entity.
(III) Section318 to apply.--
For purposes of this clause, a
tax-exempt entity shall be
treated as holding stock which
it holds through application of
section 318 (determined without
regard to the 50-percent
limitation contained in
subsection (a)(2)(C) thereof).
(G) Regulations.--For purposes of determining
whether there is a qualified allocation under
subparagraph (B), the regulations prescribed
under paragraph (8) for purposes of this
paragraph--
(i) shall set forth the proper
treatment for partnership guaranteed
payments, and
(ii) may provide for the exclusion or
segregation of items.
(7) Lease.--For purposes of this subsection, the term
``lease'' includes any grant of a right to use
property.
(8) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry
out the purposes of this subsection.
(i) Definitions and Special Rules.--For purposes of this
section--
(1) Class life.--Except as provided in this section,
the term ``class life'' means the class life (if any)
which would be applicable with respect to any property
as of January 1, 1986, under subsection (m) of section
167 (determined without regard to paragraph (4) and as
if the taxpayer had made an election under such
subsection). The Secretary, through an office
established in the Treasury, shall monitor and analyze
actual experience with respect to all depreciable
assets. The reference in this paragraph to subsection
(m) of section 167 shall be treated as a reference to
such subsection as in effect on the day before the date
of the enactment of the Revenue Reconciliation Act of
1990.
(2) Qualified technological equipment.--
(A) In general.--The term ``qualified
technological equipment'' means--
(i) any computer or peripheral
equipment,
(ii) any high technology telephone
station equipment installed on the
customer's premises, and
(iii) any high technology medical
equipment.
(B) Computer or peripheral equipment
defined.--For purposes of this paragraph--
(i) In general.--The term ``computer
or peripheral equipment'' means--
(I) any computer, and
(II) any related peripheral
equipment.
(ii) Computer.--The term ``computer''
means a programmable electronically
activated device which--
(I) is capable of accepting
information, applying
prescribed processes to the
information, and supplying the
results of these processes with
or without human intervention,
and
(II) consists of a central
processing unit containing
extensive storage, logic,
arithmetic, and control
capabilities.
(iii) Related peripheral equipment.--
The term ``related peripheral
equipment'' means any auxiliary machine
(whether on-line or off-line) which is
designed to be placed under the control
of the central processing unit of a
computer.
(iv) Exceptions.--The term ``computer
or peripheral equipment'' shall not
include--
(I) any equipment which is an
integral part of other property
which is not a computer,
(II) typewriters,
calculators, adding and
accounting machines, copiers,
duplicating equipment, and
similar equipment, and
(III) equipment of a kind
used primarily for amusement or
entertainment of the user.
(C) High technology medical equipment.--For
purposes of this paragraph, the term ``high
technology medical equipment'' means any
electronic, electromechanical, or computer-
based high technology equipment used in the
screening, monitoring, observation, diagnosis,
or treatment of patients in a laboratory,
medical, or hospital environment.
(3) Lease term.--
(A) In general.--In determining a lease
term--
(i) there shall be taken into account
options to renew,
(ii) the term of a lease shall
include the term of any service
contract or similar arrangement
(whether or not treated as a lease
under section 7701(e))--
(I) which is part of the same
transaction (or series of
related transactions) which
includes the lease, and
(II) which is with respect to
the property subject to the
lease or substantially similar
property, and
(iii) 2 or more successive leases
which are part of the same transaction
(or a series of related transactions)
with respect to the same or
substantially similar property shall be
treated as 1 lease.
(B) Special rule for fair rental options on
nonresidential real property or residential
rental property.--For purposes of clause (i) of
subparagraph (A), in the case of nonresidential
real property or residential rental property,
there shall not be taken into account any
option to renew at fair market value,
determined at the time of renewal.
(4) General asset accounts.--Under regulations, a
taxpayer may maintain 1 or more general asset accounts
for any property to which this section applies. Except
as provided in regulations, all proceeds realized on
any disposition of property in a general asset account
shall be included in income as ordinary income.
(5) Changes in use.--The Secretary shall, by
regulations, provide for the method of determining the
deduction allowable under section 167(a) with respect
to any tangible property for any taxable year (and the
succeeding taxable years) during which such property
changes status under this section but continues to be
held by the same person.
(6) Treatments of additions or improvements to
property.--In the case of any addition to (or
improvement of) any property--
(A) any deduction under subsection (a) for
such addition or improvement shall be computed
in the same manner as the deduction for such
property would be computed if such property had
been placed in service at the same time as such
addition or improvement, and
(B) the applicable recovery period for such
addition or improvement shall begin on the
later of--
(i) the date on which such addition
(or improvement) is placed in service,
or
(ii) the date on which the property
with respect to which such addition (or
improvement) was made is placed in
service.
(7) Treatment of certain transferees.--
(A) In general.--In the case of any property
transferred in a transaction described in
subparagraph (B), the transferee shall be
treated as the transferor for purposes of
computing the depreciation deduction determined
under this section with respect to so much of
the basis in the hands of the transferee as
does not exceed the adjusted basis in the hands
of the transferor. In any case where this
section as in effect before the amendments made
by section 201 of the Tax Reform Act of 1986
applied to the property in the hands of the
transferor, the reference in the preceding
sentence to this section shall be treated as a
reference to this section as so in effect.
(B) Transactions covered.--The transactions
described in this subparagraph are--
(i) any transaction described in
section 332, 351, 361, 721, or 731, and
(ii) any transaction between members
of the same affiliated group during any
taxable year for which a consolidated
return is made by such group.
Subparagraph (A) shall not apply in the case of
a termination of a partnership under section
708(b)(1)(B).
(C) Property reacquired by the taxpayer.--
Under regulations, property which is disposed
of and then reacquired by the taxpayer shall be
treated for purposes of computing the deduction
allowable under subsection (a) as if such
property had not been disposed of.
(8) Treatment of leasehold improvements.--
(A) In general.--In the case of any building
erected (or improvements made) on leased
property, if such building or improvement is
property to which this section applies, the
depreciation deduction shall be determined
under the provisions of this section.
(B) Treatment of lessor improvements which
are abandoned at termination of lease.--An
improvement--
(i) which is made by the lessor of
leased property for the lessee of such
property, and
(ii) which is irrevocably disposed of
or abandoned by the lessor at the
termination of the lease by such
lessee,
shall be treated for purposes of determining
gain or loss under this title as disposed of by
the lessor when so disposed of or abandoned.
(C) Cross reference.--For treatment of
qualified long-term real property constructed
or improved in connection with cash or rent
reduction from lessor to lessee, see section
110(b).
