TECHNICAL EXPLANATION OF THE REVENUE PROVISIONS 

OF H.R. 5140, 

THE “ECONOMIC STIMULUS ACT OF 2008” 

AS PASSED BY THE HOUSE OF REPRESENTATIVES 

AND THE SENATE ON FEBRUARY 7, 2008 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

 

February 8, 2008 

JCX-16-08
i 

CONTENTS 

Page

INTRODUCTION .......................................................................................................................... 1 

A. Recovery Rebates for Individual Taxpayers.......................................................................... 2 

B. Temporary Increase in Limitations on Expensing of Certain Depreciable Business 

Assets ..................................................................................................................................... 8 

C. Special Depreciation Allowance for Certain Property......................................................... 10 
1 

INTRODUCTION 

This document,1

 prepared by the staff of the Joint Committee on Taxation, provides a 

technical explanation of the revenue provisions of H.R. 5140, the Economic Stimulus Act of 

2008 as passed by the House of Representatives and the Senate on February 7, 2008. 

 1

 This document may be cited as follows: Joint Committee on Taxation, Technical Explanation 

of the Revenue Provisions of H.R. 5140, the “Economic Stimulus Act of 2008”as passed by the House of 

Representatives and the Senate on February 7, 2008. (JCX-16-08), February 8, 2008. This document 

can also be found on our website at www.house.gov/jct. 
2 

A. Recovery Rebates for Individual Taxpayers 

Present Law

In general

Under the Federal individual income tax system, an individual who is a citizen or a 

resident of the United States generally is subject to tax on worldwide taxable income. Taxable 

income is total gross income less certain exclusions, exemptions, and deductions. An individual 

may claim either a standard deduction or itemized deductions. 

An individual’s income tax liability is determined by computing his or her regular 

income tax liability and, if applicable, alternative minimum tax liability. 

Income tax liability

Regular income tax liability is determined by applying the regular income tax rate 

schedules (or tax tables) to the individual’s taxable income (sec. 1). This tax liability is then 

reduced by any applicable tax credits. The regular income tax rate schedules are divided into 

several ranges of income, known as income brackets, and the marginal tax rate increases as the 

individual’s income increases. The income bracket amounts are adjusted annually for inflation. 

Separate rate schedules apply based on filing status: single individuals (other than heads of 

households and surviving spouses), heads of households, married individuals filing joint returns 

(including surviving spouses), married individuals filing separate returns, and estates and trusts. 

Lower rates may apply to capital gains. 

A taxpayer may also be subject to an alternative minimum tax. 

Child tax credit

An individual may claim a tax credit of $1,000 for each qualifying child under the age of 

17 (sec. 24). Generally, a qualifying child must have the same principal place of abode as the 

taxpayer for more than one-half the taxable year and satisfy a relationship test. To satisfy the 

relationship test, the child must be the taxpayer’s son, daughter, stepson, stepdaughter, brother, 

sister, stepbrother, stepsister, or a descendant of any such individual. The credit is phased-out at 

higher-income levels. A child who is not a citizen, national, or resident of the United States may 

not be a qualifying child. No credit is allowed unless the individual includes the name and 

taxpayer identification number of each qualifying child on the income tax return. 

Earned income credit

Low and moderate-income workers may be eligible for the refundable earned income 

credit (EIC). Eligibility for the EIC is based on earned income, adjusted gross income, 

investment income, filing status, and immigration and work status in the United States. The 

amount of the EIC is based on the presence and number of qualifying children in the worker’s 

family, as well as on adjusted gross income and earned income. Earned income is defined as (1) 

wages, salaries, tips, and other employee compensation, but only if such amounts are includible 

in gross income, plus (2) the amount of the individual’s net self-employment earnings. 
3 

Explanation of Provision

In general

The provision includes a recovery rebate credit for 2008 which is refundable. The credit 

mechanism (and the issuance of checks described below) is intended to deliver an expedited 

fiscal stimulus to the economy. 

The credit is computed with two components in the following manner. 

Basic credit

Eligible individuals receive a basic credit (for the first taxable year beginning) in 2008 

equal to the greater of the following: 

• Net income tax liability not to exceed $600 ($1,200 in the case of a joint return). 

• $300 ($600 in the case of a joint return) if: (1) the eligible individual has qualifying 

income of at least $3,000; or (2) the eligible individual has a net income tax liability 

of at least $1 and gross income greater than the sum of the applicable basic standard 

deduction amount and one personal exemption (two personal exemptions for a joint 

return). 

