To amend the Internal Revenue Code of 1986 to simplify the deduction for business use of the home and to make other changes affecting small businesses.

Summary: Small Business Tax Modernization Act of 2008 - Amends Internal Revenue Code provisions affecting small business taxpayers to: (1) allow an alternative standard tax deduction for the business use of a personal residence and establish a de minimis standard for determining personal use; (2) repeal restrictions on the depreciation deduction for cellular telephones and similar telecommunications equipment; (3) allow nonresident aliens to be S corporation shareholders; (4) increase the limit on the tax deduction for business meals and entertainment expenses; and (5) allow accelerated depreciation for energy-efficient heating, ventilation, air conditioning, or commercial refrigeration systems installed in nonresidential and residential rental buildings before January 1, 2012.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Tax Modernization Act 
of 2008''.

SEC. 2. STANDARD DEDUCTION FOR BUSINESS USE OF HOME.

    (a) In General.--Subsection (c) of section 280A of the Internal 
Revenue Code of 1986 (relating to disallowance of certain expenses in 
connection with business use of home, rental of vacation homes, etc.) 
is amended by adding at the end the following new paragraph:
            ``(7) Standard home office deduction.--
                    ``(A) In general.--In the case of an individual who 
                is allowed a deduction for the use of a home office 
                because of a use described in paragraphs (1), (2), or 
                (4) of this subsection, notwithstanding the limitations 
                of paragraph (5), if such individual elects the 
                application of this paragraph for the taxable year, 
                such individual shall be allowed a deduction equal to 
                the standard home office deduction for the taxable year 
                in lieu of the deductions otherwise allowable under 
                this chapter for such taxable year by reason of being 
                attributed to such use.
                    ``(B) Standard home office deduction.--For purposes 
                of this paragraph, the standard home office deduction 
                is the lesser of--
                            ``(i) $2,000, or
                            ``(ii) the gross income derived from the 
                        individual's trade or business for which such 
                        use occurs.
                    ``(C) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 2008, 
                the dollar amount in subparagraph (B)(i) 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 `2007' for `1992' in 
                        subparagraph (B) thereof.
                Any increase determined under the preceding sentence 
                shall be rounded to the nearest multiple of $100.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2007.

SEC. 3. DE MINIMIS EXCEPTION TO EXCLUSIVE USE REQUIREMENT.

    (a) In General.--Subsection (c) of section 280A of the Internal 
Revenue Code of 1986 (relating to disallowance of certain expenses in 
connection with business use of home, rental of vacation homes, etc.) 
is amended by redesignating paragraphs (5) and (6) as paragraphs (6) 
and (7), respectively, and by inserting after paragraph (4) the 
following new paragraph:
            ``(5) De minimis nonbusiness use.--In applying paragraph 
        (1), personal use shall not be taken into account if such use 
        is so small as to make accounting for it unreasonable or 
        administratively impracticable.''.
    (b) Conforming Amendment.--Subparagraph (A) of section 280A(d)(4) 
of such Code is amended by striking ``subsection (c)(5)'' and inserting 
``subsection (c)(6)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

SEC. 4. REMOVAL OF CELLULAR TELEPHONES AND SIMILAR TELECOMMUNICATIONS 
              EQUIPMENT FROM LISTED PROPERTY.

    (a) In General.--Subparagraph (A) of section 280F(d)(4) of the 
Internal Revenue Code of 1986 (defining listed property) is amended by 
adding ``and'' at the end of clause (iv), by striking clause (v), and 
by redesignating clause (vi) as clause (v).
    (b) Effective Date.--The amendment made by this section shall apply 
to property placed in service after December 31, 2007.

SEC. 5. NONRESIDENT ALIENS PERMITTED TO BE S CORPORATION SHAREHOLDERS.

    (a) In General.--Paragraph (1) of section 1361(b) of the Internal 
Revenue Code of 1986 (defining an S corporation) is amended by adding 
``and'' at the end of subparagraph (B), by striking subparagraph (C), 
and by redesignating subparagraph (D) as subparagraph (C).
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 6. INCREASED DEDUCTION OF BUSINESS MEALS AND ENTERTAINMENT 
              EXPENSES FOR QUALIFIED SMALL BUSINESSES.