(9) Normalization rules.--
(A) In general.--In order to use a
normalization method of accounting with respect
to any public utility property for purposes of
subsection (f)(2)--
(i) the taxpayer must, in computing
its tax expense for purposes of
establishing its cost of service for
ratemaking purposes and reflecting
operating results in its regulated
books of account, use a method of
depreciation with respect to such
property that is the same as, and a
depreciation period for such property
that is no shorter than, the method and
period used to compute its depreciation
expense for such purposes; and
(ii) if the amount allowable as a
deduction under this section with
respect to such property (respecting
all elections made by the taxpayer
under this section) differs from the
amount that would be allowable as a
deduction under section 167 using the
method (including the period, first and
last year convention, and salvage
value) used to compute regulated tax
expense under clause (i), the taxpayer
must make adjustments to a reserve to
reflect the deferral of taxes resulting
from such difference.
(B) Use of inconsistent estimates and
projections, etc..--
(i) In general.--One way in which the
requirements of subparagraph (A) are
not met is if the taxpayer, for
ratemaking purposes, uses a procedure
or adjustment which is inconsistent
with the requirements of subparagraph
(A).
(ii) Use of inconsistent estimates
and projections.--The procedures and
adjustments which are to be treated as
inconsistent for purposes of clause (i)
shall include any procedure or
adjustment for ratemaking purposes
which uses an estimate or projection of
the taxpayer's tax expense,
depreciation expense, or reserve for
deferred taxes under subparagraph
(A)(ii) unless such estimate or
projection is also used, for ratemaking
purposes, with respect to the other 2
such items and with respect to the rate
base.
(iii) Regulatory authority.--The
Secretary may by regulations prescribe
procedures and adjustments (in addition
to those specified in clause (ii))
which are to be treated as inconsistent
for purposes of clause (i).
(C) Public utility property which does not
meet normalization rules.--In the case of any
public utility property to which this section
does not apply by reason of subsection (f)(2),
the allowance for depreciation under section
167(a) shall be an amount computed using the
method and period referred to in subparagraph
(A)(i).
(10) Public utility property.--The term ``public
utility property'' means property used predominantly in
the trade or business of the furnishing or sale of--
(A) electrical energy, water, or sewage
disposal services,
(B) gas or steam through a local distribution
system,
(C) telephone services, or other
communication services if furnished or sold by
the Communications Satellite Corporation for
purposes authorized by the Communications
Satellite Act of 1962 (47 U.S.C. 701), or
(D) transportation of gas or steam by
pipeline, if the rates for such furnishing or
sale, as the case may be, have been established
or approved by a State or political subdivision
thereof, by any agency or instrumentality of
the United States, or by a public service or
public utility commission or other similar body
of any State or political subdivision thereof.
(11) Research and experimentation.--The term
``research and experimentation'' has the same meaning
as the term research and experimental has under section
174.
(12) Section1245 and1250 property.--The terms
``section 1245 property'' and ``section 1250 property''
have the meanings given such terms by sections
1245(a)(3) and 1250(c), respectively.
(13) Single purpose agricultural or horticultural
structure.--
(A) In general.--The term ``single purpose
agricultural or horticultural structure''
means--
(i) a single purpose livestock
structure, and
(ii) a single purpose horticultural
structure.
(B) Definitions.--For purposes of this
paragraph--
(i) Single purpose livestock
structure.--The term ``single purpose
livestock structure'' means any
enclosure or structure specifically
designed, constructed, and used--
(I) for housing, raising, and
feeding a particular type of
livestock and their produce,
and
(II) for housing the
equipment (including any
replacements) necessary for the
housing, raising, and feeding
referred to in subclause (I).
(ii) Single purpose horticultural
structure.--The term ``single purpose
horticultural structure'' means--
(I) a greenhouse specifically
designed, constructed, and used
for the commercial production
of plants, and
(II) a structure specifically
designed, constructed, and used
for the commercial production
of mushrooms.
(iii) Structures which include work
space.--An enclosure or structure which
provides work space shall be treated as
a single purpose agricultural or
horticultural structure only if such
work space is solely for--
(I) the stocking, caring for,
or collecting of livestock or
plants (as the case may be) or
their produce,
(II) the maintenance of the
enclosure or structure, and
(III) the maintenance or
replacement of the equipment or
stock enclosed or housed
therein.
(iv) Livestock.--The term
``livestock'' includes poultry.
(14) Qualified rent-to-own property.--
(A) In general.--The term ``qualified rent-
to-own property'' means property held by a
rent-to-own dealer for purposes of being
subject to a rent-to-own contract.
(B) Rent-to-own dealer.--The term ``rent-to-
own dealer'' means a person that, in the
ordinary course of business, regularly enters
into rent-to-own contracts with customers for
the use of consumer property, if a substantial
portion of those contracts terminate and the
property is returned to such person before the
receipt of all payments required to transfer
ownership of the property from such person to
the customer.
(C) Consumer property.--The term ``consumer
property'' means tangible personal property of
a type generally used within the home for
personal use.
(D) Rent-to-own contract.--The term ``rent-
to-own contract'' means any lease for the use
of consumer property between a rent-to-own
dealer and a customer who is an individual
which--
(i) is titled ``Rent-to-Own
Agreement'' or ``Lease Agreement with
Ownership Option,'' or uses other
similar language,
(ii) provides for level (or
decreasing where no payment is less
than 40 percent of the largest
payment), regular periodic payments
(for a payment period which is a week
or month),
(iii) provides that legal title to
such property remains with the rent-to-
own dealer until the customer makes all
the payments described in clause (ii)
or early purchase payments required
under the contract to acquire legal
title to the item of property,
(iv) provides a beginning date and a
maximum period of time for which the
contract may be in effect that does not
exceed 156 weeks or 36 months from such
beginning date (including renewals or
options to extend),
(v) provides for payments within the
156-week or 36-month period that, in
the aggregate, generally exceed the
normal retail price of the consumer
property plus interest,
(vi) provides for payments under the
contract that, in the aggregate, do not
exceed $10,000 per item of consumer
property,
(vii) provides that the customer does
not have any legal obligation to make
all the payments referred to in clause
(ii) set forth under the contract, and
that at the end of each payment period
the customer may either continue to use
the consumer property by making the
payment for the next payment period or
return such property to the rent-to-own
dealer in good working order, in which
case the customer does not incur any
further obligations under the contract
and is not entitled to a return of any
payments previously made under the
contract, and
(viii) provides that the customer has
no right to sell, sublease, mortgage,
pawn, pledge, encumber, or otherwise
dispose of the consumer property until
all the payments stated in the contract
have been made.
(15) Motorsports entertainment complex.--
(A) In general.--The term ``motorsports
entertainment complex'' means a racing track
facility which--
(i) is permanently situated on land,
and
(ii) during the 36-month period
following the first day of the month in
which the asset is placed in service,
hosts 1 or more racing events for
automobiles (of any type), trucks, or
motorcycles which are open to the
public for the price of admission.