An eligible individual is any individual other than: (1) a nonresident alien; (2) an estate or 

trust; or (3) a dependent. 

For these purposes, “net income tax liability” means the excess of the sum of the 

individual’s regular tax liability and alternative minimum tax over the sum of all nonrefundable 

credits (other than the child credit). Net income tax liability as determined for these purposes is 

not reduced by the credit added by this provision or any credit which is refundable under present 

law. 

Qualifying income is the sum of the eligible individual’s: (a) earned income; (b) social 

security benefits (within the meaning of sec. 86(d)); and (c) veteran’s payments (under Chapters 

11, 13, or 15 of title 38 of the U. S. Code). The definition of earned income has the same 

meaning as used in the earned income credit except that it includes certain combat pay and does 

not include net earnings from self-employment which are not taken into account in computing 

taxable income. 

Qualifying child credit

If an individual is eligible for any amount of the basic credit the individual also may be 

eligible for a qualifying child credit. The qualifying child credit equals $300 for each qualifying 

child of such individual. For these purposes, the child credit definition of qualifying child 

applies. 
4 

Limitation based on adjusted gross income

The amount of the credit (i.e., the sum of the amounts of the basic credit and the 

qualifying child credit) is phased out at a rate of five percent of adjusted gross income above 

certain income levels. The beginning point of this phase-out range is $75,000 of adjusted gross 

income ($150,000 in the case of joint returns). 

Valid identification numbers

No credit is allowed to an individual who does not include a valid identification number 

on the individual’s income tax return. In the case of a joint return which does not include valid 

identification numbers for both spouses, no credit is allowed. In addition, a child shall not be 

taken into account in determining the amount of the credit if a valid identification number for the 

child is not included on the return. For this purpose, a valid identification number means a social 

security number issued to an individual by the Social Security Administration. A taxpayer 

identification number issued by the Internal Revenue Service is not a valid identification number 

for purposes of this credit (e.g., an ITIN). 

If an individual fails to provide a valid identification number, the omission is treated as a 

mathematical or clerical error. As under present law, the Internal Revenue Service (the “IRS”) 

may summarily assess additional tax due as a result of a mathematical or clerical error without 

sending the taxpayer a notice of deficiency and giving the taxpayer an opportunity to petition the 

Tax Court. Where the IRS uses the summary assessment procedure for mathematical or clerical 

errors, the taxpayer must be given an explanation of the asserted error and given 60 days to 

request that the IRS abate its assessment. 

Rebate checks

Most taxpayers will receive this credit in the form of a check issued by the Department of 

the Treasury. 2 The amount of the payment will be computed in the same manner as the credit, 

except that it will be done on the basis of tax returns filed for 2007 (instead of 2008). It is 

anticipated that the Department of the Treasury will make every effort to issue all payments as 

rapidly as possible to taxpayers who timely file their 2007 tax returns. (Taxpayers who file late 

or pursuant to extensions will receive their payments later.) 

Taxpayers will reconcile the amount of the credit with the payment they receive in the 

following manner. They will complete a worksheet calculating the amount of the credit based on 

their 2008 income tax return. They will then subtract from the credit the amount of the payment 

they received in 2008. For many taxpayers, these two amounts will be the same. If, however, 

the result is a positive number (because, for example, the taxpayer paid no tax in 2007 but is 

paying tax in 2008), the taxpayer may claim that amount as a refundable credit against 2008 tax 

liability. If, however, the result is negative (because, for example, the taxpayer paid tax in 2007 

 2

 To the extent practicable, the Department of the Treasury is expected to utilize individuals’ 

current direct deposit information in its possession to expedite delivery of these amounts rather than the 

mailing of rebate checks. 
5 

but owes no tax for 2008), the taxpayer is not required to repay that amount to the Treasury. 

Otherwise, the checks have no effect on tax returns filed for 2008; the amount is not includible in 

gross income and it does not otherwise reduce the amount of withholding. 

In no event may the Department of the Treasury issue checks after December 31, 2008. 

This is designed to prevent errors by taxpayers who might claim the full amount of the credit on 

their 2008 tax returns and file those returns early in 2009, at the same time the Treasury check 

might be mailed to them. Payment of the credit (or the check) is treated, for all purposes of the 

Code, as a payment of tax. Any resulting overpayment under this provision is subject to the 

refund offset provisions, such as those applicable to past-due child support under section 6402 of 

the Code. 

Examples of rebate determination

The following examples show the rebate amounts as calculated from the taxpayer’s 2007 

tax return. 