    (a) In General.--Subsection (n) of section 274 of the Internal 
Revenue Code of 1986 (relating to only 50 percent of meal and 
entertainment expenses allowed as deduction) is amended by adding at 
the end the following new paragraph:
            ``(4) Special rule for small businesses.--
                    ``(A) In general.--In the case of a qualified small 
                business, paragraph (1) shall be applied--
                            ``(i) by substituting `75 percent' for `50 
                        percent' in the case of taxable years beginning 
                        in 2008, and
                            ``(ii) by substituting `80 percent' for `50 
                        percent' in the case of taxable years beginning 
                        after 2008.
                    ``(B) Qualified small business.--For purposes of 
                subparagraph (A), the term `qualified small business' 
                means, with respect to any taxable year--
                            ``(i) any corporation or partnership which 
                        meets the gross receipts test of section 448(c) 
                        for the preceding taxable year, and
                            ``(ii) any sole proprietorship which would 
                        meet such test if such proprietorship were a 
                        corporation.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2007.

SEC. 7. RECOVERY PERIOD FOR DEPRECIATION OF CERTAIN SYSTEMS INSTALLED 
              IN NONRESIDENTIAL AND RESIDENTIAL RENTAL BUILDINGS.

    (a) 20-Year Recovery Period for Highly Efficient HVAC&R 
Equipment.--Subparagraph (F) of section 168(e)(3) of the Internal 
Revenue Code of 1986 (relating to 20-year property) is amended to read 
as follows:
                    ``(F) 20-year property.--The term `20-year 
                property' means--
                            ``(i) initial clearing and grading land 
                        improvements with respect to any electric 
                        utility transmission and distribution plant, 
                        and
                            ``(ii) any property--
                                    ``(I) which is part of a heating, 
                                ventilation, air conditioning, or 
                                commercial refrigeration system,
                                    ``(II) which exceeds by at least 10 
                                percent the applicable minimum 
                                performance standard for such system or 
                                component under the National Appliance 
                                Energy Conservation Act of 1987, the 
                                Energy Policy Act of 2005, or the 
                                American Society of Heating, 
                                Refrigerating and Air-conditioning 
                                Engineers Standard 90.1,
                                    ``(III) which is installed on or in 
                                a building which is nonresidential real 
                                property or residential rental 
                                property,
                                    ``(IV) the original use of which 
                                commences with the taxpayer (the owner 
                                or lessor in the case of residential 
                                rental property), and
                                    ``(V) which is placed in service 
                                before January 1, 2012.''.
    (b) 25-Year Recovery Period for Certain Other HVAC&R Equipment.--
Section 168(e)(3) of such Code is amended by inserting after 
subparagraph (F) the following new subparagraph:
                    ``(G) 25-year property.--The term `25-year 
                property' means any property--
                            ``(i) which is part of a heating, 
                        ventilation, air conditioning, or commercial 
                        refrigeration system,
                            ``(ii) which is not described in 
                        subparagraph (F),
                            ``(iii) which is installed on or in a 
                        building which is nonresidential real property 
                        or residential rental property,
                            ``(iv) the original use of which commences 
                        with the taxpayer (the owner or lessor in the 
                        case of residential rental property), and
                            ``(v) which is placed in service before 
                        January 1, 2012.''.
    (c) Conforming Amendments.--
            (1) The table contained in section 168(c) of such Code is 
        amended by inserting after the item relating to 20-year 
        property the following new item:


``25-year property...........................  25 years''.
 

            (2) The table contained in section 467(e)(3)(A) of such 
        Code is amended by inserting after the item relating to 
        residential rental property and nonresidential real property 
        the following new item:


``25-year property...........................  25 years''.
 

    (d) Requirement To Use Straight Line Method.--Paragraph (3) of 
section 168(b) of such Code (relating to property to which straight 
line method applies) is amended by redesignating subparagraphs (F), 
(G), and (H) as subparagraphs (G), (H), and (I), respectively, and by 
inserting after subparagraph (E) the following new subparagraph:
            ``(F) Property described in subsection (e)(3)(F)(ii) and 
        subsection (e)(3)(G).''.
    (e) Alternative System.--The table contained in section 
168(g)(3)(B) of such Code is amended by striking the item relating to 
subparagraph (F) and inserting the following new items:


``(F)(i).....................................  25
(F)(ii)......................................  20
(G)..........................................  25''.
 

    (f) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2007.