39–006 

113TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 113–509 

BONUS DEPRECIATION MODIFIED AND MADE 

PERMANENT 

JULY 3, 2014.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. CAMP, from the Committee on Ways and Means, 

submitted the following 

R E P O R T 

together with 

DISSENTING VIEWS 

[To accompany H.R. 4718] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Ways and Means, to whom was referred the 

bill (H.R. 4718) to amend the Internal Revenue Code of 1986 to 

modify and make permanent bonus depreciation, 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 ............................................................... 5 

A. Purpose and Summary ..................................................................... 5 

B. Background and Need for Legislation ............................................. 5 

C. Legislative History ............................................................................ 6 

II. EXPLANATION OF THE BILL ................................................................... 6 

A. Bonus Depreciation Modified and Made Permanent (sec. 168(k) 

of the Code) ..................................................................................... 6 

III. VOTES OF THE COMMITTEE .................................................................... 13 

IV. BUDGET EFFECTS OF THE BILL ............................................................ 14 

A. Committee Estimate of Budgetary Effects ...................................... 14 

B. Statement Regarding New Budget Authority and Tax Expenditures Budget Authority .................................................................. 16 

C. Cost Estimate Prepared by the Congressional Budget Office ....... 16 

D. Macroeconomic Impact Analysis ...................................................... 19 

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF 

THE HOUSE .............................................................................................. 26 

A. Committee Oversight Findings and Recommendations ................. 26 


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B. Statement of General Performance Goals and Objectives ............. 26 

C. Information Relating to Unfunded Mandates ................................ 26 

D. Applicability of House Rule XXI 5(b) .............................................. 27 

E. Tax Complexity Analysis .................................................................. 27 

F. Congressional Earmarks, Limited Tax Benefits, and Limited 

Tariff Benefits ................................................................................. 33 

G. Duplication of Federal Programs ..................................................... 33 

H. Disclosure of Directed Rule Makings .............................................. 33 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED 33 

VII. DISSENTING VIEWS ................................................................................... 48 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. BONUS DEPRECIATION MODIFIED AND MADE PERMANENT. 

(a) MADE PERMANENT; INCLUSION OF QUALIFIED RETAIL IMPROVEMENT PROPERTY.—Section 168(k)(2) of the Internal Revenue Code of 1986 is amended to read 

as follows: 

‘‘(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, 

‘‘(IV) which is qualified leasehold improvement property, or 

‘‘(V) which is qualified retail improvement property, and 

‘‘(ii) the original use of which commences with the taxpayer. 

‘‘(B) EXCEPTION FOR 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). 

‘‘(C) SPECIAL RULES.— 

‘‘(i) SALE-LEASEBACKS.—For purposes of clause (ii) and subparagraph 

(A)(ii), if property is— 

‘‘(I) originally placed in service 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). 

‘‘(ii) SYNDICATION.—For purposes of subparagraph (A)(ii), if— 

‘‘(I) property is originally placed in service 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. 

‘‘(D) 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 computing any recapture amount under 

section 280F(b)(2). 


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‘‘(iii) INFLATION ADJUSTMENT.— In the case of any taxable year beginning in a calendar year after 2014, the $8,000 amount in clause (i) 

shall be increased by an amount equal to— 

‘‘(I) such dollar amount, multiplied by 

‘‘(II) the automobile price inflation adjustment determined under 

section 280F(d)(7)(B)(i) for the calendar year in which such taxable 

year begins by substituting ‘2013’ for ‘1987’ in subclause (II) thereof. 

If any increase under the preceding sentence is not a multiple of $100, 

such increase shall be rounded to the nearest multiple of $100. 

‘‘(E) DEDUCTION ALLOWED IN COMPUTING MINIMUM TAX.—For purposes of 

determining alternative minimum taxable income under section 55, the deduction under section 167 for qualified property shall be determined without regard to any adjustment under section 56.’’. 

(b) EXPANSION OF ELECTION TO ACCELERATE AMT CREDITS IN LIEU OF BONUS DEPRECIATION.—Section 168(k)(4) of such Code is amended to read as follows: 

‘‘(4) ELECTION TO ACCELERATE AMT CREDITS IN LIEU OF BONUS DEPRECIATION.— 

‘‘(A) IN GENERAL.—If a corporation elects to have this paragraph apply for 

any taxable year— 

‘‘(i) paragraphs (1)(A), (2)(D)(i), and (5)(A)(i) shall not apply for such 

taxable year, 

‘‘(ii) the applicable depreciation method used under this section with 

respect to any qualified property shall be the straight line method, and 

‘‘(iii) the limitation imposed by section 53(c) for such taxable year 

shall be increased by the bonus depreciation amount which is determined for such taxable year under subparagraph (B). 

‘‘(B) 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 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 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) LIMITATION.—The bonus depreciation amount for any taxable 

year shall not exceed the lesser of— 

‘‘(I) 50 percent of the minimum tax credit under section 53(b) for 

the first taxable year ending after December 31, 2013, or 

‘‘(II) the minimum tax credit under section 53(b) for such taxable 

year determined by taking into account only the adjusted net minimum tax for taxable years ending before January 1, 2014 (determined by treating credits as allowed on a first-in, first-out basis). 

‘‘(iii) 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. 

‘‘(C) 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). 

‘‘(D) OTHER RULES.— 

‘‘(i) ELECTION.—Any election under this paragraph may be revoked 

only with the consent of the Secretary. 

‘‘(ii) PARTNERSHIPS WITH ELECTING PARTNERS.—In the case of a corporation which is a partner in a partnership and which makes an election under subparagraph (A) for the taxable year, for purposes of determining such corporation’s distributive share of partnership items under 

section 702 for such taxable year— 

‘‘(I) paragraphs (1)(A), (2)(D)(i), and (5)(A)(i) shall not apply, and 


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‘‘(II) the applicable depreciation method used under this section 

with respect to any qualified property shall be the straight line 

method. 

‘‘(iii) CERTAIN PARTNERSHIPS.—In the case of a partnership in which 

more than 50 percent of the capital and profits interests are owned (directly or indirectly) at all times during the taxable year by 1 corporation (or by corporations treated as 1 taxpayer under subparagraph 

(B)(iii)), each partner shall compute its bonus depreciation amount 

under clause (i) of subparagraph (B) by taking into account its distributive share of the amounts determined by the partnership under subclauses (I) and (II) of such clause for the taxable year of the partnership ending with or within the taxable year of the partner.’’. 

(c) SPECIAL RULES FOR TREES AND VINES BEARING FRUITS AND NUTS.—Section 

168(k) of such Code is amended— 

(1) by striking paragraph (5), and 

(2) by inserting after paragraph (4) the following new paragraph: 

‘‘(5) SPECIAL RULES FOR TREES AND VINES BEARING FRUITS AND NUTS.— ‘‘(A) IN GENERAL.—In the case of any tree or vine bearing fruits or nuts 

which is planted, or is grafted to a plant that has already been planted, by 

the taxpayer in the ordinary course of the taxpayer’s farming business (as 

defined in section 263A(e)(4))— 

‘‘(i) a depreciation deduction equal to 50 percent of the adjusted basis 

of such tree or vine shall be allowed under section 167(a) for the taxable year in which such tree or vine is so planted or grafted, and 

‘‘(ii) the adjusted basis of such tree or vine shall be reduced by the 

amount of such deduction. 

‘‘(B) ELECTION OUT.—If a taxpayer makes an election under this subparagraph for any taxable year, this paragraph shall not apply to any tree or 

vine planted or grafted during such taxable year. An election under this 

subparagraph may be revoked only with the consent of the Secretary. 

‘‘(C) ADDITIONAL DEPRECIATION MAY BE CLAIMED ONLY ONCE.—If this 

paragraph applies to any tree or vine, such tree or vine shall not be treated 

as qualified property in the taxable year in which placed in service. 

‘‘(D) COORDINATION WITH ELECTION TO ACCELERATE AMT CREDITS.—If a 

corporation makes an election under paragraph (4) for any taxable year, the 

amount under paragraph (4)(B)(i)(I) for such taxable year shall be increased 

by the amount determined under subparagraph (A)(i) for such taxable year. 

‘‘(E) DEDUCTION ALLOWED IN COMPUTING MINIMUM TAX.—Rules similar to 

the rules of paragraph (2)(E) shall apply for purposes of this paragraph.’’. 

(d) CONFORMING AMENDMENTS.— 

(1) Section 168(e)(8) of such Code is amended by striking subparagraph (D). 

(2) Section 168(k) of such Code is amended by adding at the end the following 

new paragraph: 

‘‘(6) ELECTION OUT.—If a taxpayer makes an election under this paragraph 

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 (or, in the case of paragraph (5), planted or grafted) during such taxable year. An election under this 

paragraph may be revoked only with the consent of the Secretary.’’. 

(3) Section 168(l)(5) of such Code is amended by striking ‘‘section 168(k)(2)(G)’’ 

and inserting ‘‘section 168(k)(2)(E)’’. 

(4) Section 263A(c) of such Code is amended by adding at the end the following new paragraph: 

‘‘(7) COORDINATION WITH SECTION 168(k)(5).—This section shall not apply to 

any amount allowable as a deduction by reason of section 168(k)(5) (relating to 

special rules for trees and vines bearing fruits and nuts).’’. 

(5) Section 460(c)(6)(B) of such Code is amended by striking ‘‘which—’’ and all 

that follows and inserting ‘‘which has a recovery period of 7 years or less.’’. 

(6) Section 168(k) of such Code is amended by striking ‘‘ACQUIRED AFTER DECEMBER 31, 2007, AND BEFORE JANUARY 1, 2014’’ in the heading thereof. 

(e) EFFECTIVE DATES.— 

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to property placed in service after December 31, 2013. 