Example 1.–A single taxpayer has $14,000 in Social Security income, no qualifying 

children, and no net tax liability prior to the application of refundable credits and the child credit. 

The taxpayer will receive a rebate of $300 for meeting the qualifying income test. 

Example 2.–A head of household taxpayer has $4,000 in earned income, one qualifying 

child, and no net tax liability prior to the application of refundable credits and the child credit. 

The taxpayer will receive a rebate of $600, comprising $300 for meeting the qualifying income 

test, and $300 per child. 

Example 3.–A married taxpayer filing jointly has $4,000 in earned income, one 

qualifying child, and no net tax liability prior to the application of refundable credits and the 

child credit. The taxpayer will receive a rebate of $900, comprising $600 for meeting the 

qualifying income test, and $300 per child. 

Example 4.–A married taxpayer filing jointly has $2,000 in earned income, one 

qualifying child, and $1,100 in net tax liability (resulting from other unearned income) prior to 

the application of refundable credits and the child credit (the taxpayer’s actual liability after the 

child credit is $100). The qualifying income test is not met, but the taxpayer has net tax liability 

for purposes of determining the rebate of $1,100. The taxpayer will receive a rebate of $1,400, 

comprising $1,100 of net tax liability, and $300 per child. 

Example 5.–A married taxpayer filing jointly has $40,000 in earned income, two 

qualifying children, and a net tax liability of $1,573 prior to the application of refundable credits 

and child credits (the taxpayer’s actual tax liability after the child credit is -$427). The taxpayer 

meets the qualifying income test and the net tax liability test. The taxpayer will receive a rebate 

of $1,800, comprising $1,200 (greater of $600 or net tax liability not to exceed $1,200), and 

$300 per child. 

Example 6.–A married taxpayer filing jointly has $175,000 in earned income, two 

qualifying children, and a net tax liability of $31,189 (the taxpayer’s actual liability after the 

child credit also is $31,189 as the joint income is too high to qualify). The taxpayer meets the 
6 

qualifying income test and the net tax liability test. The taxpayer will, in the absence of the 

rebate phase-out provision, receive a rebate of $1,800, comprising $1,200 (greater of $600 or net 

tax liability not to exceed $1,200), and $300 per child. The phase-out provision reduces the total 

rebate amount by five percent of the amount by which the taxpayer’s adjusted gross income 

exceeds $150,000. Five percent of $25,000 ($175,000 minus $150,000) equals $1,250. The 

taxpayer’s rebate is thus $1,800 minus $1,250, or $550. 

Treatment of the U.S. possessions

Mirror code possessions3

The U.S. Treasury will make a payment to each mirror code possession in an amount 

equal to the aggregate amount of the credits allowable by reason of the provision to that 

possession’s residents against its income tax. This amount will be determined by the Treasury 

Secretary based on information provided by the government of the respective possession. For 

purposes of this payment, a possession is a mirror code possession if the income tax liability of 

residents of the possession under that possession’s income tax system is determined by reference 

to the U.S. income tax laws as if the possession were the United States. 

Non-mirror code possessions4

To each possession that does not have a mirror code tax system, the U.S. Treasury will 

make a payment in an amount estimated by the Secretary as being equal to the aggregate credits 

that would have been allowed to residents of that possession if a mirror code tax system had been 

in effect in that possession. Accordingly, the amount of each payment to a non-mirror Code 

possession will be an estimate of the aggregate amount of the credits that would be allowed to 

the possession’s residents if the credit provided by the provision to U.S. residents were provided 

by the possession to its residents. This payment will not be made to any U.S. possession unless 

that possession has a plan that has been approved by the Secretary under which the possession 

will promptly distribute the payment to its residents. 

General rules

No credit against U.S. income taxes is permitted under the provision for any person to 

whom a credit is allowed against possession income taxes as a result of the provision (for 

example, under that possession’s mirror income tax). Similarly, no credit against U.S. income 

taxes is permitted for any person who is eligible for a payment under a non-mirror code 

possession’s plan for distributing to its residents the payment described above from the U.S. 

Treasury. 

 3

 Possessions with mirror code tax systems are the United States Virgin Islands, Guam, and the 

Commonwealth of the Northern Mariana Islands. 

4

 Possessions that do not have mirror code tax systems are Puerto Rico and American Samoa. 
7 

For purposes of the rebate credit payment, the Commonwealth of Puerto Rico and the 

Commonwealth of the Northern Mariana Islands are considered possessions of the United States. 

