A bill to amend the Internal Revenue Code of 1986 to improve the deduction for depreciation.

Summary: Tax Depreciation, Modernization, and Simplification Act of 2005 - Amends the Internal Revenue Code to: (1) authorize the Secretary of the Treasury to modify or create new class lives for depreciable business assets that reasonably reflect anticipated useful life and decline in value; (2) eliminate the mid-quarter accounting convention for determining depreciation; (3) allow an election to consolidate, in a mass asset account, the accounting of depreciable properties that each cost less than $10,000; and (4) extend permanently the $100,000 expensing allowance for depreciable business assets.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Tax Depreciation, Modernization, and 
Simplification Act of 2005''.

SEC. 2. AUTHORITY TO MODIFY CLASS LIVES.

    (a) In General.--Paragraph (1) of section 168(i) of the Internal 
Revenue Code of 1986 is amended to read as follows:
            ``(1) Class life.--
                    ``(A) In general.--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, as in effect on the day before the date of 
                the enactment of the Revenue Reconciliation Act of 1990 
                (determined without regard to paragraph (4) thereof and 
                as if the taxpayer had made an election under such 
                subsection).
                    ``(B) Secretarial authority.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the Secretary, after consultation 
                        with Congress, may prescribe by regulation--
                                    ``(I) a new class life for any 
                                property, or
                                    ``(II) a class life for any 
                                property which does not have a class 
                                life within the meaning of subparagraph 
                                (A).
                            ``(ii) Exceptions.--Clause (i) shall not 
                        apply to--
                                    ``(I) residential rental property 
                                or nonresidential real property, or
                                    ``(II) property for which a class 
                                life, classification, or recovery 
                                period is assigned under subsection 
                                (e)(3) (other than subparagraph (C)(v) 
                                thereof) or subparagraph (B), (C), or 
                                (D) of subsection (g)(3).
                            ``(iii) Standards.--Any class life 
                        prescribed or modified under clause (i) shall 
                        reasonably reflect the anticipated useful life 
                        and the anticipated decline in value over time 
                        of the property to the industry or other group, 
                        and shall take into account when the property 
                        is technologically or functionally obsolete for 
                        the original purpose under which it was 
                        acquired.
                            ``(iv) Consultation.--Not later than 60 
                        days before the date on which the Secretary 
                        publishes any proposed regulation under clause 
                        (i), the Secretary shall submit to Congress the 
                        proposed regulation together with a report 
                        containing the information considered by the 
                        Secretary in modifying or prescribing any class 
                        life under the regulation.
                            ``(v) Monitoring.--The Secretary, through 
                        an office established in the Treasury, shall 
                        monitor and analyze actual experience with 
                        respect to depreciable assets to which this 
                        subparagraph applies.
                    ``(C) Effect of modification.--Any class life with 
                respect to any property prescribed or modified under 
                subparagraph (B) shall be used in classifying such 
                property under subsection (e) and in applying 
                subsection (g).''.
    (b) Application of Congressional Review Act.--For purposes of 
applying chapter 8 of title 5, United States Code, to any regulation 
prescribed under section 168(i)(1)(B) of the Internal Revenue Code of 
1986, each class life prescribed under such section shall be considered 
to be a separate rule.
    (c) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 3. ELIMINATION OF MID-QUARTER CONVENTION.

    (a) In General.--Subsection (d) of section 168 of the Internal 
Revenue Code of 1986 is amended--
            (1) by striking paragraph (3) and redesignating paragraph 
        (4) as paragraph (3), and
            (2) in paragraph (3), as redesignated by paragraph (1), by 
        striking subparagraph (C).
    (b) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

SEC. 4. MASS ASSET ACCOUNTING.