(B) Ancillary and support facilities.--Such
term shall include, if owned by the taxpayer
who owns the complex and provided for the
benefit of patrons of the complex--
(i) ancillary facilities and land
improvements in support of the
complex's activities (including parking
lots, sidewalks, waterways, bridges,
fences, and landscaping),
(ii) support facilities (including
food and beverage retailing, souvenir
vending, and other nonlodging
accommodations), and
(iii) appurtenances associated with
such facilities and related attractions
and amusements (including ticket
booths, race track surfaces, suites and
hospitality facilities, grandstands and
viewing structures, props, walls,
facilities that support the delivery of
entertainment services, other special
purpose structures, facades, shop
interiors, and buildings).
(C) Exception.--Such term shall not include
any transportation equipment, administrative
services assets, warehouses, administrative
buildings, hotels, or motels.
(D) Termination.--Such term shall not include
any property placed in service after December
31, 2014.
(16) Alaska natural gas pipeline.--The term ``Alaska
natural gas pipeline'' means the natural gas pipeline
system located in the State of Alaska which--
(A) has a capacity of more than
500,000,000,000 Btu of natural gas per day, and
(B) is--
(i) placed in service after December
31, 2013, or
(ii) treated as placed in service on
January 1, 2014, if the taxpayer who
places such system in service before
January 1, 2014, elects such treatment.
Such term includes the pipe, trunk lines, related
equipment, and appurtenances used to carry natural gas,
but does not include any gas processing plant.
(17) Natural gas gathering line.--The term ``natural
gas gathering line'' means--
(A) the pipe, equipment, and appurtenances
determined to be a gathering line by the
Federal Energy Regulatory Commission, and
(B) the pipe, equipment, and appurtenances
used to deliver natural gas from the wellhead
or a commonpoint to the point at which such gas
first reaches--
(i) a gas processing plant,
(ii) an interconnection with a
transmission pipeline for which a
certificate as an interstate
transmission pipeline has been issued
by the Federal Energy Regulatory
Commission,
(iii) an interconnection with an
intrastate transmission pipeline, or
(iv) a direct interconnection with a
local distribution company, a gas
storage facility, or an industrial
consumer.
(18) Qualified smart electric meters.--
(A) In general.--The term ``qualified smart
electric meter'' means any smart electric meter
which--
(i) is placed in service by a
taxpayer who is a supplier of electric
energy or a provider of electric energy
services, and
(ii) does not have a class life
(determined without regard to
subsection (e)) of less than 16 years.
(B) Smart electric meter.--For purposes of
subparagraph (A), the term ``smart electric
meter'' means any time-based meter and related
communication equipment which is capable of
being used by the taxpayer as part of a system
that--
(i) measures and records electricity
usage data on a time-differentiated
basis in at least 24 separate time
segments per day,
(ii) provides for the exchange of
information between supplier or
provider and the customer's electric
meter in support of time-based rates or
other forms of demand response,
(iii) provides data to such supplier
or provider so that the supplier or
provider can provide energy usage
information to customers
electronically, and
(iv) provides net metering.
(19) Qualified smart electric grid systems.--
(A) In general.--The term ``qualified smart
electric grid system'' means any smart grid
property which--
(i) is used as part of a system for
electric distribution grid
communications, monitoring, and
management placed in service by a
taxpayer who is a supplier of electric
energy or a provider of electric energy
services, and
(ii) does not have a class life
(determined without regard to
subsection (e)) of less than 16 years.
(B) Smart grid property.--For the purposes of
subparagraph (A), the term ``smart grid
property'' means electronics and related
equipment that is capable of--
(i) sensing, collecting, and
monitoring data of or from all portions
of a utility's electric distribution
grid,
(ii) providing real-time, two-way
communications to monitor or manage
such grid, and
(iii) providing real time analysis of
and event prediction based upon
collected data that can be used to
improve electric distribution system
reliability, quality, and performance.
(j) Property on Indian Reservations.--
(1) In general.--For purposes of subsection (a), the
applicable recovery period for qualified Indian
reservation property shall be determined in accordance
with the table contained in paragraph (2) in lieu of
the table contained in subsection (c).
(2) Applicable recovery period for indian reservation
property.--For purposes of paragraph (1)--
------------------------------------------------------------------------
In the case of: The applicable recovery period is:
------------------------------------------------------------------------
3-year property 2 years
5-year property 3 years
7-year property 4 years
10-year property 6 years
15-year property 9 years
20-year property 12 years
Nonresidential real property 22 years.
------------------------------------------------------------------------
(3) Deduction allowed in computing minimum tax.--For
purposes of determining alternative minimum taxable
income under section 55, the deduction under subsection
(a) for property to which paragraph (1) applies shall
be determined under this section without regard to any
adjustment under section 56.
(4) Qualified indian reservation property defined.--
For purposes of this subsection--
(A) In general.--The term ``qualified Indian
reservation property'' means property which is
property described in the table in paragraph
(2) and which is--
(i) used by the taxpayer
predominantly in the active conduct of
a trade or business within an Indian
reservation,
(ii) not used or located outside the
Indian reservation on a regular basis,
(iii) not acquired (directly or
indirectly) by the taxpayer from a
person who is related to the taxpayer
(within the meaning of section
465(b)(3)(C)), and
(iv) not property (or any portion
thereof) placed in service for purposes
of conducting or housing class I, II,
or III gaming (as defined in section 4
of the Indian Regulatory Act (25 U.S.C.
2703)).
(B) Exception for alternative depreciation
property.--The term ``qualified Indian
reservation property'' does not include any
property to which the alternative depreciation
system under subsection (g) applies,
determined--
(i) without regard to subsection
(g)(7) (relating to election to use
alternative depreciation system), and
(ii) after the application of section
280F(b) (relating to listed property
with limited business use).
(C) Special rule for reservation
infrastructure investment.--
(i) In general.--Subparagraph (A)(ii)
shall not apply to qualified
infrastructure property located outside
of the Indian reservation if the
purpose of such property is to connect
with qualified infrastructure property
located within the Indian reservation.
(ii) Qualified infrastructure
property.--For purposes of this
subparagraph, the term ``qualified
infrastructure property'' means
qualified Indian reservation property
(determined without regard to
subparagraph (A)(ii)) which--
(I) benefits the tribal
infrastructure,
(II) is available to the
general public, and
(III) is placed in service in
connection with the taxpayer's
active conduct of a trade or
business within an Indian
reservation.
Such term includes, but is not limited
to, roads, power lines, water systems,
railroad spurs, and communications
facilities.
(5) Real estate rentals.--For purposes of this
subsection, the rental to others of real property
located within an Indian reservation shall be treated
as the active conduct of a trade or business within an
Indian reservation.
(6) Indian reservation defined.--For purposes of this
subsection, the term ``Indian reservation'' means a
reservation, as defined in--
(A) section 3(d) of the Indian Financing Act
of 1974 (25 U.S.C. 1452(d)), or
(B) section 4(10) of the Indian Child Welfare
Act of 1978 (25 U.S.C. 1903(10)).