For purposes of the rule permitting the Treasury Secretary to disburse appropriated 

amounts for refunds due from certain credit provisions of the Internal Revenue Code of 1986, the 

payments required to be made to possessions under the provision are treated in the same manner 

as a refund due from the recovery rebate credit. 

Federal programs or Federally-assisted programs

Any credit or refund allowed or made to an individual under this provision (including to 

any resident of a U.S. possessions) is not taken into account as income and shall not be taken into 

account as resources for the month of receipt and the following two months for purposes of 

determining eligibility of such individual or any other individual for benefits or assistance, or the 

amount or extent of benefits or assistance, under any Federal program or under any State or local 

program financed in whole or in part with Federal funds. 

Effective Date

The provision applies to taxable years beginning after December 31, 2007. 
8 

B. Temporary Increase in Limitations on Expensing 

of Certain Depreciable Business Assets 

Present Law

A taxpayer that satisfies limitations on annual investment may elect under section 179 to 

deduct (or “expense”) the cost of qualifying property, rather than to recover such costs through 

depreciation deductions.5

 For taxable years beginning in 2008, the maximum amount that a 

taxpayer may expense is $128,000 of the cost of qualifying property placed in service for the 

taxable year. The $128,000 amount is reduced (but not below zero) by the amount by which the 

cost of qualifying property placed in service during the taxable year exceeds $510,000.6

 In 

general, qualifying property is defined as depreciable tangible personal property that is 

purchased for use in the active conduct of a trade or business. Off-the-shelf computer software 

placed in service in taxable years beginning before 2011 is treated as qualifying property. 

The amount eligible to be expensed for a taxable year may not exceed the taxable income 

for a taxable year that is derived from the active conduct of a trade or business (determined 

without regard to this provision). Any amount that is not allowed as a deduction because of the 

taxable income limitation may be carried forward to succeeding taxable years (subject to similar 

limitations). No general business credit under section 38 is allowed with respect to any amount 

for which a deduction is allowed under section 179. An expensing election is made under rules 

prescribed by the Secretary.7

 For taxable years beginning in 2011 and thereafter, other rules 

apply.8 

 5

 Additional section 179 incentives are provided with respect to qualified property meeting 

applicable requirements that is used by a business in an empowerment zone (sec. 1397A), a renewal 

community (sec. 1400J), or the Gulf Opportunity Zone (sec. 1400N(e)). 

6

 Amounts applicable for 2008 are set forth in Rev. Proc. 2007-66, 2007-45 I.R.B. 970. Present 

law provides that the maximum amount a taxpayer may expense, for taxable years beginning in 2007 

through 2010, is $125,000 of the cost of qualifying property placed in service for the taxable year. The 

$125,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property 

placed in service during the taxable year exceeds $500,000. The $125,000 and $500,000 amounts are 

indexed for inflation in taxable years beginning after 2007 and before 2011. 

7

 Sec. 179(c)(1). 

8

 Under the rules in effect for taxable years beginning in 2011 and thereafter, a taxpayer with a 

sufficiently small amount of annual investment may elect to deduct up to $25,000 of the cost of 

qualifying property placed in service for the taxable year. The $25,000 amount is reduced (but not below 

zero) by the amount by which the cost of qualifying property placed in service during the taxable year 

exceeds $200,000. The $25,000 and $200,000 amounts are not indexed. In general, qualifying property 

is defined as depreciable tangible personal property that is purchased for use in the active conduct of a 

trade or business (not including off-the-shelf computer software). An expensing election may be revoked 

only with consent of the Commissioner (sec. 179(c)(2)). 
9 

Explanation of Provision

The provision increases the $128,000 and $510,000 amounts under section 179 for 

taxable years beginning in 2008 to $250,000 and $800,000, respectively. The $250,000 and 

$800,000 amounts are not indexed for inflation. 

Effective Date

The provision is effective for taxable years beginning after December 31, 2007. 
10 

C. Special Depreciation Allowance for Certain Property 

Present Law

A taxpayer is allowed to recover through annual depreciation deductions the cost of 

certain property used in a trade or business or for the production of income. The amount of the 

depreciation deduction allowed with respect to tangible property for a taxable year is determined 

under the modified accelerated cost recovery system (“MACRS”). Under MACRS, different 

types of property generally are assigned applicable recovery periods and depreciation methods. 

The recovery periods applicable to most tangible personal property range from three to 25 years. 

