I 

108TH CONGRESS 

1ST SESSION H. R. 1339

To amend the Internal Revenue Code of 1986 to provide that the deduction 

for depreciation shall be computed on a neutral cost recovery basis. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 18, 2003

Mr. SMITH of Michigan introduced the following bill; which was referred to 

the Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

that the deduction for depreciation shall be computed 

on a neutral cost recovery basis.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Neutral Cost Recovery 

5 Act of 2003’’. 

6 SEC. 2. NEUTRAL COST RECOVERY DEPRECIATION ADJUST7 MENT FOR CERTAIN PROPERTY PLACED IN 

8 SERVICE AFTER DECEMBER 31, 2003. 

9 (a) IN GENERAL.—Section 168 of the Internal Rev10 enue Code of 1986 (relating to accelerated cost recovery 
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1 system) is amended by adding at the end thereof the fol2 lowing new subsection: 

3 ‘‘(k) DEDUCTION ADJUSTMENT TO ALLOW EQUIVA4 LENT OF EXPENSING FOR CERTAIN PROPERTY PLACED

5 IN SERVICE AFTER DECEMBER 31, 2003.—

6 ‘‘(1) IN GENERAL.—In the case of tangible 

7 property placed in service after December 31, 2003, 

8 the deduction under this section with respect to such 

9 property—

10 ‘‘(A) shall be determined by substituting 

11 ‘150 percent’ for ‘200 percent’ in subsection 

12 (b)(1) in the case of property to which the 200 

13 percent declining balance method would other14 wise apply, and 

15 ‘‘(B) for any taxable year after the taxable 

16 year during which the property is placed in 

17 service shall be—

18 ‘‘(i) the amount determined under this 

19 section for such taxable year without re20 gard to this subparagraph, multiplied by 

21 ‘‘(ii) the applicable neutral cost recov22 ery ratio for such taxable year.

23 ‘‘(2) APPLICABLE NEUTRAL COST RECOVERY

24 RATIO.—For purposes of paragraph (1)—
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1 ‘‘(A) IN GENERAL.—The applicable neutral 

2 cost recovery ratio for the property for any tax3 able year is the number determined by—

4 ‘‘(i) dividing—

5 ‘‘(I) the gross domestic product 

6 deflator for the calendar quarter end7 ing in such taxable year which cor8 responds to the calendar quarter dur9 ing which the property was placed in 

10 service by the taxpayer, by 

11 ‘‘(II) the gross domestic product 

12 deflator for the calendar quarter dur13 ing which the property was placed in 

14 service by the taxpayer, and 

15 ‘‘(ii) then multiplying the number de16 termined under clause (i) by the number 

17 equal to 1.035 to the nth power where ‘n’ 

18 is the number of full years in the period 

19 beginning on the 1st day of the calendar 

20 quarter during which the property was 

21 placed in service by the taxpayer and end22 ing on the day before the beginning of the 

23 corresponding calendar quarter ending 

24 during such taxable year.
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1 The applicable neutral cost recovery ratio shall 

2 never be less than 1. The applicable neutral 

3 cost recovery ratio shall be rounded to the nearest 1 4 ⁄1000. 

5 ‘‘(B) SPECIAL RULE FOR CERTAIN PROP6 ERTY.—In the case of property described in 

7 paragraph (2) or (3) of subsection (b) or in 

8 subsection (g), the applicable neutral cost recov9 ery ratio shall be determined without regard to 

10 subparagraph (A)(ii). 

11 ‘‘(3) GROSS DOMESTIC PRODUCT DEFLATOR.—

12 For purposes of paragraph (2), the gross domestic 

13 product deflator for any calendar quarter is the im14 plicit price deflator for the gross domestic product 

15 for such quarter (as shown in the first revision 

16 thereof). 

17 ‘‘(4) ELECTION NOT TO HAVE SUBSECTION

18 APPLY.—This subsection shall not apply to any 

19 property if the taxpayer elects not to have this sub20 section apply to such property. Such an election, 

21 once made, shall be irrevocable.

22 ‘‘(5) CHURNING TRANSACTIONS.—This sub23 section shall not apply to any property if this section 

24 would not apply to such property were subsection 
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1 (f)(5)(A)(ii) applied by substituting ‘2004’ for 

2 ‘1981’ and ‘2003’ for ‘1980’. 

3 ‘‘(6) ADDITIONAL DEDUCTION NOT TO AFFECT

4 BASIS OR RECAPTURE.—

5 ‘‘(A) IN GENERAL.—The additional 

6 amount determined under this section by reason 

7 of this subsection shall not be taken into ac8 count in determining the adjusted basis of any 

9 property or of any interest in a pass-thru entity 

10 which holds such property and shall not be 

11 treated as a deduction for depreciation for pur12 poses of sections 1245 and 1250. 

13 ‘‘(B) PASS-THRU ENTITY DEFINED.—For 

14 purposes of subparagraph (A), the term ‘pass15 thru entity’ means—

16 ‘‘(i) a regulated investment company, 

17 ‘‘(ii) a real estate investment trust, 

18 ‘‘(iii) an S corporation, 

19 ‘‘(iv) a partnership, 

20 ‘‘(v) an estate or trust, and 

21 ‘‘(vi) a common trust fund.’’

22 (b) MINIMUM TAX TREATMENT.—

23 (1) Paragraph (1) of section 56(a) of such Code 

24 is amended by adding at the end thereof the fol25 lowing new subparagraph: 
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1 ‘‘(E) USE OF NEUTRAL COST RECOVERY

2 RATIO.—In the case of property to which sec3 tion 168(k) applies and which is placed in serv4 ice after December 31, 2003, the deduction al5 lowable under this paragraph with respect to 

6 such property for any taxable year (after the 

7 taxable year during which the property is 

8 placed in service) shall be—

9 ‘‘(i) the amount so allowable for such 

10 taxable year without regard to this sub11 paragraph, multiplied by 

12 ‘‘(ii) the applicable neutral cost recov13 ery ratio for such taxable year (as deter14 mined under section 168(k)). 

15 This subparagraph shall not apply to any prop16 erty with respect to which there is an election 

17 in effect not to have section 168(k)) apply.’’

18 (2) Subparagraph (C) of section 56(g)(4) of 

19 such Code is amended by adding at the end the fol20 lowing new clause: 

21 ‘‘(v) NEUTRAL COST RECOVERY DE22 DUCTION.—Clause (i) shall not apply to 

23 the additional deduction allowable by rea24 son of section 168(k).’’
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1 (c) COORDINATION WITH DEPRECIATION LIMITA2 TION ON CERTAIN AUTOMOBILES.—Clause (i) of section 

3 280F(a)(1)(B) of such Code is amended by adding at the 

4 end the following new sentence: ‘‘For purposes of this 

5 clause, the unrecovered basis of any passenger automobile 

6 shall be treated as including the additional amount deter7 mined under section 168 by reason of subsection (k) there8 of to the extent not allowed as a deduction by reason of 

9 this paragraph for any taxable year in the recovery pe10 riod.’’

11 (d) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to taxable years ending after De13 cember 31, 2003.

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