For purposes of the preceding sentence, such section
3(d) shall be applied by treating the term ``former
Indian reservations in Oklahoma'' as including only
lands which are within the jurisdictional area of an
Oklahoma Indian tribe (as determined by the Secretary
of the Interior) and are recognized by such Secretary
as eligible for trust land status under 25 CFR Part 151
(as in effect on the date of the enactment of this
sentence).
(7) Coordination with nonrevenue laws.--Any reference
in this subsection to a provision not contained in this
title shall be treated for purposes of this subsection
as a reference to such provision as in effect on the
date of the enactment of this paragraph.
(8) Termination.--This subsection shall not apply to
property placed in service after December 31, 2014.
(k) Special Allowance for Certain Property Acquired After
December 31, 2007, and Before January 1, 2015.--
(1) Additional allowance.--In the case of any
qualified property--
(A) the depreciation deduction provided by
section 167(a) for the taxable year in which
such property is placed in service shall
include an allowance equal to 50 percent of the
adjusted basis of the qualified property, and
(B) the adjusted basis of the qualified
property shall be reduced by the amount of such
deduction before computing the amount otherwise
allowable as a depreciation deduction under
this chapter for such taxable year and any
subsequent taxable year.
(2) Qualified property.--For purposes of this
subsection--
(A) In general.--The term ``qualified
property'' means property--
(i)(I) to which this section applies
which has a recovery period of 20 years
or less,
(II) which is computer
software (as defined in section
167(f)(1)(B)) for which a
deduction is allowable under
section 167(a) without regard
to this subsection,
(III) which is water utility
property, or
(IV) which is qualified
leasehold improvement property,
(ii) the original use of which
commences with the taxpayer after
December 31, 2007,
(iii) which is--
(I) acquired by the taxpayer
after December 31, 2007, and
before January 1, 2015, but
only if no written binding
contract for the acquisition
was in effect before January 1,
2008, or
(II) acquired by the taxpayer
pursuant to a written binding
contract which was entered into
after December 31, 2007, and
before January 1, 2015, and
(iv) which is placed in service by
the taxpayer before January 1, 2015,
or, in the case of property described
in subparagraph (B) or (C), before
January 1, 2016.
(B) Certain property having longer production
periods treated as qualified property.--
(i) In general.--The term ``qualified
property'' includes any property if
such property--
(I) meets the requirements of
clauses (i), (ii), (iii), and
(iv) of subparagraph (A),
(II) has a recovery period of
at least 10 years or is
transportation property,
(III) is subject to section
263A, and
(IV) meets the requirements
of clause (iii) of section
263A(f)(1)(B) (determined as if
such clause also applies to
property which has a long
useful life (within the meaning
of section 263A(f))).
(ii) Only pre-january 1, 2015, basis
eligible for additional allowance.--In
the case of property which is qualified
property solely by reason of clause
(i), paragraph (1) shall apply only to
the extent of the adjusted basis
thereof attributable to manufacture,
construction, or production before
January 1, 2015.
(iii) Transportation property.--For
purposes of this subparagraph, the term
``transportation property'' means
tangible personal property used in the
trade or business of transporting
persons or property.
(iv) Application of subparagraph.--
This subparagraph shall not apply to
any property which is described in
subparagraph (C).
(C) Certain aircraft.--The term ``qualified
property'' includes property--
(i) which meets the requirements of
clauses (ii), (iii), and (iv) of
subparagraph (A),
(ii) which is an aircraft which is
not a transportation property (as
defined in subparagraph (B)(iii)) other
than for agricultural or firefighting
purposes,
(iii) which is purchased and on which
such purchaser, at the time of the
contract for purchase, has made a
nonrefundable deposit of the lesser
of--
(I) 10 percent of the cost,
or
(II) $100,000, and
(iv) which has--
(I) an estimated production
period exceeding 4 months, and
(II) a cost exceeding
$200,000.
(D) Exceptions.--
(i) Alternative depreciation
property.--The term ``qualified
property'' shall not include any
property to which the alternative
depreciation system under subsection
(g) applies, determined--
(I) without regard to
paragraph (7) of subsection (g)
(relating to election to have
system apply), and
(II) after application of
section 280F(b) (relating to
listed property with limited
business use).
(ii) Qualified new york liberty zone
leasehold improvement property.--The
term ``qualified property'' shall not
include any qualified New York Liberty
Zone leasehold improvement property (as
defined in section 1400L(c)(2)).
(iii) Election out.--If a taxpayer
makes an election under this clause
with respect to any class of property
for any taxable year, this subsection
shall not apply to all property in such
class placed in service during such
taxable year.
(E) Special rules.--
(i) Self-constructed property.--In
the case of a taxpayer manufacturing,
constructing, or producing property for
the taxpayer's own use, the
requirements of clause (iii) of
subparagraph (A) shall be treated as
met if the taxpayer begins
manufacturing, constructing, or
producing the property after December
31, 2007, and before January 1, 2015.
(ii) Sale-leasebacks.--For purposes
of clause (iii) and subparagraph
(A)(ii), if property is--
(I) originally placed in
service after December 31,
2007, by a person, and
(II) sold and leased back by
such person within 3 months
after the date such property
was originally placed in
service,
such property shall be treated as
originally placed in service not
earlier than the date on which such
property is used under the leaseback
referred to in subclause (II).
(iii) Syndication.--For purposes of
subparagraph (A)(ii), if--
(I) property is originally
placed in service after
December 31, 2007, by the
lessor of such property,
(II) such property is sold by
such lessor or any subsequent
purchaser within 3 months after
the date such property was
originally placed in service
(or, in the case of multiple
units of property subject to
the same lease, within 3 months
after the date the final unit
is placed in service, so long
as the period between the time
the first unit is placed in
service and the time the last
unit is placed in service does
not exceed 12 months), and
(III) the user of such
property after the last sale
during such 3-month period
remains the same as when such
property was originally placed
in service,
such property shall be treated as
originally placed in service not
earlier than the date of such last
sale.
(iv) Limitations related to users and
related parties.--The term ``qualified
property'' shall not include any
property if--
(I) the user of such property
(as of the date on which such
property is originally placed
in service) or a person which
is related (within the meaning
of section 267(b) or 707(b)) to
such user or to the taxpayer
had a written binding contract
in effect for the acquisition
of such property at any time on
or before December 31, 2007, or
(II) in the case of property
manufactured, constructed, or
produced for such user's or
person's own use, the
manufacture, construction, or
production of such property
began at any time on or before
December 31, 2007.
(F) Coordination with section 280f.--For
purposes of section 280F--
(i) Automobiles.--In the case of a
passenger automobile (as defined in
section 280F(d)(5)) which is qualified
property, the Secretary shall increase
the limitation under section
280F(a)(1)(A)(i) by $8,000.
(ii) Listed property.--The deduction
allowable under paragraph (1) shall be
taken into account in computing any
recapture amount under section
280F(b)(2).
(G) Deduction allowed in computing minimum
tax.--For purposes of determining alternative
minimum taxable income under section 55, the
deduction under subsection (a) for qualified
property shall be determined under this section
without regard to any adjustment under section
56.