The depreciation methods generally applicable to tangible personal property are the 200-percent 

and 150-percent declining balance methods, switching to the straight-line method for the taxable 

year in which the taxpayer’s depreciation deduction would be maximized. 

Section 280F limits the annual depreciation deductions with respect to certain passenger 

automobiles to specified dollar amounts, indexed for inflation. 

Section 167(f)(1) provides that capitalized computer software costs, other than computer 

software to which section 197 applies, are recovered ratably over 36 months. 

A taxpayer that satisfies limitations on annual investment may elect under section 179 to 

deduct (or “expense”) the cost of qualifying property, rather than to recover such costs through 

depreciation deductions.9

 For taxable years beginning in 2008, the maximum amount that a 

taxpayer may expense is $128,000 of the cost of qualifying property placed in service for the 

taxable year. The $128,000 amount is reduced (but not below zero) by the amount by which the 

cost of qualifying property placed in service during the taxable year exceeds $510,000.10 In 

general, qualifying property is defined as depreciable tangible personal property that is 

purchased for use in the active conduct of a trade or business. Off-the-shelf computer software 

placed in service in taxable years beginning before 2011 is treated as qualifying property. For 

taxable years beginning in 2011 and thereafter, other rules apply. 11

 9

 Additional section 179 incentives are provided with respect to qualified property meeting 

applicable requirements that is used by a business in an empowerment zone (sec. 1397A), a renewal 

community (sec. 1400J), or the Gulf Opportunity Zone (sec. 1400N(e)). 

10 Amounts applicable for 2008 are set forth in Rev. Proc. 2007-66, 2007-45 I.R.B. 970. Present 

law provides that the maximum amount a taxpayer may expense, for taxable years beginning in 2007 

through 2010, is $125,000 of the cost of qualifying property placed in service for the taxable year. The 

$125,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property 

placed in service during the taxable year exceeds $500,000. The $125,000 and $500,000 amounts are 

indexed for inflation in taxable years beginning after 2007 and before 2011. 

11 Under the rules in effect for taxable years beginning in 2011 and thereafter, a taxpayer with a 

sufficiently small amount of annual investment may elect to deduct up to $25,000 of the cost of 

qualifying property placed in service for the taxable year. The $25,000 amount is reduced (but not below 

zero) by the amount by which the cost of qualifying property placed in service during the taxable year 

exceeds $200,000. The $25,000 and $200,000 amounts are not indexed. In general, qualifying property 
11 

Explanation of Provision

The provision allows an additional first-year depreciation deduction equal to 50 percent 

of the adjusted basis of qualified property.12 The additional first-year depreciation deduction is 

allowed for both regular tax and alternative minimum tax purposes for the taxable year in which 

the property is placed in service.13 The basis of the property and the depreciation allowances in 

the year the property is placed in service and later years are appropriately adjusted to reflect the 

additional first-year depreciation deduction. In addition, there are no adjustments to the 

allowable amount of depreciation for purposes of computing a taxpayer’s alternative minimum 

taxable income with respect to property to which the provision applies. The amount of the 

additional first-year depreciation deduction is not affected by a short taxable year. The taxpayer 

may elect out of additional first-year depreciation for any class of property for any taxable year. 

The interaction of the additional first-year depreciation allowance with the otherwise 

applicable depreciation allowance may be illustrated as follows. Assume that in 2008, a taxpayer 

purchases new depreciable property and places it in service.14 The property’s cost is $1,000, and 

it is five-year property subject to the half-year convention. The amount of additional first-year 

depreciation allowed under the provision is $500. The remaining $500 of the cost of the 

property is deductible under the rules applicable to five-year property. Thus, 20 percent, or 

$100, is also allowed as a depreciation deduction in 2008. The total depreciation deduction with 

respect to the property for 2008 is $600. The remaining $400 cost of the property is recovered 

under otherwise applicable rules for computing depreciation. 

In order for property to qualify for the additional first-year depreciation deduction it must 

meet all of the following requirements. First, the property must be (1) property to which 

MACRS applies with an applicable recovery period of 20 years or less, (2) water utility property 

(as defined in section 168(e)(5)), (3) computer software other than computer software covered by 

section 197, or (4) qualified leasehold improvement property (as defined in section 168(k)(3)).15 

Second, the original use16 of the property must commence with the taxpayer after December 31, 

 

is defined as depreciable tangible personal property that is purchased for use in the active conduct of a 

trade or business (not including off-the-shelf computer software). An expensing election may be revoked 

only with consent of the Commissioner (sec. 179(c)(2)). 