(2) EXPANSION OF ELECTION TO ACCELERATE AMT CREDITS IN LIEU OF BONUS

DEPRECIATION.— 

(A) IN GENERAL.—The amendment made by subsection (b) (other than so 

much of such amendment as relates to section 168(k)(4)(D)(iii) of such Code, 

as added by such amendment) shall apply to taxable years ending after December 31, 2013. 


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(B) TRANSITIONAL RULE.—In the case of a taxable year beginning before 

January 1, 2014, and ending after December 31, 2013, the bonus depreciation amount determined under section 168(k)(4) of such Code for such year 

shall be the sum of— 

(i) such amount determined without regard to the amendments made 

by this section and— 

(I) by taking into account only property placed in service before 

January 1, 2014, and 

(II) by multiplying the limitation under section 168(k)(4)(C)(ii) of 

such Code (determined without regard to the amendments made by 

this section) by a fraction the numerator of which is the number 

of days in the taxable year before January 1, 2014, and the denominator of which is the number of days in the taxable year, and 

(ii) such amount determined after taking into account the amendments made by this section and— 

(I) by taking into account only property placed in service after 

December 31, 2013, and 

(II) by multiplying the limitation under section 168(k)(4)(B)(ii) of 

such Code (as amended by this section) by a fraction the numerator 

of which is the number of days in the taxable year after December 

31, 2013, and the denominator of which is the number of days in 

the taxable year. 

(3) SPECIAL RULES FOR CERTAIN TREES AND VINES.—The amendment made by 

subsection (c)(2) shall apply to trees and vines planted or grafted after December 31, 2013. 

I. SUMMARY AND BACKGROUND 

A. PURPOSE AND SUMMARY

H.R. 4718, reported by the Committee on Ways and Means, provides that businesses may claim an additional first-year depreciation deduction (‘‘bonus depreciation’’) equal to 50 percent of the cost 

of qualified property placed in service after December 31, 2013. A 

similar, temporary provision expired for property placed in service 

before January 1, 2014. H.R. 4718 expands the scope of qualifying 

property eligible for bonus depreciation to include qualified retail 

improvement property, and permits a tree or vine bearing fruit or 

nuts to be eligible for bonus depreciation when planted or grafted, 

rather than when placed in service. H.R. 4718 adjusts for inflation 

the bonus depreciation deduction for passenger automobiles subject 

to section 280F. 

Similar to a temporary provision that expired for taxable years 

beginning after December 31, 2013, H.R. 4718 permits taxpayers to 

claim a portion of unused alternative minimum tax (‘‘AMT’’) credits 

in lieu of bonus depreciation. Compared with the expired provision, 

H.R. 4718 increases the maximum credit taxpayers may claim to 

the lesser of (1) 50 percent of the taxpayer’s AMT credit in 2014, 

or (2) the taxpayer’s AMT credits for taxable years ending before 

2014 (with the oldest credits taken into account first). 

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 encourage 

faster economic growth and job creation. By restoring and making 

permanent the 50-percent bonus depreciation deduction, H.R. 4718 

would continue an important incentive for businesses and farms 

that have struggled through the economic challenges of the past six 


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years to invest in critical business assets. Permanent 50-percent 

bonus depreciation would provide essential certainty for American 

businesses, allowing them to plan for future investments and lowering the cost of capital. By expanding bonus depreciation to retail 

improvement property, H.R. 4718 would encourage investment in 

retail businesses that have survived the sluggish economic recovery. H.R. 4718 would also ensure that businesses’ ability to acquire 

critical business vehicles will keep pace with the cost of such investments in future years by indexing the bonus-depreciation limits 

for certain passenger automobiles. Finally, by increasing the ability 

of businesses to access trapped AMT credits, H.R. 4718 would provide vital cash for investments in business operations and growth, 

as well as much-needed job creation and increased wages. 

C. LEGISLATIVE HISTORY

Background 

H.R. 4718 was introduced on May 22, 2014, and was referred to 

the Committee on Ways and Means. 

Committee action 

The Committee on Ways and Means marked up H.R. 4718, a bill 

to modify and make permanent bonus depreciation, on May 29, 

2014, and ordered the bill, as amended, favorably reported (with a 

quorum being present). 

Committee hearings 

The need for permanent rules regarding bonus depreciation was 

discussed at no fewer than seven hearings during the 112th and 

113th Congresses: 

• Full Committee Hearing on How Business Tax Reform 

Can Encourage Job Creation (June 2, 2011); 

• Full Committee Hearing on the Interaction of Tax and Financial Accounting on Tax Reform (February 8, 2012); 

• Full Committee Hearing on the President’s Fiscal Year 

2013 Budget Proposal with U.S. Department of the Treasury 

Secretary Timothy F. Geithner (February 15, 2012); 

• Select Revenue Measures Subcommittee Hearing on Certain Expiring Tax Provisions (April 26, 2012); 

• Full Committee Hearing on Tax Reform and the U.S. Manufacturing Sector (July 19, 2012); 

• Full Committee Hearing on Tax Reform and Residential 

Real Estate (April 25, 2013); and 

• Full Committee Hearing on the Benefits of Permanent Tax 

Policy for America’s Job Creators (April 8, 2014). 

II. EXPLANATION OF THE BILL 

A. BONUS DEPRECIATION MODIFIED AND MADE PERMANENT (SEC. 

168(k) OF THE CODE) 

PRESENT LAW

In general 

An additional first-year depreciation deduction is allowed equal 

to 50 percent of the adjusted basis of qualified property acquired 


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1 Sec. 168(k). The additional first-year depreciation deduction is subject to the general rules 

regarding whether an item must be capitalized under section 263A. An additional first-year depreciation deduction is allowed equal to 100 percent of the adjusted basis of qualified originaluse property if it meets the requirements for the additional first-year depreciation and the taxpayer acquired and placed the property in service after September 8, 2010 and before January 

1, 2012 (January 1, 2013 for certain longer-lived and transportation property). Sec. 168(k)(5). 

See also Rev. Proc. 2011–26, 2011–16 I.R.B. 664, 2011. 2 Sec. 168(k)(2)(G). See also Treas. Reg. sec. 1.168(k)–1(d). 3Treas. Reg. sec. 1.168(k)–1(f)(7). 

4Sec. 168(k)(1)(B). 

5 Ibid. 

6Sec. 168(k)(2)(D)(iii). For the definition of a class of property, see Treas. Reg. sec. 1.168(k)– 

1(e)(2). 7 Assume that the cost of the property is not eligible for expensing under section 179. 

8 $100 results from the application of the half-year convention and the 200 percent declining balance method to the remaining $500. 9The additional first-year depreciation deduction is not available for any property that is required to be depreciated under the alternative depreciation system of MACRS. Sec. 

168(k)(2)(D)(i). The additional first-year depreciation deduction also is not available for qualified 

New York Liberty Zone leasehold improvement property as defined in section 1400L(c)(2). Sec. 

168(k)(2)(D)(ii). 10The term ‘‘original use’’ means the first use to which the property is put, whether or not 

such use corresponds to the use of such property by the taxpayer. If in the normal course of 

its business a taxpayer sells fractional interests in property to unrelated third parties, then the 

original use of such property begins with the first user of each fractional interest (i.e., each fractional owner is considered the original user of its proportionate share of the property). Treas. 

Reg. sec. 1.168(k)–1(b)(3). 

and placed in service after December 31, 2007 and before January 

1, 2014 (January 1, 2015 for certain longer-lived and transportation 

property).1

The additional first-year depreciation deduction is allowed for 

both the regular tax and the alternative minimum tax (‘‘AMT’’),2

but is not allowed in computing earnings and profits.3 The basis of 

the property and the depreciation allowances in the year of purchase and later years are appropriately adjusted to reflect the additional first-year depreciation deduction.4 The amount of the additional first-year depreciation deduction is not affected by a short 

taxable year.5 The taxpayer may elect out of additional first-year 

depreciation for any class of property for any taxable year.6

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

illustrated as follows. Assume that in 2013, a taxpayer purchased 

new depreciable property and placed it in service.7 The property’s 

cost is $1,000, and it is five-year property subject to the 200 percent declining balance method and half-year convention. The 

amount of additional first-year depreciation allowed is $500. The 

remaining $500 of the cost of the property is depreciable under the 

rules applicable to five-year property. Thus $100 8 also is allowed 

as a depreciation deduction in 2013. The total depreciation deduction with respect to the property for 2013 is $600. The remaining 

$400 adjusted basis of the property generally is recovered through 

otherwise applicable depreciation rules. 

Property qualifying for the additional first-year depreciation deduction must meet all of the following requirements. First, the 

property must be (1) property to which the modified accelerated 

cost recovery system (‘‘MACRS’’) applies with an applicable recovery period of 20 years or less; (2) water utility property (as defined 

in section 168(e)(5)); (3) computer software other than computer 

software covered by section 197; or (4) qualified leasehold improvement property (as defined in section 168(k)(3)).9 Second, the original use 10 of the property must commence with the taxpayer after 


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11 A special rule applies in the case of certain leased property. In the case of any property 

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

to such person by the taxpayer within three months after the date that the property was placed 

in service, the property would be treated as originally placed in service by the taxpayer not earlier than the date that the property is used under the leaseback. If property is originally placed 

in service by a lessor, such property is sold within three months after the date that the property 

was placed in service, and the user of such property does not change, then the property is treated as originally placed in service by the taxpayer not earlier than the date of such sale. Sec. 