(3) Qualified leasehold improvement property.--For
purposes of this subsection--
(A) In general.--The term ``qualified
leasehold improvement property'' means any
improvement to an interior portion of a
building which is nonresidential real property
if--
(i) such improvement is made under or
pursuant to a lease (as defined in
subsection (h)(7))--
(I) by the lessee (or any
sublessee) of such portion, or
(II) by the lessor of such
portion,
(ii) such portion is to be occupied
exclusively by the lessee (or any
sublessee) of such portion, and
(iii) such improvement is placed in
service more than 3 years after the
date the building was first placed in
service.
(B) Certain improvements not included.--Such
term shall not include any improvement for
which the expenditure is attributable to--
(i) the enlargement of the building,
(ii) any elevator or escalator,
(iii) any structural component
benefiting a common area, and
(iv) the internal structural
framework of the building.
(C) Definitions and special rules.--For
purposes of this paragraph--
(i) Commitment to lease treated as
lease.--A commitment to enter into a
lease shall be treated as a lease, and
the parties to such commitment shall be
treated as lessor and lessee,
respectively.
(ii) Related persons.--A lease
between related persons shall not be
considered a lease. For purposes of the
preceding sentence, the term ``related
persons'' means--
(I) members of an affiliated
group (as defined in section
1504), and
(II) persons having a
relationship described in
subsection (b) of section 267;
except that, for purposes of
this clause, the phrase ``80
percent or more'' shall be
substituted for the phrase
``more than 50 percent'' each
place it appears in such
subsection.
(4) Election to accelerate the amt and research
credits in lieu of bonus depreciation.--
(A) In general.--If a corporation elects to
have this paragraph apply for the first taxable
year of the taxpayer ending after March 31,
2008, in the case of such taxable year and each
subsequent taxable year--
(i) paragraph (1) shall not apply to
any eligible qualified property placed
in service by the taxpayer,
(ii) the applicable depreciation
method used under this section with
respect to such property shall be the
straight line method, and
(iii) each of the limitations
described in subparagraph (B) for any
such taxable year shall be increased by
the bonus depreciation amount which
is--
(I) determined for such
taxable year under subparagraph
(C), and
(II) allocated to such
limitation under subparagraph
(E).
(B) Limitations to be increased.--The
limitations described in this subparagraph
are--
(i) the limitation imposed by section
38(c), and
(ii) the limitation imposed by
section 53(c).
(C) Bonus depreciation amount.--For purposes
of this paragraph--
(i) In general.--The bonus
depreciation amount for any taxable
year is an amount equal to 20 percent
of the excess (if any) of--
(I) the aggregate amount of
depreciation which would be
allowed under this section for
eligible qualified property
placed in service by the
taxpayer during such taxable
year if paragraph (1) applied
to all such property, over
(II) the aggregate amount of
depreciation which would be
allowed under this section for
eligible qualified property
placed in service by the
taxpayer during such taxable
year if paragraph (1) did not
apply to any such property.
The aggregate amounts determined under
subclauses (I) and (II) shall be
determined without regard to any
election made under subsection
(b)(2)(D), (b)(3)(D), or (g)(7) and
without regard to subparagraph (A)(ii).
(ii) Maximum amount.--The bonus
depreciation amount for any taxable
year shall not exceed the maximum
increase amount under clause (iii),
reduced (but not below zero) by the sum
of the bonus depreciation amounts for
all preceding taxable years.
(iii) Maximum increase amount.--For
purposes of clause (ii), the term
``maximum increase amount'' means, with
respect to any corporation, the lesser
of--
(I) $30,000,000, or
(II) 6 percent of the sum of
the business credit increase
amount, and the AMT credit
increase amount, determined
with respect to such
corporation under subparagraph
(E).
(iv) Aggregation rule.--All
corporations which are treated as a
single employer under section 52(a)
shall be treated--
(I) as 1 taxpayer for
purposes of this paragraph, and
(II) as having elected the
application of this paragraph
if any such corporation so
elects.
(D) Eligible qualified property.--For
purposes of this paragraph, the term ``eligible
qualified property'' means qualified property
under paragraph (2), except that in applying
paragraph (2) for purposes of this paragraph--
(i) ``March 31, 2008'' shall be
substituted for ``December 31, 2007''
each place it appears in subparagraph
(A) and clauses (i) and (ii) of
subparagraph (E) thereof,
(ii) ``April 1, 2008'' shall be
substituted for ``January 1, 2008'' in
subparagraph (A)(iii)(I) thereof, and
(iii) only adjusted basis
attributable to manufacture,
construction, or production--
(I) after March 31, 2008, and
before January 1, 2010, and
(II) after December 31, 2010,
and before January 1, 2015,
shall be taken into account
under subparagraph (B)(ii)
thereof.
(E) Allocation of bonus depreciation
amounts.--
(i) In general.--Subject to clauses
(ii) and (iii), the taxpayer shall, at
such time and in such manner as the
Secretary may prescribe, specify the
portion (if any) of the bonus
depreciation amount for the taxable
year which is to be allocated to each
of the limitations described in
subparagraph (B) for such taxable year.
(ii) Limitation on allocations.--The
portion of the bonus depreciation
amount which may be allocated under
clause (i) to the limitations described
in subparagraph (B) for any taxable
year shall not exceed--
(I) in the case of the
limitation described in
subparagraph (B)(i), the excess
of the business credit increase
amount over the bonus
depreciation amount allocated
to such limitation for all
preceding taxable years, and
(II) in the case of the
limitation described in
subparagraph (B)(ii), the
excess of the AMT credit
increase amount over the bonus
depreciation amount allocated
to such limitation for all
preceding taxable years.
(iii) Business credit increase
amount.--For purposes of this
paragraph, the term ``business credit
increase amount'' means the amount
equal to the portion of the credit
allowable under section 38 (determined
without regard to subsection (c)
thereof) for the first taxable year
ending after March 31, 2008, which is
allocable to business credit
carryforwards to such taxable year
which are--
(I) from taxable years
beginning before January 1,
2006, and
(II) properly allocable
(determined under the rules of
section 38(d)) to the research
credit determined under section
41(a).
(iv) AMT credit increase amount.--For
purposes of this paragraph, the term
``AMT credit increase amount'' means
the amount equal to the portion of the
minimum tax credit under section 53(b)
for the first taxable year ending after
March 31, 2008, determined by taking
into account only the adjusted net
minimum tax for taxable years beginning
before January 1, 2006. For purposes of
the preceding sentence, credits shall
be treated as allowed on a first-in,
first- out basis.
(F) Credit refundable.--For purposes of
section 6401(b), the aggregate increase in the
credits allowable under part IV of subchapter A
for any taxable year resulting from the
application of this paragraph shall be treated
as allowed under subpart C of such part (and
not any other subpart).