12 The additional first-year depreciation deduction is subject to the general rules regarding 

whether an item is deductible under section 162 or instead is subject to capitalization under section 263 or 

section 263A. 

13 However, the additional first-year depreciation deduction is not allowed for purposes of 

computing earnings and profits. 

14 Assume that the cost of the property is not eligible for expensing under section 179. 

15 A special rule precludes the additional first-year depreciation deduction for any property that is 

required to be depreciated under the alternative depreciation system of MACRS. 

16 The term “original use” means the first use to which the property is put, whether or not such 

use corresponds to the use of such property by the taxpayer. 
12 

2007.17 Third, the taxpayer must purchase the property within the applicable time period. 

Finally, the property must be placed in service after December 31, 2007, and before January 1, 

2009. An extension of the placed in service date of one year (i.e., to January 1, 2010) is provided 

for certain property with a recovery period of 10 years or longer and certain transportation 

property.18 Transportation property is defined as tangible personal property used in the trade or 

business of transporting persons or property. Special rules, including an extension of the placedin-service date of one year (i.e., to January 1, 2010), also apply to certain aircraft. 

The applicable time period for acquired property is (1) after December 31, 2007, and 

before January 1, 2009, but only if no binding written contract for the acquisition is in effect 

before January 1, 2008, or (2) pursuant to a binding written contract which was entered into after 

December 31, 2007, and before January 1, 2009.19 With respect to property that is 

manufactured, constructed, or produced by the taxpayer for use by the taxpayer, the taxpayer 

must begin the manufacture, construction, or production of the property after December 31, 

2007, and before January 1, 2009. Property that is manufactured, constructed, or produced for 

the taxpayer by another person under a contract that is entered into prior to the manufacture, 

construction, or production of the property is considered to be manufactured, constructed, or 

produced by the taxpayer. For property eligible for the extended placed in service date, a special 

rule limits the amount of costs eligible for the additional first year depreciation. With respect to 

such property, only the portion of the basis that is properly attributable to the costs incurred 

before January 1, 2009 (“progress expenditures”) is eligible for the additional first-year 

depreciation.20 

 

If in the normal course of its business a taxpayer sells fractional interests in property to unrelated 

third parties, then the original use of such property begins with the first user of each fractional interest 

(i.e., each fractional owner is considered the original user of its proportionate share of the property). 

17 A special rule applies in the case of certain leased property. In the case of any property that is 

originally placed in service by a person and that is sold to the taxpayer and leased back to such person by 

the taxpayer within three months after the date that the property was placed in service, the property would 

be treated as originally placed in service by the taxpayer not earlier than the date that the property is used 

under the leaseback. 

If property is originally placed in service by a lessor (including by operation of section 

168(k)(2)(D)(i)), such property is sold within three months after the date that the property was placed in 

service, and the user of such property does not change, then the property is treated as originally placed in 

service by the taxpayer not earlier than the date of such sale. 

18 In order for property to qualify for the extended placed in service date, the property is required 

to have an estimated production period exceeding one year and a cost exceeding $1 million. 

19 Property does not fail to qualify for the additional first-year depreciation merely because a 

binding written contract to acquire a component of the property is in effect prior to January 1, 2008. 

20 For purposes of determining the amount of eligible progress expenditures, it is intended that 

rules similar to sec. 46(d)(3) as in effect prior to the Tax Reform Act of 1986 shall apply. 
13 

Property does not qualify for the additional first-year depreciation deduction when the 

user of such property (or a related party) would not have been eligible for the additional firstyear depreciation deduction if the user (or a related party) were treated as the owner. For 

example, if a taxpayer sells to a related party property that was under construction prior to 

January 1, 2008, the property does not qualify for the additional first-year depreciation 

deduction. Similarly, if a taxpayer sells to a related party property that was subject to a binding 

written contract prior to January 1, 2008, the property does not qualify for the additional firstyear depreciation deduction. As a further example, if a taxpayer (the lessee) sells property in a 

sale-leaseback arrangement, and the property otherwise would not have qualified for the 

additional first-year depreciation deduction if it were owned by the taxpayer-lessee, then the 

lessor is not entitled to the additional first-year depreciation deduction. 

The limitation on the amount of depreciation deductions allowed with respect to certain 

passenger automobiles (sec. 280F) is increased in the first year by $8,000 for automobiles that 

qualify (and do not elect out of the increased first year deduction). The $8,000 increase is not 

indexed for inflation. 

Effective Date

The provision is effective for property placed in service after December 31, 2007.