168(k)(2)(E)(ii). 12Property qualifying for the extended placed-in-service date must have an estimated produc- tion period exceeding one year and a cost exceeding $1 million. Transportation property generally is defined as tangible personal property used in the trade or business of transporting persons or property. Certain aircraft which is not transportation property, other than for agricultural or firefighting uses, also qualifies for the extended placed-in-service-date, if at the time 

of the contract for purchase, the purchaser made a nonrefundable deposit of the lesser of 10 

percent of the cost or $100,000, and which has an estimated production period exceeding four 

months and a cost exceeding $200,000. 13 In the case of a binding written contract to acquire one or more components of a larger selfconstructed asset, the larger self-constructed asset will not fail to qualify for the additional firstyear depreciation merely because a binding written contract to acquire one or more components 

of such property was in effect prior to January 1, 2008. See Treas. Reg. sec. 1.168(k)– 

1(b)(4)(iii)(C). See also, Treas. Reg. sec. 1.168(k)–1(b)(4)(v), Examples 6 and 7. 14Sec. 168(k)(2)(E)(i). 15Treas. Reg. sec. 1.168(k)–1(b)(4)(iii). 16Sec. 168(k)(2)(B)(ii). For purposes of determining the amount of eligible progress expenditures, rules similar to section 46(d)(3) as in effect prior to the Tax Reform Act of 1986 apply. 17Sec. 168(k)(2)(E)(iv). 

December 31, 2007.11 Third, the taxpayer must acquire the property within the applicable time period (as described below). Finally, 

the property must be placed in service before January 1, 2014. An 

extension of the placed-in-service date of one year (i.e., before January 1, 2015) is provided for certain property with a recovery period 

of 10 years or longer and certain transportation property.12

To qualify, property must be acquired (1) after December 31, 

2007, and before January 1, 2014, but only if no binding written 

contract for the acquisition is in effect before January 1, 2008, or 

(2) pursuant to a binding written contract which was entered into 

after December 31, 2007, and before January 1, 2014.13 With respect to property that is manufactured, constructed, or produced by 

the taxpayer for use by the taxpayer, the taxpayer must begin the 

manufacture, construction, or production of the property after December 31, 2007, and before January 1, 2014.14 Property that is 

manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered 

to be manufactured, constructed, or produced by the taxpayer.15

For property eligible for the extended placed-in-service date, a special rule limits the amount of costs eligible for the additional firstyear depreciation. With respect to such property, only the portion 

of the basis that is properly attributable to the costs incurred before January 1, 2014 (‘‘progress expenditures’’) is eligible for the additional first-year depreciation deduction.16

Property does not qualify for the additional first-year depreciation deduction when the user of such property (or a related party) 

would not have been eligible for the additional first-year depreciation deduction if the user (or a related party) were treated as the 

owner.17 For example, if a taxpayer sells to a related party property that was under construction prior to January 1, 2008, the 

property does not qualify for the additional first-year depreciation 

deduction. Similarly, if a taxpayer sells to a related party property 

that was subject to a binding written contract prior to January 1, 

2008, the property does not qualify for the additional first-year deVerDate Mar 15 2010 06:19 Jul 04, 2014 Jkt 039006 PO 00000 Frm 00008 Fmt 6659 Sfmt 6602 E:\HR\OC\HR509.XXX HR509

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18Sec. 168(k)(2)(F). 19See sec. 460. 20Sec. 460(c)(6). 21Sec. 168(k)(4). Eligible qualified property means qualified property eligible for bonus depreciation with minor effective date differences having little (if any) remaining significance. 22Sec. 168(k)(4)(A). 23Secs. 168(k)(4)(H), (I), and (J). 24Sec. 168(k)(4)(B)(ii). 

preciation deduction. As a further example, if a taxpayer (the lessee) sells property in a sale-leaseback arrangement, and the property otherwise would not have qualified for the additional first-year 

depreciation deduction if it were owned by the taxpayer-lessee, 

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

The limitation under section 280F on the amount of depreciation 

deductions allowed with respect to certain passenger automobiles is 

increased in the first year by $8,000 for automobiles that qualify 

(and for which the taxpayer does not elect out of the additional 

first-year deduction).18 The $8,000 amount is not indexed for inflation. 

Special rule for long-term contracts 

In general, in the case of a long-term contract, the taxable income from the contract is determined under the percentage-of-completion method.19 Solely for purposes of determining the percentage 

of completion under section 460(b)(1)(A), the cost of qualified property with a MACRS recovery period of seven years or less is taken 

into account as a cost allocated to the contract as if bonus depreciation had not been enacted for property placed in service (1) after 

December 31, 2009 and before January 1, 2011 (January 1, 2012 

in the case of certain longer-lived and transportation property) or 

(2) after December 31, 2012 and before January 1, 2014 (January 

1, 2015 in the case of certain longer-lived and transportation property).20 Bonus depreciation generally is taken into account in determining taxable income under the percentage-of-completion method 

for property placed in service after December 31, 2010 and before 

January 1, 2013. 

Election to accelerate AMT credits in lieu of bonus depreciation 

A corporation otherwise eligible for additional first-year depreciation may elect to claim additional AMT credits in lieu of claiming 

additional depreciation with respect to ‘‘eligible qualified property.’’ 21 In the case of a corporation making this election, the 

straight line method is used for the regular tax and the AMT with 

respect to eligible qualified property.22

Generally, an election under this provision for a taxable year applies to subsequent taxable years. However, each time the provision 

has been extended, a corporation which has previously made an 

election has been allowed to elect not to claim additional minimum 

tax credits, or, if no election had previously been made, to make 

an election to claim additional credits with respect to property subject to the extension.23

A corporation making an election increases the tax liability limitation under section 53(c) on the use of minimum tax credits by the 

bonus depreciation amount.24 The aggregate increase in credits alVerDate Mar 15 2010 06:19 Jul 04, 2014 Jkt 039006 PO 00000 Frm 00009 Fmt 6659 Sfmt 6602 E:\HR\OC\HR509.XXX HR509

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25Sec. 168(k)(4)(F). 26For this purpose, bonus depreciation is the difference between (i) the aggregate amount of 

depreciation determined if section 168(k)(1) applied to all eligible qualified property placed in 

service during the taxable year and (ii) the amount of depreciation that would be so determined 

if section 168(k)(1) did not so apply.μ This determination is made using the most accelerated 

depreciation method and the shortest life otherwise allowable for each property.μ Sec. 

168(k)(4)(C). 27Sec. 168(k)(4)(C)(iii). 28Sec. 168(k)(4)(C)(iv). 29Sec. 168(k)(4)(G)(ii). 30Secs. 168(e)(3)(E)(ix) and (e)(8). 31See secs. 168(b)(3), (c), and (d)(2). 32 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. 33Sec. 168(e)(8)(A). 34 Sec. 168(e)(8)(C). 35Sec. 168(e)(8)(B). 

lowable by reason of the increased limitation is treated as refundable.25

The bonus depreciation amount generally is equal to 20 percent 

of bonus depreciation 26 for eligible qualified property that could be 

claimed as a deduction absent an election under this provision. As 

originally enacted, the bonus depreciation amount for all taxable 

years was limited to the lesser of (1) $30 million, or (2) six percent 

of the minimum tax credits allocable to the adjusted net minimum 

tax imposed for taxable years beginning before January 1, 2006.27

However, extensions of this provision have provided that this limitation applies separately to property subject to each extension. 

All corporations treated as a single employer under section 52(a) 

are treated as one taxpayer for purposes of the limitation, as well 

as for electing the application of this provision.28

In the case of a corporation making an election which is a partner in a partnership, for purposes of determining the electing partner’s distributive share of partnership items, bonus depreciation 

does not apply to any eligible qualified property and the straight 

line method is used with respect to that property.29

Qualified retail improvement property 

Qualified retail improvement property placed in service after December 31, 2008, and before January 1, 2014 is depreciated over 15 

years using the straight line method and a half-year convention.30

Qualified retail improvement property placed in service on or after 

January 1, 2014 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.31 Qualified retail 

improvement property is defined as any improvement to an interior 

portion of a building that is nonresidential real property if such 

portion is open to the general public 32 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.33

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 benefitting a common area, or the internal structural 

framework of the building.34 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.35 Additionally, qualified retail improvement property 


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36See sec. 168(e)(8)(D) and Rev. Proc. 2011–26. 37See section 263A(e)(3), which defines the ‘‘preproductive period’’ of a plant which will have 

more than one crop or yield as the period before the first marketable crop or yield from such 

plant. 38See section 263A(d)(1)(A)(ii). Section 263A generally requires certain direct and indirect 

costs allocable to real or tangible personal property produced by the taxpayer to be included in 

either inventory or capitalized into the basis of such property, as applicable. 39See section 263A(d)(3). 40 In the case of any tree or vine bearing fruits or nuts, the placed in service date does not 

occur until the tree or vine first reaches an income-producing stage. Treas. Reg. sec. 1.46– 

3(d)(2). See also, Rev. Rul. 80–25, 1980–1 C.B. 65, 1980; and Rev. Rul. 69–249, 1969–1 C.B. 31, 

1969. 41Sec. 168(e)(3)(D)(ii). 

is not eligible for bonus depreciation, unless it also meets the definition of qualified leasehold improvement property.36

Preproductive period costs of orchards, groves, and vineyards 

An orchard, vineyard or grove generally produces annual crops of 

fruits (e.g., apples, avocadoes, or grapes) or nuts (e.g., pecans, pistachios, or walnuts). During the development period of the trees or 

vines, a farmer generally incurs costs to cultivate, spray, fertilize 

and irrigate the tree or vine to its crop-producing stage (i.e., 

preproductive period costs).37 Preproductive period costs may be deducted or capitalized, depending on the preproductive period of the 

tree or vine,38 as well as whether the farmer elects to have section 

263A not apply.39 After the trees or vines start producing fruit or 

nuts, a farmer may depreciate the capitalized costs of the trees or 

vines (i.e., the acquisition costs of the seeds, seedlings, or plants 

and their original planting which were capitalized when incurred, 

as well as the preproductive period costs if section 263A applied).40

A ten-year recovery period is assigned to any tree or vine bearing 

fruits or nuts.41

REASONS FOR CHANGE

Bonus depreciation 

The Committee believes that modifying and making the additional first-year depreciation deduction permanent provides businesses with the certainty needed to increase purchases of equipment and other assets, and promote capital investment, modernization, and growth. 