(G) Other rules.--
(i) Election.--Any election under
this paragraph (including any
allocation under subparagraph (E)) may
be revoked only with the consent of the
Secretary.
(ii) Partnerships with electing
partners.--In the case of a corporation
making an election under subparagraph
(A) and which is a partner in a
partnership, for purposes of
determining such corporation's
distributive share of partnership items
under section 702--
(I) paragraph (1) shall not
apply to any eligible qualified
property, and
(II) the applicable
depreciation method used under
this section with respect to
such property shall be the
straight line method.
(iii) Special rule for passenger
aircraft.--In the case of any passenger
aircraft, the written binding contract
limitation under paragraph
(2)(A)(iii)(I) shall not apply for
purposes of subparagraphs (C)(i)(I) and
(D).
(H) Special rules for extension property.--
(i) Taxpayers previously electing
acceleration.--In the case of a
taxpayer who made the election under
subparagraph (A) for its first taxable
year ending after March 31, 2008--
(I) the taxpayer may elect
not to have this paragraph
apply to extension property,
but
(II) if the taxpayer does not
make the election under
subclause (I), in applying this
paragraph to the taxpayer a
separate bonus depreciation
amount, maximum amount, and
maximum increase amount shall
be computed and applied to
eligible qualified property
which is extension property and
to eligible qualified property
which is not extension
property.
(ii) Taxpayers not previously
electing acceleration.--In the case of
a taxpayer who did not make the
election under subparagraph (A) for its
first taxable year ending after March
31, 2008--
(I) the taxpayer may elect to
have this paragraph apply to
its first taxable year ending
after December 31, 2008, and
each subsequent taxable year,
and
(II) if the taxpayer makes
the election under subclause
(I), this paragraph shall only
apply to eligible qualified
property which is extension
property.
(iii) Extension property.--For
purposes of this subparagraph, the term
``extension property'' means property
which is eligible qualified property
solely by reason of the extension of
the application of the special
allowance under paragraph (1) pursuant
to the amendments made by section
1201(a) of the American Recovery and
Reinvestment Tax Act of 2009 (and the
application of such extension to this
paragraph pursuant to the amendment
made by section 1201(b)(1) of such
Act).
(I) Special rules for round 2 extension
property.--
(i) In general.--In the case of round
2 extension property, this paragraph
shall be applied without regard to--
(I) the limitation described
in subparagraph (B)(i) thereof,
and
(II) the business credit
increase amount under
subparagraph (E)(iii) thereof.
(ii) Taxpayers previously electing
acceleration.--In the case of a
taxpayer who made the election under
subparagraph (A) for its first taxable
year ending after March 31, 2008, or a
taxpayer who made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008--
(I) the taxpayer may elect
not to have this paragraph
apply to round 2 extension
property, but
(II) if the taxpayer does not
make the election under
subclause (I), in applying this
paragraph to the taxpayer the
bonus depreciation amount,
maximum amount, and maximum
increase amount shall be
computed and applied to
eligible qualified property
which is round 2 extension
property.
The amounts described in subclause (II)
shall be computed separately from any
amounts computed with respect to
eligible qualified property which is
not round 2 extension property.
(iii) Taxpayers not previously
electing acceleration.--In the case of
a taxpayer who neither made the
election under subparagraph (A) for its
first taxable year ending after March
31, 2008, nor made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008--
(I) the taxpayer may elect to
have this paragraph apply to
its first taxable year ending
after December 31, 2010, and
each subsequent taxable year,
and
(II) if the taxpayer makes
the election under subclause
(I), this paragraph shall only
apply to eligible qualified
property which is round 2
extension property.
(iv) Round 2 extension property.--For
purposes of this subparagraph, the term
``round 2 extension property'' means
property which is eligible qualified
property solely by reason of the
extension of the application of the
special allowance under paragraph (1)
pursuant to the amendments made by
section 401(a) of the Tax Relief,
Unemployment Insurance Reauthorization,
and Job Creation Act of 2010 (and the
application of such extension to this
paragraph pursuant to the amendment
made by section 401(c)(1) of such Act).
(J) Special rules for round 3 extension
property.--
(i) In general.--In the case of round
3 extension property, this paragraph
shall be applied without regard to--
(I) the limitation described
in subparagraph (B)(i) thereof,
and
(II) the business credit
increase amount under
subparagraph (E)(iii) thereof.
(ii) Taxpayers previously electing
acceleration.--In the case of a
taxpayer who made the election under
subparagraph (A) for its first taxable
year ending after March 31, 2008, a
taxpayer who made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008, or a taxpayer who made the
election under subparagraph (I)(iii)
for its first taxable year ending after
December 31, 2010--
(I) the taxpayer may elect
not to have this paragraph
apply to round 3 extension
property, but
(II) if the taxpayer does not
make the election under
subclause (I), in applying this
paragraph to the taxpayer the
bonus depreciation amount,
maximum amount, and maximum
increase amount shall be
computed and applied to
eligible qualified property
which is round 3 extension
property.
The amounts described in subclause (II)
shall be computed separately from any
amounts computed with respect to
eligible qualified property which is
not round 3 extension property.
(iii) Taxpayers not previously
electing acceleration.--In the case of
a taxpayer who neither made the
election under subparagraph (A) for its
first taxable year ending after March
31, 2008, nor made the election under
subparagraph (H)(ii) for its first
taxable year ending after December 31,
2008, nor made the election under
subparagraph (I)(iii) for its first
taxable year ending after December 31,
2010--
(I) the taxpayer may elect to
have this paragraph apply to
its first taxable year ending
after December 31, 2012, and
each subsequent taxable year,
and
(II) if the taxpayer makes
the election under subclause
(I), this paragraph shall only
apply to eligible qualified
property which is round 3
extension property.
(iv) Round 3 extension property.--For
purposes of this subparagraph, the term
``round 3 extension property'' means
property which is eligible qualified
property solely by reason of the
extension of the application of the
special allowance under paragraph (1)
pursuant to the amendments made by
section 331(a) of the American Taxpayer
Relief Act of 2012 (and the application
of such extension to this paragraph
pursuant to the amendment made by
section 331(c)(1) of such Act).
(K) Special rules for round4 extension
property.--
(i) In general.--In the case of round
4 extension property, in applying this
paragraph to any taxpayer--
(I) the limitation described
in subparagraph (B)(i) and the
business credit increase amount
under subparagraph (E)(iii)
thereof shall not apply, and
(II) the bonus depreciation
amount, maximum amount, and
maximum increase amount shall
be computed separately from
amounts computed with respect
to eligible qualified property
which is not round 4 extension
property.
(ii) Election.--
(I) A taxpayer who has an
election in effect under this
paragraph for round 3 extension
property shall be treated as
having an election in effect
for round 4 extension property
unless the taxpayer elects to
not have this paragraph apply
to round 4 extension property.
(II) A taxpayer who does not
have an election in effect
under this paragraph for round
3 extension property may elect
to have this paragraph apply to
round 4 extension property.
