59–006 

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 


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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 


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1Sec. 168. 

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 


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2Sec. 168(e)(6). 

3Sec. 168(e)(6) and (k)(3). 

4Sec. 168(e)(6)(A). 

5Sec. 168(e)(6)(B). 

6Sec. 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). 

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. 

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

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. 


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7Sec. 168(e)(7). 

8Sec. 168(b)(3)(H) and (d). 

9Sec. 168(e)(7)(B). 

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. 11Sec. 168(e)(8). 12Sec. 168(e)(8)(C). 13Sec. 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. 14 Joint Committee on Taxation,General Explanation of Tax Legislation Enacted in the 110th 

Congress (JCS–1–09), March 2009, p. 402. 

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. 

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 public10 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

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


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15Sec. 168(b)(3)(I) and (d). 16Sec. 168(e)(8)(D). 

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. 

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: 


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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 inVerDate Sep 11 2014 01:11 Oct 28, 2015 Jkt 059006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6602 E:\HR\OC\HR306.XXX HR306

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creased 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. 


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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 


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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— 


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(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: 


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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 bore 50 years. 

(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 midpoint 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— 


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(1) IN GENERAL.—Except as otherwise provided in this subsection, property shall be classified under the following table: 

Property shall be treated as: If such property has a class life (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 PROP- ERTY.— 

(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, 


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(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, 


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(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 


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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. 


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(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 


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amendments made by section 201 of the Tax Reform Act 

of 1986. 

(g) ALTERNATIVE DEPRECIATION SYSTEM FOR CERTAIN PROP- ERTY.— 

(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 clause (ii) or (iii) The class life. 

(ii) Personal property with no class life 12 years. 

(iii) Nonresidential real and residential rental property 40 years.

(iv) Any railroad grading or tunnel bore or water utility 

property 

50 years. 

(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 


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If property is described in subparagraph: The class life is: 

(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 


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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— 


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(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 


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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 shortterm 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. 


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(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 EN- TITY.—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 

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scribed 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 agVerDate Sep 11 2014 01:11 Oct 28, 2015 Jkt 059006 PO 00000 Frm 00024 Fmt 6659 Sfmt 6602 E:\HR\OC\HR306.XXX HR306

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gregate 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 

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portionate 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 


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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 taxexempt 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 


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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 


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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. 


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(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 


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(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 longterm 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 


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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 

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cultural 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, 


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(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 


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(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 


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36 

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)). 


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(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. 


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(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 


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(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— 


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(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 


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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, 


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(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 


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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, 


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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 


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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 ACCELERA- TION.—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 ACCEL- ERATION.—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 propVerDate Sep 11 2014 01:11 Oct 28, 2015 Jkt 059006 PO 00000 Frm 00045 Fmt 6659 Sfmt 6602 E:\HR\OC\HR306.XXX HR306

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erty 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 ACCEL- ERATION.—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 applicaVerDate Sep 11 2014 01:11 Oct 28, 2015 Jkt 059006 PO 00000 Frm 00046 Fmt 6659 Sfmt 6602 E:\HR\OC\HR306.XXX HR306

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tion 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 


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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 


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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. 


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(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 


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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 


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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 


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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 


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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 bore 50 years. 

(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 


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month) as placed in service (or disposed of) on the midpoint 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: 

Property shall be treated as: If such property has a class life (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 PROP- ERTY.— 

(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 


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(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 


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(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 

øplaced in service before January 1, 2015¿, (v) any qualified restaurant property øplaced 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, 2008ø, 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. 


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(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— 


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(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 


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(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 PROP- ERTY.— 

(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 clause (ii) or (iii) The class life. 

(ii) Personal property with no class life 12 years. 

(iii) Nonresidential real and residential rental property 40 years.

(iv) Any railroad grading or tunnel bore or water utility 

property 

50 years. 

(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 


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If property is described in subparagraph: The class life is: 

(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 


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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. 


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(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 EN- GAGING 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 PROP- ERTY.—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. 


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(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 shortterm 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) 


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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 


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(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 EQUIP- MENT.— 

(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 


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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. 


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(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 alVerDate Sep 11 2014 01:11 Oct 28, 2015 Jkt 059006 PO 00000 Frm 00068 Fmt 6659 Sfmt 6602 E:\HR\OC\HR306.XXX HR306

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located 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 UN- RELATED 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 taxexempt 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 


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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 

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plying 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. 


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(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. 


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(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 longterm 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. 


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(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 


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(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 

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ceed 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— 


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(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— 


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(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, 


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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. 


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(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))). 


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(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 

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structing, 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 


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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 CRED- ITS 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— 


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(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. 


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(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 


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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 


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(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. 


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(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. 


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(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.— 


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(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. 


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(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 


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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 


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(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). 


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(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. 


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(95) 

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, unpaidfor 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. 

Æ 


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