Retailers frequently remodel or renovate the interiors of their 

stores. The Committee believes that retailers should not be treated 

differently based on whether the building in which they operate is 

owned or leased. As many retailers own the building in which they 

operate their business, the Committee believes that expanding the 

definition of qualified property to specifically include qualified retail improvement property provides clarity and relief to many retailers. 

In addition, in order to counteract the negative impact of inflation on the $8,000 increase amount in the section 280F limitation 

on the first year depreciation deduction allowed with respect to certain passenger automobiles for which bonus depreciation is 

claimed, the Committee believes it is appropriate to index such 

amount for automobile price inflation. 


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42Due to the passage of time since the provision’s original enactment, the provision eliminates 

the various acquisition date requirements as no longer relevant. The provision also repeals as 

deadwood the provision relating to property acquired during certain pre-2012 periods (or certain 

pre-2013 periods for certain longer-lived and transportation property). 

Expansion of election to accelerate AMT credits in lieu of bonus depreciation 

The Committee believes that expanding the election to accelerate 

AMT credits in lieu of bonus depreciation enables corporations that 

would otherwise derive no benefit from bonus depreciation to better 

access capital in order to expand and invest in new facilities and 

equipment. 

Special rules for trees and vines bearing fruits and nuts 

The Committee believes that allowing growers of trees or vines 

that bear fruit or nuts to elect to claim bonus depreciation in the 

year of planting or grafting, rather than having to wait until the 

year in which the tree or vine produces a commercially viable or 

harvestable crop of fruits or nuts, encourages farmers to invest in 

their long-term crop businesses. 

EXPLANATION OF PROVISION

Bonus depreciation 

The provision makes permanent the 50-percent additional firstyear depreciation deduction for qualified property.42

The provision expands the definition of qualified property to include qualified retail improvement property. The $8,000 increase amount in the limitation on the depreciation 

deductions allowed with respect to certain passenger automobiles is 

indexed for automobile price inflation. The increase does not apply 

to a taxpayer who elects to accelerate AMT credits for a taxable 

year. 

The provision also makes permanent the special rule for the allocation of bonus depreciation to a long-term contract, which provides 

that solely for purposes of determining the percentage of completion under section 460(b)(1)(A), the cost of qualified property with 

a MACRS recovery period of seven years or less is taken into account as a cost allocated to the contract as if bonus depreciation 

had not been enacted. 

Expansion of election to accelerate AMT credits in lieu of bonus depreciation 

The provision makes permanent and modifies the election to increase the AMT credit limitation in lieu of bonus depreciation. 

Under the provision, the bonus depreciation amount for a taxable 

year (as defined under present law with respect to all qualified 

property) is limited to the lesser of (1) 50 percent of the minimum 

tax credit for the first taxable year ending after December 31, 2013 

(determined before the application of any tax liability limitation), 

or (2) the minimum tax credit for the taxable year allocable to the 

adjusted net minimum tax imposed for taxable years ending before 

January 1, 2014 (determined before the application of any tax liability limitation and determined on a first-in, first-out basis). 

The provision also provides that in the case of a partnership having a single corporate partner owning (directly or indirectly) more 


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43The partnership rule added by the provision applies to property placed in service after December 31, 2013. 

than 50-percent capital and profits interests in the partnership, 

each partner takes into account its distributive share of partnership depreciation in determining its bonus depreciation amount. 

Special rules for trees and vines bearing fruits and nuts 

In addition, the provision allows a taxpayer to claim bonus depreciation on trees or vines bearing fruits or nuts, in the taxable 

year in which the tree or vine is planted, or grafted to a plant that 

has already been planted, by the taxpayer in the ordinary course 

of the taxpayer’s farming business (notwithstanding that the tree 

or vine has not yet been placed in service in that year). The adjusted basis of the tree or vine is reduced by the amount of the deduction under this provision. Further, any amount deducted under 

this provision is not subject to capitalization under section 263A. 

A taxpayer may elect to have this provision not apply to trees or 

vines planted or grafted in that taxable year. If a taxpayer does not 

elect out of this provision, the tree or vine will not be eligible for 

bonus depreciation in the subsequent taxable year in which it is 

placed in service. 

EFFECTIVE DATE

The provision relating to additional first-year depreciation is effective for property placed in service after December 31, 2013. 

The provision relating to the election to accelerate AMT credits 

in lieu of claiming bonus depreciation generally applies to taxable 

years ending after December 31, 2013.43 For a taxable year beginning before January 1, 2014, and ending after December 31, 2013, 

a transitional rule applies for purposes of determining the amount 

eligible for the election to claim additional AMT credits. The transitional rule applies the present-law limitations to property placed in 

service in 2013 and the revised limitations to property placed in 

service in 2014. 

The provision relating to trees and vines is effective for property 

planted or grafted after December 31, 2013. 

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. 4718, a bill to modify and make permanent 

bonus depreciation, on May 29, 2014. 

The bill, H.R. 4718, was ordered favorably reported as amended 

by a roll call vote of 23 yeas to 11 nays (with a quorum being 

present). The vote was as follows: 

Representative Yea Nay Present Representative Yea Nay Present 

Mr. Camp .............................. ✔ ........... ............. Mr. Levin .............................. ........... ✔ .............

Mr. Johnson ........................... ✔ ........... ............. Mr. Rangel ........................... ........... ........... .............

Mr. Brady .............................. ✔ ........... ............. Mr. McDermott ..................... ........... ✔ .............

Mr. Ryan ............................... ✔ ........... ............. Mr. Lewis .............................. ........... ........... .............

Mr. Nunes ............................. ✔ ........... ............. Mr. Neal ............................... ........... ........... .............

Mr. Tiberi .............................. ✔ ........... ............. Mr. Becerra .......................... ........... ✔ .............

Mr. Reichert .......................... ✔ ........... ............. Mr. Doggett .......................... ........... ✔ .............


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Representative Yea Nay Present Representative Yea Nay Present 

Mr. Boustany ......................... ✔ ........... ............. Mr. Thompson ...................... ........... ✔ .............

Mr. Roskam ........................... ✔ ........... ............. Mr. Larson ............................ ........... ✔ .............

Mr. Gerlach ........................... ✔ ........... ............. Mr. Blumenauer ................... ........... ✔ .............

Mr. Price ............................... ✔ ........... ............. Mr. Kind ............................... ........... ✔ .............

Mr. Buchanan ....................... ✔ ........... ............. Mr. Pascrell .......................... ........... ........... .............

Mr. Smith .............................. ✔ ........... ............. Mr. Crowley .......................... ........... ........... .............

Mr. Schock ............................ ✔ ........... ............. Ms. Schwartz ........................ ........... ✔ .............

Ms. Jenkins ........................... ✔ ........... ............. Mr. Davis .............................. ........... ✔ .............

Mr. Paulsen ........................... ✔ ........... ............. Ms. Sa ́ nchez ......................... ........... ✔ .............

Mr. Marchant ........................ ✔ ........... .............

Ms. Black .............................. ✔ ........... .............

Mr. Reed ............................... ✔ ........... .............

Mr. Young ............................. ✔ ........... .............

Mr. Kelly ................................ ✔ ........... .............

Mr. Griffin ............................. ✔ ........... .............

Mr. Renacci ........................... ✔ ........... .............

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. 4718, as reported. 


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FISCAL YEARS 

[Millions of Dollars] 

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014–19 2014–24 

Bonus depreciation including special rules for trees and 

vines bearing fruits and nuts ............................................ ¥8,738 ¥79,252 ¥42,071 ¥35,002 ¥26,371 ¥17,359 ¥12,028 ¥10,061 ¥10,019 ¥10,701 ¥11,309 ¥208,792 ¥262,911 

Expansion of election to accelerate AMT credits in lieu of 

bonus depreciation .............................................................. ¥2,456 ¥4,101 ¥4,486 ¥4,829 ¥5,198 ¥2,893 ¥551 3 3 3 4 ¥23,964 ¥24,502 

NOTE: Details do not add to totals due to rounding. 


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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 increased 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, June 5, 2014. 

Hon. DAVE CAMP, 

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. 4718, a bill to amend the 

Internal Revenue Code of 1986 to modify and make permanent 

bonus depreciation. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Logan Timmerhoff. 

Sincerely, 

DOUGLAS W. ELMENDORF. 

Enclosure. 

H.R. 4718—A bill to amend the Internal Revenue Code of 1986 to 

modify and make permanent bonus depreciation 

H.R. 4718 would amend the Internal Revenue Code to permanently provide an additional first-year depreciation deduction of 50 

percent of the adjusted basis of qualified property, effective January 1, 2014. Under current law that additional deduction expired 

after December 31, 2013. H.R. 4718 would also expand the definition of qualified property to include certain retail improvement 

property and certain trees and vines bearing nuts or fruits. It 

would also expand and make permanent recently expired provisions that allowed corporations to claim additional credits against 

the alternative minimum tax instead of claiming the additional 

first-year depreciation deduction. 

The staff of the Joint Committee on Taxation (JCT) estimates 

that enacting H.R. 4718 would reduce revenues, thus increasing 

federal budget deficits, by about $287 billion over the 2014–2024 

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. 4718 would result in revenue losses in each year beginning in 2014. The estimated increases in the deficit are shown in the following table. 


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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 Logan Timmerhoff. 