    (a) In General.--Section 168 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(l) Mass Asset Accounting.--
            ``(1) Election.--
                    ``(A) In general.--In lieu of the deduction 
                otherwise allowed under this section with respect to an 
                item of qualified property, the taxpayer may elect to 
                add the adjusted basis of such property to the mass 
                asset account of the taxpayer to which such qualified 
                property is assigned and to determine the deduction 
                under this section using the applicable depreciation 
                method with respect to such mass asset account.
                    ``(B) Election to apply to all assets of the 
                taxpayer with same recovery period.--An election made 
                under subparagraph (A) shall be made in such manner as 
                the Secretary may by regulations prescribe and shall 
                apply to all qualified property of the taxpayer which 
                has the same applicable recovery period for such 
                taxable year and all subsequent taxable years.
                    ``(C) Election irrevocable.--Any election made 
                under this paragraph shall be irrevocable except with 
                the consent of the Secretary. The Secretary shall 
                prescribe rules for the proper accounting of assets in 
                a mass asset account in the case of any such 
                revocation.
            ``(2) Special rules.--
                    ``(A) Modification of depreciation method.--In 
                applying the applicable depreciation method to any mass 
                asset account, subsection (b) shall be applied without 
                regard to paragraph (1)(B) thereof.
                    ``(B) Adjustment to reflect half-year convention.--
                In applying the deduction allowable under subsection 
                (a) to any mass asset account, the amount of the 
                deduction under subsection (a) shall be--
                            ``(i) 100 percent of the deduction 
                        otherwise allowed under this section in the 
                        case of qualified property placed in service 
                        before the beginning of the taxable year, and
                            ``(ii) 50 percent of the deduction 
                        otherwise allowed under this section with 
                        respect to qualified property placed in service 
                        during the taxable year.
                    ``(C) Sale of qualified property.--
                            ``(i) In general.--In the case of the sale 
                        of any property the adjusted basis of which has 
                        been added to a mass asset account, the balance 
                        of the mass asset account to which such 
                        property was assigned shall be reduced (but not 
                        below zero) by the amount of the proceeds from 
                        such sale.
                            ``(ii) Recognition of gain.--If the 
                        proceeds from the sale of any property the 
                        adjusted basis of which has been added to a 
                        mass asset account exceed the balance of such 
                        mass asset account, then the excess shall be 
                        treated as ordinary income.
            ``(3) Qualified property.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `qualified property' means any tangible 
                property--
                            ``(i) to which an applicable depreciation 
                        method under paragraph (1) or (2) of subsection 
                        (b) applies, and
                            ``(ii) the cost of which is not more than 
                        $10,000.
                    ``(B) Inflation adjustment.--
                            ``(i) In general.--In the case of any 
                        taxable year beginning after 2006, the $10,000 
                        amount under subparagraph (A)(ii) shall be 
                        increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                the taxable year begins, determined by 
                                substituting `calendar year 2005' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Rounding.--If any amount as adjusted 
                        under the clause (i) is not a multiple of 
                        $1,000, such amount shall be rounded to the 
                        next lowest multiple of $1,000.
            ``(4) Mass asset account.--The term `mass asset account' 
        means an account of the taxpayer which reflects the adjusted 
        basis of all qualified property to which the same applicable 
        depreciation method and applicable recovery period applies.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

SEC. 5. PERMANENT EXTENSION OF EXPENSING FOR SMALL BUSINESSES.

    (a) Dollar Limitation.--Paragraph (1) of section 179(b) of the 
Internal Revenue Code of 1986 is amended by striking ``$25,000 
($100,000 in the case of taxable years beginning after 2002 and before 
2008)'' and inserting ``$100,000''.
    (b) Reduction in Limitation.--Paragraph (2) of section 179(b) of 
such Code is amended by striking ``$200,000 ($400,000 in the case of 
taxable years beginning after 2002 and before 2008)'' and inserting 
``$400,000''.
    (c) Inflation Adjustments.--Subparagraph (A) of section 179(b)(5) 
of such Code is amended by striking ``and before 2008''.
    (d) Election.--Paragraph (2) of section 179(c) of such Code is 
amended by striking ``and before 2008''.
    (e) Computer Software.--Clause (ii) of section 179(d)(1)(A) is 
amended by striking ``and before 2008''.