(iii) Round 4 extension property.--
For purposes of this subparagraph, the
term `round 4 extension property' means
property which is eligible qualified
property solely by reason of the
extension of the application of the
special allowance under paragraph (1)
pursuant to the amendments made by
section 125(a) of the Tax Increase
Prevention Act of 2014 (and the
application of such extension to this
paragraph pursuant to the amendment
made by section 125(c) of such Act).
(5) Special rule for property acquired during certain
pre-2012 periods.--In the case of qualified property
acquired by the taxpayer (under rules similar to the
rules of clauses (ii) and (iii) of paragraph (2)(A))
after September 8, 2010, and before January 1, 2012,
and which is placed in service by the taxpayer before
January 1, 2012 (January 1, 2013, in the case of
property described in subparagraph (2)(B) or (2)(C)),
paragraph (1)(A) shall be applied by substituting ``100
percent'' for ``50 percent''.
(l) Special Allowance for Second Generation Biofuel Plant
Property.--
(1) Additional allowance.--In the case of any
qualified second generation biofuel plant property--
(A) the depreciation deduction provided by
section 167(a) for the taxable year in which
such property is placed in service shall
include an allowance equal to 50 percent of the
adjusted basis of such property, and
(B) the adjusted basis of such property shall
be reduced by the amount of such deduction
before computing the amount otherwise allowable
as a depreciation deduction under this chapter
for such taxable year and any subsequent
taxable year.
(2) Qualified second generation biofuel plant
property.--The term ``qualified second generation
biofuel plant property'' means property of a character
subject to the allowance for depreciation--
(A) which is used in the United States solely
to produce second generation biofuel (as
defined in section 40(b)(6)(E)),
(B) the original use of which commences with
the taxpayer after the date of the enactment of
this subsection,
(C) which is acquired by the taxpayer by
purchase (as defined in section 179(d)) after
the date of the enactment of this subsection,
but only if no written binding contract for the
acquisition was in effect on or before the date
of the enactment of this subsection, and
(D) which is placed in service by the
taxpayer before January 1, 2015.
(3) Exceptions.--
(A) Bonus depreciation property under
subsection(k).--Such term shall not include any
property to which section 168(k) applies.
(B) Alternative depreciation property.--Such
term shall not include any property described
in section 168(k)(2)(D)(i).
(C) Tax-exempt bond-financed property.--Such
term shall not include any property any portion
of which is financed with the proceeds of any
obligation the interest on which is exempt from
tax under section 103.
(D) Election out.--If a taxpayer makes an
election under this subparagraph with respect
to any class of property for any taxable year,
this subsection shall not apply to all property
in such class placed in service during such
taxable year.
(4) Special rules.--For purposes of this subsection,
rules similar to the rules of subparagraph (E) of
section 168(k)(2) shall apply, except that such
subparagraph shall be applied--
(A) by substituting ``the date of the
enactment of subsection (l)'' for ``December
31, 2007'' each place it appears therein, and
(B) by substituting ``qualified second
generation biofuel plant property'' for
``qualified property'' in clause (iv) thereof.
(5) Allowance against alternative minimum tax.--For
purposes of this subsection, rules similar to the rules
of section 168(k)(2)(G) shall apply.
(6) Recapture.--For purposes of this subsection,
rules similar to the rules under section 179(d)(10)
shall apply with respect to any qualified second
generation biofuel plant property which ceases to be
qualified second generation biofuel plant property.
(7) Denial of double benefit.--Paragraph (1) shall
not apply to any qualified second generation biofuel
plant property with respect to which an election has
been made under section 179C (relating to election to
expense certain refineries).
(m) Special Allowance for Certain Reuse and Recycling
Property.--
(1) In general.--In the case of any qualified reuse
and recycling property--
(A) the depreciation deduction provided by
section 167(a) for the taxable year in which
such property is placed in service shall
include an allowance equal to 50 percent of the
adjusted basis of the qualified reuse and
recycling property, and
(B) the adjusted basis of the qualified reuse
and recycling property shall be reduced by the
amount of such deduction before computing the
amount otherwise allowable as a depreciation
deduction under this chapter for such taxable
year and any subsequent taxable year.
(2) Qualified reuse and recycling property.--For
purposes of this subsection--
(A) In general.--The term ``qualified reuse
and recycling property'' means any reuse and
recycling property--
(i) to which this section applies,
(ii) which has a useful life of at
least 5 years,
(iii) the original use of which
commences with the taxpayer after
August 31, 2008, and
(iv) which is--
(I) acquired by purchase (as
defined in section 179(d)(2))
by the taxpayer after August
31, 2008, but only if no
written binding contract for
the acquisition was in effect
before September 1, 2008, or
(II) acquired by the taxpayer
pursuant to a written binding
contract which was entered into
after August 31, 2008.
(B) Exceptions.--
(i) Bonus depreciation property under
subsection(k).--The term ``qualified
reuse and recycling property'' shall
not include any property to which
subsection (k) (determined without
regard to paragraph (4) thereof)
applies.
(ii) Alternative depreciation
property.--The term ``qualified reuse
and recycling property'' shall not
include any property to which the
alternative depreciation system under
subsection (g) applies, determined
without regard to paragraph (7) of
subsection (g) (relating to election to
have system apply).
(iii) Election out.--If a taxpayer
makes an election under this clause
with respect to any class of property
for any taxable year, this subsection
shall not apply to all property in such
class placed in service during such
taxable year.
(C) Special rule for self-constructed
property.--In the case of a taxpayer
manufacturing, constructing, or producing
property for the taxpayer's own use, the
requirements of clause (iv) of subparagraph (A)
shall be treated as met if the taxpayer begins
manufacturing, constructing, or producing the
property after August 31, 2008.
(D) Deduction allowed in computing minimum
tax.--For purposes of determining alternative
minimum taxable income under section 55, the
deduction under subsection (a) for qualified
reuse and recycling property shall be
determined under this section without regard to
any adjustment under section 56.
(3) Definitions.--For purposes of this subsection--
(A) Reuse and recycling property.--
(i) In general.--The term ``reuse and
recycling property'' means any
machinery and equipment (not including
buildings or real estate), along with
all appurtenances thereto, including
software necessary to operate such
equipment, which is used exclusively to
collect, distribute, or recycle
qualified reuse and recyclable
materials.
(ii) Exclusion.--Such term does not
include rolling stock or other
equipment used to transport reuse and
recyclable materials.
(B) Qualified reuse and recyclable
materials.--
(i) In general.--The term ``qualified
reuse and recyclable materials'' means
scrap plastic, scrap glass, scrap
textiles, scrap rubber, scrap
packaging, recovered fiber, scrap
ferrous and nonferrous metals, or
electronic scrap generated by an
individual or business.
(ii) Electronic scrap.--For purposes
of clause (i), the term ``electronic
scrap'' means--
(I) any cathode ray tube,
flat panel screen, or similar
video display device with a
screen size greater than 4
inches measured diagonally, or
(II) any central processing
unit.