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. 4718, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON MAY 29, 2014 

By fiscal year, in millions of dollars— 

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014– 2019 2014– 2024 

NET INCREASE IN THE DEFICIT 

Statutory Pay-As-You-Go Effects ....................................................................... 11,194 83,353 46,557 39,831 31,569 20,252 12,579 10,058 10,016 10,698 11,305 232,756 287,413 

Source: Staff of the Joint Committee on Taxation. Note: Components may not sum to totals because of rounding. 


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44 Congressional Budget Office, The Budget and Economic Outlook: 2014–2024, February 4, 

2014. 451ADescriptions of these models may be found in Joint Committee on Taxation, Summary 

of Economic Models and Estimating Practices of the Staff of the Joint Committee on Taxation 

(JCX–46–11), September 19, 2011. The OLG model is leased from Tax Policy Advisors, LLC. Key 

behavioral parameters are provided in an appendix to the current document. 

D. MACROECONOMIC IMPACT ANALYSIS

In compliance with clause 3(h)(2) of rule XIII of the Rules of the 

House of Representatives, the staff of the Joint Committee on Taxation provides the following analysis of H.R. 4718, as ordered reported by the Committee on Ways and Means on May 29, 2014. 

Overview 

The following discussion analyzes the macroeconomic effects of 

this bill relative to the 2014 economic and receipts baseline published by the Congressional Budget Office (‘‘CBO’’) in February, 

2014.44 We analyzed the bill using the Joint Committee staff macroeconomic equilibrium growth model (‘‘MEG’’), and an overlapping 

generations model (‘‘OLG’’).45 The proposal increases the expected 

after-tax return on investment in targeted depreciable property by 

allowing firms to deduct a larger share of their capital expenditures in the year of their purchase, relative to present law. This increase in after-tax returns on investment in business equipment 

and certain other depreciable property is expected to provide an incentive for an increase in savings and investment, resulting in an 

increase in business capital stock and the overall size of the economy, as measured by gross domestic product (‘‘GDP’’). Estimates of 

the extent of these effects depend on various modeling assumptions 

described below. 

Discussion of proposal and modeling approach 

The following analysis was performed using the Joint Committee 

on Taxation staff’s MEG model and an OLG model. Both models 

start with the standard, neoclassical assumption that the amount 

of output is determined by the availability of labor and capital, and 

that in the long run aggregate demand equals aggregate supply. 

Individuals are assumed to make decisions based on observed characteristics of the economy, including wages, prices, interest rates, 

tax rates, and government spending levels. Of particular relevance 

to this bill, firms’ investment decisions are based on the expected 

after-tax rate of return from the investment. 

The bill would permanently extend a provision that allows businesses to deduct 50 percent of their investment in equipment (and 

a small, targeted subset of real property) in the year in which the 

equipment or property is placed in service, and depreciate the balance over the longer periods of time that apply to the full amount 

under present law. The effect of this incentive on the after-tax return on capital is modeled within both the MEG and OLG models 

by comparing the net present value of tax depreciation under the 

bill with that under present law. This change is calculated using 

the Joint Committee on Taxation staff’s depreciation model, which 

models deduction patterns for each category of depreciable capital 

specified under the present law Modified Accelerated Cost Recovery 

System (‘‘MACRS’’), and can be configured to model any change in 

that pattern under proposed legislation. The effect of the bill on 


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business tax revenues is simulated in both models by reducing average tax rates on businesses. 

In the MEG model, monetary policy conducted by the Federal Reserve Board is explicitly modeled, with lagged price adjustments allowing for the economy to be temporarily out of equilibrium in response to fiscal and monetary policy changes. The MEG model is 

used to examine the importance of different assumptions about 

Federal Reserve policy. Under the ‘‘Aggressive Fed’’ policy, it is assumed that the Federal Reserve Board works to counteract any demand incentives resulting from fiscal policy. Because for this proposal the policy results in an incentive for people to increase their 

rate of savings, thus reducing their rate of consumption, the aggressive Fed simulation reduces interest rates to counter negative 

aggregate demand effects. It is not clear how effective such a policy 

would be in the context of an economy with interest rates already 

hovering near zero. The ‘‘Neutral Fed’’ simulations assume that the 

Federal Reserve Board targets a fixed monetary growth rate, and 

does not try to counteract fiscal policy. 

The MEG model is also used to present results using differing assumptions about the responsiveness of savings and investment to 

changes in the after-tax rate of return to capital. The ‘‘default savings elasticity’’ simulations use savings responsiveness parameters 

that are consistent with the median range of measured response 

levels from empirical studies. The ‘‘high savings elasticity’’ simulations increase savings responsiveness by about 15 percent. 

Individuals in the MEG model do not anticipate future changes 

in the economy or government finances; thus, this type of model is 

often referred to as a ‘‘myopic’’ behavior model. This feature of the 

MEG model allows the simulation of tax and government expenditure policy that may result in an unsustainable growth path. Specifically, policies that result in the Federal debt increasing, or decreasing at a faster rate than the growth of GDP, can be modeled. 

In the OLG model, individuals are assumed to make consumption and labor supply decisions to maximize their lifetime wellbeing given the resources they can foresee will be available to 

them. They are assumed to have complete information, or ‘‘perfect 

foresight,’’ about economic conditions, such as wages, prices, interest rates, tax rates, and government spending, over their lifetimes. 

Economic decisions are modeled separately for each of 55 adult-age 

cohorts. Firms’ investment decisions respond to the effects of tax 

policy on the expected future value of the firm. Changes in marginal tax rates on firm profits, and changes in the value of deductions for investment affect this future valuation. 

One important difference between the MEG and OLG models is 

their treatment of Federal fiscal policy. In the MEG model, it is 

possible to simulate structural Federal budget deficits as forecast 

in the CBO baseline, and to allow for increases or decreases in the 

deficit in simulating proposals. In contrast, the OLG model cannot 

simulate either the present law fiscal baseline or policy proposals 

that incorporate unsustainable Federal budget deficits or surpluses. Thus, in the OLG model there is no equilibrium solution 

when Federal budget conditions appear unsustainable in the long 

run. It is necessary to create counterfactual stable ratios of debt to 

GDP within both the baseline and policy simulations of the OLG 

model. 


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46 Economic theory of the effects of ‘‘cost of capital’’ on investment was first formalized by Dale 

Jorgenson in 1963 ‘‘Capital Theory and Investment Behavior,’’ American Economic Review, 54, 

pp. 247–59. Jorgenson, along with Robert Hall added effects of taxation, particularly depreciation policy to this framework in ‘‘Tax Policy and Investment Behavior,’’ American Economic Review, 57(3), pp 391–414 in 1967. Many macroeconomic simulation models, including the Joint 

Committee on Taxation staff Macroeconomic Equilibrium Growth model, use this framework to 

model investment decisions. 47See, for example, Bond, Stephen, and Jing Xin, ‘‘Corporate Taxation and Capital Accumulation,’’ Oxford University Centre for Business Taxation Working Paper, Said Business School, Oxford, UK, 2010. 48See, for example, Edgerton, Jesse, ‘‘Investment, Accounting, and the Salience of the Corporate Income Tax,’’ Finance and Discussion Series, Division of Research and Statistics and 

Monetary Affairs, Federal Reserve Board, Washington, D.C., March 21, 2011. 49For taxpayers carrying forward a loss or claiming a loss in the current year, the present 

value of bonus depreciation associated with equipment placed in service in the current year is 

diminished. Similarly, the value of claiming the alternative minimum tax credit provided by the 

bill as an alternative to bonus depreciation will depend on the taxpayer’s particular situation. 

The bill is projected to increase deficits by decreasing business 

tax payments. Fiscal balance is achieved in the OLG simulations 

by reducing transfer payments enough to maintain a stable debt to 

GDP path. We present two variations of this assumption. In the 

‘‘concurrent fiscal balance’’ simulation, transfer payments are modified each year. In the ‘‘delayed fiscal balance’’ simulation, the tax 

changes are debt-financed within the 10–year budget window, after 

which transfer payments are decreased to restore a stable debt to 

GDP path. 

Macroeconomic analysis 

The ability to expense, rather than depreciate investment expenses reduces the cost to firms of making these investments, thus 

reducing their after-tax cost of capital and providing an incentive 

for increased investment.46 Some research on the effects of expensing on business investment has confirmed that investment increases when more generous expensing policy is in effect.47 Other 

research has raised questions about the efficacy of expensing as opposed to investment tax credits in encouraging investment in light 

of the fact that investment tax credits produce a more favorable 

picture in firm financial statements. However, such studies still 

find an overall positive effect of increased expensing on investment.48

The Joint Committee on Taxation staff estimates that approximately 40 percent of investments made under present law could potentially be eligible for the 50–percent expensing treatment provided for in this bill. However, not all businesses making eligible 

investments will be able to take full advantage of this benefit.49

Thus, the bill is expected to provide a modest incentive for an increase in investment, which is expected to result in a small increase in GDP. 

Following is a series of tables that show the effects of this proposal on real (inflation adjusted) gross domestic product, receipts, 

capital stock, employment, and consumption. Results from each 

policy simulation for each variable are presented as percentage 

changes from the levels forecasted under the present-law baseline 

for the variables in each of Tables 1 through 8 below. 


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1. Effects on real gross domestic product and receipts 

TABLE 1.—PERCENT CHANGE IN REAL GDP RELATIVE TO PRESENT LAW 

Fiscal Years 

2015–2019 

Fiscal Years 

2020–2024 

Fiscal Years 

2015–2024 

MEG: 

Default Savings Elasticity .......................... Aggressive Fed ..................... 0.1% 0.2% 0.2% 

Neutral Fed .......................... 0.1% 0.2% 0.2% 

High Savings Elasticity .............................. Aggressive Fed ..................... 0.1% 0.3% 0.2% 

Neutral Fed .......................... 0.1% 0.2% 0.2% 

OLG: 

Concurrent fiscal balance .......................... .............................................. 0.1% 0.3% 0.2% 

Delayed fiscal balance ............................... .............................................. 0.1% 0.3% 0.2% 

TABLE 2.—PERCENT CHANGE IN RECEIPTS DUE TO CHANGES IN GDP 

Fiscal Years 

2015–2019 

Fiscal Years 

2020–2024 

Fiscal Years 

2015–2024 

MEG: 

Default Savings Elasticity .......................... Aggressive Fed ..................... ¥0.1% 0.1% (1) 

Neutral Fed .......................... ¥0.1% 0.1% (1) 

High Savings Elasticity .............................. Aggressive Fed ..................... ¥0.1% 0.1% (1) 

Neutral Fed .......................... ¥0.1% 0.1% (2) 

OLG: 

Concurrent fiscal balance .......................... .............................................. (1) (1) (1) 

Delayed fiscal balance ............................... .............................................. (1) (1) (1) 

(1) Indicates an increase of less than 0.05 percent. 

(2) Indicates a decrease of less than 0.05 percent. 

Table 1 shows the predicted effects of this policy on real gross domestic product, relative to what is projected under present law. 

Table 2 shows the predicted effects of these output changes on receipts. Relative to present law, real GDP is predicted to increase 

in the first half of the budget period, by about 0.1 percent, and to 

increase GDP by 0.2 to 0.3 percent during the second five years of 

the budget period, overall increasing GDP on average by about 0.2 

percent over the ten-year budget period. Among the MEG simulations, the higher predicted increase in the second-five-years is generated by the simulation that combines a higher responsiveness of 

savings to the after-tax rate of return with an aggressive Fed response. The higher savings responsiveness, while it leads to a bigger investment response, necessarily also leads to a decrease in the 

rate of consumption, which can reduce aggregate demand in the 

economy if there are unemployed resources. The aggressive Fed response assumes that the Fed would act to counter that reduction 

in demand. 

The OLG simulations also predict an increase in GDP of 0.3 percent for the second half of the budget period. In the OLG simulations, the reduction in transfer payments that provides the fiscal 

balance for the revenue loss generated by this proposal provides 

some additional incentive for individuals to increase savings and 

investment. 

The simulations show that the projected increase in GDP also results in a small projected increase in Federal revenues of up to 0.1 

percent of present law receipts in the second half of the budget period, but overall of less than 0.05 percent over the budget period. 

The change in receipts due to the economic growth projected under 

the bill is projected to be smaller than the change in GDP, even 

negative over the ten-year budget period under one simulation asVerDate Mar 15 2010 06:19 Jul 04, 2014 Jkt 039006 PO 00000 Frm 00022 Fmt 6659 Sfmt 6602 E:\HR\OC\HR509.XXX HR509

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sumption. This receipts pattern is driven by the interaction of the 

specific tax change under the bill with the type of economic activity 

generated by the bill. That is, by increasing the deductibility of 

(mostly) equipment expenditures, the bill provides an incentive for 

more investment in equipment. This is expected to lead to an increase in productive capital stock that will, over time, generate additional growth capacity in the economy. Additional income generated by these responses can be expected to build slowly. At the 

same time, the increase in deductible purchases may result in a net 

reduction in the tax base. This effect is apparent in the MEG simulations, which project a reduction in receipts due to the induced 

investment in the first half of the budget period. 

In the following sections on capital stock, employment, and consumption effects, the influence of these proposals on each of these 

components of growth and the economy can be seen in more detail. 

2. Effects on the capital stock 

Tables 3 and 4, respectively, show the projected effects of the bill 

on business and housing capital stock. As discussed above, by increasing the after-tax rate of return for qualified capital—primarily 

equipment—the bill provides an incentive for increased investment 

in that capital. As shown in Table 3, this is projected to result in 

an increase in business capital stock relative to present law of up 

to 1.4 percent during the 2020–2024 period, and up to 1.0 percent 

on average over the ten-year budget period. In the MEG simulations, the size of the projected increase depends on how sensitive 

the savings response is to the incentive, and on whether the Fed 

acts to offset reduced consumption that results from the savings response. 

Structures are not eligible for the 50-percent expensing provided 

in the bill. Therefore, the bill provides an incentive for some substitution away from investment in housing toward investment in 

business capital. Table 4 shows that the bill is projected to result 

in a 0.1 percent decrease in owner-occupied and rental housing 

units, referred to as ‘‘housing stock.’’ 

TABLE 3.—PERCENT CHANGE IN REAL BUSINESS CAPITAL RELATIVE TO PRESENT LAW 

Fiscal Years 

2015–2019 

Fiscal Years 

2020–2024 

Fiscal Years 

2015–2024 

MEG: 

Default Savings Elasticity .......................... Aggressive Fed ..................... 0.4% 0.8% 0.6% 

Neutral Fed .......................... 0.4% 0.8% 0.6% 

High Savings Elasticity .............................. Aggressive Fed ..................... 0.5% 1.0% 0.8% 

Neutral Fed .......................... 0.4% 0.9% 0.7% 

OLG: 

Concurrent fiscal balance .......................... .............................................. 0.5% 1.4% 1.0% 

Delayed fiscal balance ............................... .............................................. 0.5% 1.4% 0.9% 

TABLE 4.—PERCENT CHANGE IN REAL RESIDENTIAL CAPITAL RELATIVE TO PRESENT LAW 

Fiscal Years 

2015–2019 

Fiscal Years 

2020–2024 

Fiscal Years 

2015–2024 

MEG: 

Default Savings Elasticity .......................... Aggressive Fed ..................... ¥0.1% ¥0.1% ¥0.1% 

Neutral Fed .......................... ¥0.1% ¥0.1% ¥0.1% 

High Savings Elasticity .............................. Aggressive Fed ..................... ¥0.1% ¥0.1% ¥0.1% 

Neutral Fed .......................... ¥0.1% ¥0.1% ¥0.1% 


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TABLE 4.—PERCENT CHANGE IN REAL RESIDENTIAL CAPITAL RELATIVE TO PRESENT LAW— 

Continued 

Fiscal Years 

2015–2019 

Fiscal Years 

2020–2024 

Fiscal Years 

2015–2024 

OLG: 

Concurrent fiscal balance .......................... .............................................. ¥0.1% ¥0.1% ¥0.1% 

Delayed fiscal balance ............................... .............................................. ¥0.1% ¥0.1% ¥0.1% 

3. Effects on private sector employment 

The increase in business capital generated by the bill can be expected, over time, to generate an increase in demand for labor by 

increasing productivity and wage rates. Because the projected 

changes in capital stock are relatively modest, these induced effects 

on labor force participation and employment are also projected to 

be modest—less than 0.05 percent, as illustrated in Table 6. 

TABLE 6.—PERCENT CHANGE IN LABOR FORCE PARTICIPATION RELATIVE TO PRESENT LAW 

Fiscal Years 

2015–2019 

Fiscal Years 

2020–2024 

Fiscal Years 

2015–2024 

MEG: 

Default Savings Elasticity .......................... Aggressive Fed ..................... (1) (1) (1) 

Neutral Fed .......................... (1) (1) (1) 

High Savings Elasticity .............................. Aggressive Fed ..................... (1) (1) (1) 

Neutral Fed .......................... (1) (1) (1) 

OLG: 

Concurrent fiscal balance .......................... .............................................. (1) (1) (1) 

Delayed fiscal balance ............................... .............................................. (1) (1) (1) 

(1) Indicates an increase of less than 0.05 percent 

TABLE 7.—PERCENT CHANGE IN PRIVATE SECTOR EMPLOYMENT RELATIVE TO PRESENT LAW 

Fiscal Years 

2015–2019 

Fiscal Years 

2020–2024 

Fiscal Years 

2015–2024 

MEG: 

Default Savings Elasticity .......................... Aggressive Fed ..................... (1) (1) (1) 

Neutral Fed .......................... (1) (1) (1) 

High Savings Elasticity .............................. Aggressive Fed ..................... (1) (1) (1) 

Neutral Fed .......................... (2) (2) (2) 

OLG: 

Concurrent fiscal balance .......................... .............................................. (1) (1) (1) 

Delayed fiscal balance ............................... .............................................. (1) (1) (1) 

(1) Indicates an increase of less than 0.05 percent 

(2) Indicates a decrease of less than 0.05 percent 

Table 7 shows changes in employment predicted to result from 

the proposal. While the willingness of people to work at a given 

combination of wage rates and taxes on wages is an important component of total employment, changes in employment are also influenced by the amount of business demand for labor. In the OLG 

model, which does not model less than full employment of resources, labor supply and employment effects are equivalent. In the 

MEG model, which allows for less than full employment, they can 

be different. Thus, in the MEG simulation that combines a higher 

savings/lower consumption rate with a neutral Fed that does not 

act to counteract the reduced consumption effect, employment is 

projected to decline by a small amount relative to present law. 


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4. Effects on consumption 

Table 8 shows how the proposal affects consumption relative to 

present law. In addition to the interaction between consumption 

demand and short-term economic growth, consumption is often of 

interest as an indicator of individuals’ well-being. Generally, increased growth facilitates more consumption. Because this bill is 

projected to increase growth by providing an incentive for people to 

increase savings and investment, which will lead to an increase in 

the business capital stock, the effect of the bill on consumption is 

expected to change over time. For a given level of income, an increase in the savings rate is equivalent to a decrease in the rate 

of consumption. In the first half of the budget period, the negative 

effect of the increase in savings on consumption is projected to outweigh the positive effect from income generated by investment, 

leading to a modest decline in consumption. As additions to the 

business capital stock accumulate over time, the accompanying increase in income is projected to lead to a net increase in consumption, by about 0.1 percent relative to present law on average over 

the second half of the budget period. This effect occurs more quickly in the MEG model simulations than in the OLG simulations, as 

evidenced by a projected positive effect on average over the whole 

budget period in most of the MEG simulations, in contrast with a 

small net negative effect on average over the ten years in the OLG 

simulations. 