(C) Recycling or recycle.--The term
``recycling'' or ``recycle'' means that process
(including sorting) by which worn or
superfluous materials are manufactured or
processed into specification grade commodities
that are suitable for use as a replacement or
substitute for virgin materials in
manufacturing tangible consumer and commercial
products, including packaging.
(n) Special Allowance for Qualified Disaster Assistance
Property.--
(1) In general.--In the case of any qualified
disaster assistance property--
(A) the depreciation deduction provided by
section 167(a) for the taxable year in which
such property is placed in service shall
include an allowance equal to 50 percent of the
adjusted basis of the qualified disaster
assistance property, and
(B) the adjusted basis of the qualified
disaster assistance property shall be reduced
by the amount of such deduction before
computing the amount otherwise allowable as a
depreciation deduction under this chapter for
such taxable year and any subsequent taxable
year.
(2) Qualified disaster assistance property.--For
purposes of this subsection--
(A) In general.--The term ``qualified
disaster assistance property'' means any
property--
(i)(I) which is described in
subsection (k)(2)(A)(i), or
(II) which is nonresidential
real property or residential
rental property,
(ii) substantially all of the use of
which is--
(I) in a disaster area with
respect to a federally declared
disaster occurring before
January 1, 2010, and
(II) in the active conduct of
a trade or business by the
taxpayer in such disaster area,
(iii) which--
(I) rehabilitates property
damaged, or replaces property
destroyed or condemned, as a
result of such federally
declared disaster, except that,
for purposes of this clause,
property shall be treated as
replacing property destroyed or
condemned if, as part of an
integrated plan, such property
replaces property which is
included in a continuous area
which includes real property
destroyed or condemned, and
(II) is similar in nature to,
and located in the same county
as, the property being
rehabilitated or replaced,
(iv) the original use of which in
such disaster area commences with an
eligible taxpayer on or after the
applicable disaster date,
(v) which is acquired by such
eligible taxpayer by purchase (as
defined in section 179(d)) on or after
the applicable disaster date, but only
if no written binding contract for the
acquisition was in effect before such
date, and
(vi) which is placed in service by
such eligible taxpayer on or before the
date which is the last day of the third
calendar year following the applicable
disaster date (the fourth calendar year
in the case of nonresidential real
property and residential rental
property).
(B) Exceptions.--
(i) Other bonus depreciation
property.--The term ``qualified
disaster assistance property'' shall
not include--
(I) any property to which
subsection (k) (determined
without regard to paragraph
(4)), (l), or (m) applies,
(II) any property to which
section 1400N(d) applies, and
(III) any property described
in section 1400N(p)(3).
(ii) Alternative depreciation
property.--The term ``qualified
disaster assistance property'' shall
not include any property to which the
alternative depreciation system under
subsection (g) applies, determined
without regard to paragraph (7) of
subsection (g) (relating to election to
have system apply).
(iii) Tax-exempt bond financed
property.--Such term shall not include
any property any portion of which is
financed with the proceeds of any
obligation the interest on which is
exempt from tax under section 103.
(iv) Qualified revitalization
buildings.--Such term shall not include
any qualified revitalization building
with respect to which the taxpayer has
elected the application of paragraph
(1) or (2) of section 1400I(a).
(v) Election out.--If a taxpayer
makes an election under this clause
with respect to any class of property
for any taxable year, this subsection
shall not apply to all property in such
class placed in service during such
taxable year.
(C) Special rules.--For purposes of this
subsection, rules similar to the rules of
subparagraph (E) of subsection (k)(2) shall
apply, except that such subparagraph shall be
applied--
(i) by substituting ``the applicable
disaster date'' for ``December 31,
2007'' each place it appears therein,
(ii) without regard to ``and before
January 1, 2015'' in clause (i)
thereof, and
(iii) by substituting ``qualified
disaster assistance property'' for
``qualified property'' in clause (iv)
thereof.
(D) Allowance against alternative minimum
tax.--For purposes of this subsection, rules
similar to the rules of subsection (k)(2)(G)
shall apply.
(3) Other definitions.--For purposes of this
subsection--
(A) Applicable disaster date.--The term
``applicable disaster date'' means, with
respect to any federally declared disaster, the
date on which such federally declared disaster
occurs.
(B) Federally declared disaster.--The term
``federally declared disaster'' has the meaning
given such term under section 165(h)(3)(C)(i).
(C) Disaster area.--The term ``disaster
area'' has the meaning given such term under
section 165(h)(3)(C)(ii).
(D) Eligible taxpayer.--The term ``eligible
taxpayer'' means a taxpayer who has suffered an
economic loss attributable to a federally
declared disaster.
(4) Recapture.--For purposes of this subsection,
rules similar to the rules under section 179(d)(10)
shall apply with respect to any qualified disaster
assistance property which ceases to be qualified
disaster assistance property.
VII. DISSENTING VIEWS
The five permanent, unpaid-for tax extender bills approved
by the Republicans at the markup would add more than $411
billion to the deficit. Combined with the eleven tax bills that
were approved by the Republicans in previous markups this
Congress, these sixteen tax bills would add more than $1
trillion to the deficit. In the 113th Congress, Ways and Means
Committee Republicans selectively approved fourteen of the more
than fifty expired tax provisions, totaling more than $825
billion worth of deficit-financed, permanent tax cuts. This
selective approach failed last Congress, with none of these
permanent provisions being enacted into law or even considered
by the Senate. The permanent, unpaid-for tax bills marked up by
the Committee set us down a partisan path, when we should be
working in a responsible, bipartisan manner on tax reform.
Even though a number of these bills were introduced
individually with some bipartisan support, the opposition to
these bills is based on the position that these tax provisions
should not be made permanent without any revenue offset. The
fiscally irresponsible approach that the Committee Republicans
are taking with respect to this and other legislation
undermines the bipartisan support that some of the provisions
enjoy. In fact, this provision was repealed in the Republican
tax reform plan (H.R. 1) introduced by the Ways and Means
Committee Chairman last Congress. The cost of making this
provision permanent should be offset, and Republicans should
stop playing games by passing these provisions outside of
comprehensive tax reform. The American people expect a tax code
that maintains and supports our shared priorities, and each
time the Committee considers these bills in a piecemeal
approach, it is taking a step in the wrong direction and away
from comprehensive tax reform.
We all support provisions that help America's businesses
grow. However, expired provisions must be dealt with in a
comprehensive manner. The Republicans did not take up other tax
extenders that also are important to Democratic Committee
Members. Left to an uncertain fate are provisions like the Work
Opportunity Tax Credit, the New Markets Tax Credit, and the
renewable energy tax credits, as well as the long-term status
of the Earned Income Tax Credit, the Child Tax Credit, and the
American Opportunity Tax Credit.
Sincerely,
Sander M. Levin,
Ranking Member.
[all]