TABLE 8.—PERCENT CHANGE IN CONSUMPTION RELATIVE TO PRESENT LAW 

Fiscal Years 

2015–2019 

Fiscal Years 

2020–2024 

Fiscal Years 

2015–2024 

MEG: 

Default Savings Elasticity .......................... Aggressive Fed ..................... (2) 0.1% 0.1% 

Neutral Fed .......................... (2) 0.1% 0.1% 

High Savings Elasticity.

Aggressive Fed ..................... (2) 0.1% 0.1% 

Neutral Fed .......................... ¥0.1% 0.1% (1) 

OLG: 

Concurrent fiscal balance .......................... .............................................. ¥0.1% 0.1% (2) 

Delayed fiscal balance ............................... .............................................. ¥0.1% 0.1% (2) 

(1) Indicates an increase of less than 0.05 percent 

(2) Indicates a decrease of less than 0.05 percent 

Conclusion 

The 50-percent expensing of certain investment expenditures 

provided for in this bill increases the after-tax rate of return for investment in qualified expenditures, providing an incentive for increased investment in qualified capital. It also provides an incentive for some substitution away from housing investment toward 

qualified investment—mostly business equipment. Thus, the bill is 

expected to result in a small increase in business capital stock, and 

in GDP, relative to present law. 

Appendix—key parameter assumptions 

The amount of taxpayer response to changes in tax policy is governed by how sensitive their work, consumption, and savings decisions are to changes in the after-tax rate of return to additional 

work or investment and to changes in their disposable income. Tables A–1 and A–2 below show the parameters used to model the 


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degree of responsiveness for the MEG and OLG models respectively. 

Table A.1.—PARAMETER ASSUMPTIONS IN THE MEG MODEL 

Labor supply elasticities in disaggregated labor supply Income Substitution Low Elasticity 

Substitution 

Low income primary ................................................................................................ ¥0.1 0.2 0.15 

Other primary .......................................................................................................... ¥0.1 0.1 0.1 

Low income secondary ............................................................................................ ¥0.3 0.8 0.4 

Other secondary ...................................................................................................... ¥0.2 0.6 0.3 

Wage-weighted population average with average baseline rates ......................... ¥0.1 0.2 0.1 

Savings/consumption parameters underlying lifecycle consumption function 

Rate of time preference .......................................................................................... 0.015 .................... ....................

Intertemporal elasticity of substitution-default ..................................................... 0.35 .................... ....................

Derived long-run savings elasticity to the after-tax rate of return on capital— 

default ................................................................................................................ 0.25 .................... ....................

Intertemporal elasticity of substitution-high ......................................................... 0.45 .................... ....................

Derived long-run savings elasticity to the after-tax rate of return on capital— 

high .................................................................................................................... 0.29 .................... ....................

TABLE A.2.—PARAMETER ASSUMPTIONS IN THE OLG MODEL 

Description Value 

Time preference .............................................................................................................................................. 0.015 

Intertemporal elasticity of substitution ......................................................................................................... 0.4 

Intratemporal elasticity of substitution between consumption and leisure ................................................. 0.6 

Leisure share of time endowment ................................................................................................................. 0.4 

Population growth rate ................................................................................................................................... 0.01 

Technological growth rate .............................................................................................................................. 0.016 

Capital share non-housing ............................................................................................................................ 0.25 

Capital share housing .................................................................................................................................... 0.975 

Adjustment cost (quadratic function) ............................................................................................................ 5 

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. 4718 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). 


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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

The following statement is made pursuant to clause 3(h)(1) of 

rule XIII of the Rules of the House of Representatives. 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 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. For each such provision identified by the 

staff of the Joint Committee on Taxation a summary description of 

the provision is provided along with an estimate of the number and 

type of affected taxpayers, and a discussion regarding the relevant 

complexity and administrative issues. 

Following the analysis of the staff of the Joint Committee on 

Taxation are the comments of the IRS and Treasury regarding each 

of the provisions included in the complexity analysis. 

1. BONUS DEPRECIATION MODIFIED AND MADE PERMANENT

Summary description of the provisions 

Bonus depreciation 

The bill makes permanent the 50–percent additional first-year 

depreciation deduction for qualified property. 

The bill expands the definition of qualified property to include 

qualified retail improvement property. 

The $8,000 increase amount in the limitation on the depreciation 

deductions allowed with respect to certain passenger automobiles is 

indexed for automobile price inflation. The increase does not apply 

to a taxpayer who elects to accelerate AMT credits for a taxable 

year. 

The bill also makes permanent the special rule for the allocation 

of bonus depreciation to a long-term contract, which provides that 

solely for purposes of determining the percentage of completion 

under section 460(b)(1)(A), the cost of qualified property with a 

MACRS recovery period of seven years or less is taken into account 


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as a cost allocated to the contract as if bonus depreciation had not 

been enacted. 

Expansion of election to accelerate AMT credits in lieu of 

bonus depreciation 

The bill makes permanent and modifies the election to increase 

the AMT credit limitation in lieu of bonus depreciation. Under the 

bill, the bonus depreciation amount for a taxable year (as defined 

under present law with respect to all qualified property) is limited 

to the lesser of (1) 50 percent of the minimum tax credit for the 

first taxable year ending after December 31, 2013 (determined before the application of any tax liability limitation), or (2) the minimum tax credit for the taxable year allocable to the adjusted net 

minimum tax imposed for taxable years ending before January 1, 

2014 (determined before the application of any tax liability limitation and determined on a first-in, first-out basis). 

The bill also provides that in the case of a partnership having 

a single corporate partner owning (directly or indirectly) more than 

50–percent capital and profits interests in the partnership, each 

partner takes into account its distributive share of partnership depreciation in determining its bonus depreciation amount. 

Special rules for trees and vines bearing fruits and nuts 

In addition, the bill allows a taxpayer to claim bonus depreciation on trees or vines bearing fruits or nuts, in the taxable year in 

which the tree or vine is planted, or grafted to a plant that has already been planted, by the taxpayer in the ordinary course of the 

taxpayer’s farming business (notwithstanding that the tree or vine 

has not yet been placed in service in that year). The adjusted basis 

of the tree or vine is reduced by the amount of the deduction under 

this provision. Further, any amount deducted under this provision 

is not subject to capitalization under section 263A. A taxpayer may 

elect to have this provision not apply to trees or vines planted or 

grafted in that taxable year. If a taxpayer does not elect out of this 

provision, the tree or vine will not be eligible for bonus depreciation 

in the subsequent taxable year in which it is placed in service. 

Number of affected taxpayers 

It is estimated that the provision will affect over ten percent of 

small business tax returns. 

Discussion 

While taxpayers placing in service qualified property will still be 

required to complete and file Form 4562, Depreciation and Amortization (Including Information on Listed Property), significantly less 

detail is required to be included on such form. Accordingly, the 

compliance burden of many taxpayers will be reduced. 


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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(j)(2) of H. Res. 5 (113th Congress), the 

Committee states that no provision of the bill establishes or reauthorizes 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). The Committee also states that 

the Government Accountability Office has included bonus depreciation in a report to Congress pursuant to section 21 of Public Law 

111–139. 

H. DISCLOSURE OF DIRECTED RULE MAKINGS

In compliance with Sec. 3(k) of H. Res. 5 (113th Congress), the 

following statement is made concerning directed rule makings: The 

Committee estimates that the bill requires no more than one directed rule making within the meaning of such section; whether or 

not the bill requires a directed rule making is ambiguous because 

the bill directs the Secretary to increase the applicable depreciation 

limitation for passenger vehicles under section 280F by $8,000 for 

purposes of calculating allowable bonus depreciation but without 

reference to a specific rule making. 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS 

REPORTED 

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

INTERNAL REVENUE CODE OF 1986 

* * * * * * * 

Subtitle A—Income Taxes 

* * * * * * * 

CHAPTER 1—NORMAL TAXES AND SURTAXES 

* * * * * * * 

Subchapter B—Computation of Taxable Income 

* * * * * * * 


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PART VI—ITEMIZED DEDUCTIONS FOR INDIVIDUALS 

AND CORPORATIONS 

* * * * * * * 

SEC. 168. ACCELERATED COST RECOVERY SYSTEM. 

(a) * * * 

* * * * * * * 

(e) CLASSIFICATION OF PROPERTY.—For purposes of this section— 

(1) * * * 

* * * * * * * 

(8) QUALIFIED RETAIL IMPROVEMENT PROPERTY.— (A) * * * 

* * * * * * * 

ø(D) EXCLUSION FROM BONUS DEPRECIATION.—Property 

described in this paragraph shall not be considered qualified property for purposes of subsection (k).¿ 

* * * * * * * 

(k) SPECIAL ALLOWANCE FOR CERTAIN PROPERTY øACQUIRED

AFTER DECEMBER 31, 2007, AND BEFORE JANUARY 1, 2014¿.— (1) * * * 

ø(2) QUALIFIED PROPERTY.—For purposes of this subsection— 

ø(A) IN GENERAL.—The term ‘‘qualified property’’ means 

property— 

ø(i)(I) to which this section applies which has a recovery period of 20 years or less, 

ø(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, 

ø(III) which is water utility property, or 

ø(IV) which is qualified leasehold improvement 

property, 

ø(ii) the original use of which commences with the 

taxpayer after December 31, 2007, 

ø(iii) which is— 

ø(I) acquired by the taxpayer after December 

31, 2007, and before January 1, 2014, but only if 

no written binding contract for the acquisition was 

in effect before January 1, 2008, or 

ø(II) acquired by the taxpayer pursuant to a 

written binding contract which was entered into 

after December 31, 2007, and before January 1, 

2014, and 

ø(iv) which is placed in service by the taxpayer before January 1, 2014, or, in the case of property described in subparagraph (B) or (C), before January 1, 

2015. 

ø(B) CERTAIN PROPERTY HAVING LONGER PRODUCTION PERIODS TREATED AS QUALIFIED PROPERTY.— 

ø(i) IN GENERAL.—The term ‘‘qualified property’’ includes any property if such property— 

ø(I) meets the requirements of clauses (i), (ii), 

(iii), and (iv) of subparagraph (A), 


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ø(II) has a recovery period of at least 10 years 

or is transportation property, 

ø(III) is subject to section 263A, and 

ø(IV) meets the requirements of clause (iii) of 

section 263A(f)(1)(B) (determined as if such 

clauses also apply to property which has a long 

useful life (within the meaning of section 

263A(f))). 

ø(ii) ONLY PRE-JANUARY 1, 2014, 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, 2014. 

ø(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. 

ø(iv) APPLICATION OF SUBPARAGRAPH.—This subparagraph shall not apply to any property which is described in subparagraph (C). 

ø(C) CERTAIN AIRCRAFT.—The term ‘‘qualified property’’ 

includes property— 

ø(i) which meets the requirements of clauses (ii), 

(iii), and (iv) of subparagraph (A), 

ø(ii) which is an aircraft which is not a transportation property (as defined in subparagraph (B)(iii)) 

other than for agricultural or firefighting purposes, 

ø(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— 

ø(I) 10 percent of the cost, or 

ø(II) $100,000, and 

ø(iv) which has— 

ø(I) an estimated production period exceeding 4 

months, and 

ø(II) a cost exceeding $200,000. 

ø(D) EXCEPTIONS.— ø(i) ALTERNATIVE DEPRECIATION PROPERTY.—The 

term ‘‘qualified property’’ shall not include any property to which the alternative depreciation system 

under subsection (g) applies, determined— 

ø(I) without regard to paragraph (7) of subsection (g) (relating to election to have system 

apply), and 

ø(II) after application of section 280F(b) (relating to listed property with limited business use). 

ø(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)). 

ø(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 


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apply to all property in such class placed in service 

during such taxable year. 

ø(E) SPECIAL RULES.— ø(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, 2014. 

ø(ii) SALE-LEASEBACKS.—For purposes of clause (iii) 

and subparagraph (A)(ii), if property is— 

ø(I) originally placed in service after December 

31, 2007, by a person, and 

ø(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). 

ø(iii) SYNDICATION.—For purposes of subparagraph 

(A)(ii), if— 

ø(I) property is originally placed in service after 

December 31, 2007, by the lessor of such property, 

ø(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 

ø(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. 

ø(iv) LIMITATIONS RELATED TO USERS AND RELATED

PARTIES.—The term ‘‘qualified property’’ shall not include any property if— 

ø(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 

ø(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. 


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ø(F) COORDINATION WITH SECTION 280F.—For purposes of 

section 280F— 

ø(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. 

ø(ii) LISTED PROPERTY.—The deduction allowable 

under paragraph (1) shall be taken into account in 

computing any recapture amount under section 

280F(b)(2). 

ø(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.¿ 

(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, 

(IV) which is qualified leasehold improvement property, or 

(V) which is qualified retail improvement property, 

and 

(ii) the original use of which commences with the 

taxpayer. 

(B) EXCEPTION FOR 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). 

(C) SPECIAL RULES.— 

(i) SALE-LEASEBACKS.—For purposes of clause (ii) 

and subparagraph (A)(ii), if property is— 

(I) originally placed in service 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). 

(ii) SYNDICATION.—For purposes of subparagraph 

(A)(ii), if— 

(I) property is originally placed in service by the 

lessor of such property, 


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38 

(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. 

(D) 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 

computing any recapture amount under section 

280F(b)(2). 

(iii) INFLATION ADJUSTMENT.—In the case of any taxable year beginning in a calendar year after 2014, the 

$8,000 amount in clause (i) shall be increased by an 

amount equal to— 

(I) such dollar amount, multiplied by 

(II) the automobile price inflation adjustment determined under section 280F(d)(7)(B)(i) for the calendar year in which such taxable year begins by 

substituting ‘‘2013’’ for ‘‘1987’’ in subclause (II) 

thereof. 

If any increase under the preceding sentence is not a 

multiple of $100, such increase shall be rounded to the 

nearest multiple of $100. 

(E) DEDUCTION ALLOWED IN COMPUTING MINIMUM TAX.— For purposes of determining alternative minimum taxable 

income under section 55, the deduction under section 167 

for qualified property shall be determined without regard to 

any adjustment under section 56. 

* * * * * * * 

ø(4) ELECTION TO ACCELERATE THE AMT AND RESEARCH

CREDITS IN LIEU OF BONUS DEPRECIATION.— ø(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— 

ø(i) paragraph (1) shall not apply to any eligible 

qualified property placed in service by the taxpayer, 

ø(ii) the applicable depreciation method used under 

this section with respect to such property shall be the 

straight line method, and 


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ø(iii) each of the limitations described in subparagraph (B) for any such taxable year shall be increased 

by the bonus depreciation amount which is— 

ø(I) determined for such taxable year under subparagraph (C), and 

ø(II) allocated to such limitation under subparagraph (E). 

ø(B) LIMITATIONS TO BE INCREASED.—The limitations described in this subparagraph are— 

ø(i) the limitation imposed by section 38(c), and 

ø(ii) the limitation imposed by section 53(c). 

ø(C) BONUS DEPRECIATION AMOUNT.—For purposes of 

this paragraph— 

ø(i) IN GENERAL.—The bonus depreciation amount 

for any taxable year is an amount equal to 20 percent 

of the excess (if any) of— 

ø(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 

ø(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)(C), (b)(3)(D), or 

(g)(7) and without regard to subparagraph (A)(ii). 

ø(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. 

ø(iii) MAXIMUM INCREASE AMOUNT.—For purposes of 

clause (ii), the term ‘‘maximum increase amount’’ 

means, with respect to any corporation, the lesser of— 

ø(I) $30,000,000, or 

ø(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). 

ø(iv) AGGREGATION RULE.—All corporations which 

are treated as a single employer under section 52(a) 

shall be treated— 

ø(I) as 1 taxpayer for purposes of this paragraph, and 

ø(II) as having elected the application of this 

paragraph if any such corporation so elects. 

ø(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— 


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ø(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, 

ø(ii) ‘‘April 1, 2008’’ shall be substituted for ‘‘January 1, 2008’’ in subparagraph (A)(iii)(I) thereof, and 

ø(iii) only adjusted basis attributable to manufacture, construction, or production— 

ø(I) after March 31, 2008, and before January 1, 

2010, and 

ø(II) after December 31, 2010, and before January 1, 2014, shall be taken into account under 

subparagraph (B)(ii) thereof. 

ø(E) ALLOCATION OF BONUS DEPRECIATION AMOUNTS.— 

ø(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. 

ø(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— 

ø(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 

ø(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. 

ø(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— 

ø(I) from taxable years beginning before January 1, 2006, and 

ø(II) properly allocable (determined under the 

rules of section 38(d)) to the research credit determined under section 41(a). 

ø(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 minimum tax 

for taxable years beginning before January 1, 2006. 


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For purposes of the preceding sentence, credits shall 

be treated as allowed on a first-in, first- out basis. 

ø(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). 

ø(G) OTHER RULES.— ø(i) ELECTION.—Any election under this paragraph 

(including any allocation under subparagraph (E)) may 

be revoked only with the consent of the Secretary. 

ø(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— 

ø(I) paragraph (1) shall not apply to any eligible 

qualified property, and 

ø(II) the applicable depreciation method used 

under this section with respect to such property 

shall be the straight line method. 

ø(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). 

ø(H) SPECIAL RULES FOR EXTENSION PROPERTY.— 

ø(i) 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— 

ø(I) the taxpayer may elect not to have this 

paragraph apply to extension property, but 

ø(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. 

ø(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— 

ø(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 

ø(II) if the taxpayer makes the election under 

subclause (I), this paragraph shall only apply to 

eligible qualified property which is extension property. 


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ø(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). 

ø(I) SPECIAL RULES FOR ROUND 2 EXTENSION PROPERTY.— ø(i) IN GENERAL.—In the case of round 2 extension 

property, this paragraph shall be applied without regard to— 

ø(I) the limitation described in subparagraph 

(B)(i) thereof, and 

ø(II) the business credit increase amount under 

subparagraph (E)(iii) thereof. 

ø(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— 

ø(I) the taxpayer may elect not to have this 

paragraph apply to round 2 extension property, 

but 

ø(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. 

ø(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— 

ø(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 

ø(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. 

ø(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 appliVerDate Mar 15 2010 06:19 Jul 04, 2014 Jkt 039006 PO 00000 Frm 00042 Fmt 6659 Sfmt 6601 E:\HR\OC\HR509.XXX HR509

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cation 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). 

ø(J) SPECIAL RULES FOR ROUND 3 EXTENSION PROPERTY.— ø(i) IN GENERAL.—In the case of round 3 extension 

property, this paragraph shall be applied without regard to— 

ø(I) the limitation described in subparagraph 

(B)(i) thereof, and 

ø(II) the business credit increase amount under 

subparagraph (E)(iii) thereof. 

ø(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— 

ø(I) the taxpayer may elect not to have this 

paragraph apply to round 3 extension property, 

but 

ø(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. 

ø(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 any taxable 

year ending after December 31, 2010— 

ø(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 

ø(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. 

ø(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 appliVerDate Mar 15 2010 06:19 Jul 04, 2014 Jkt 039006 PO 00000 Frm 00043 Fmt 6659 Sfmt 6601 E:\HR\OC\HR509.XXX HR509

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cation 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). 

ø(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’’.¿ 

(4) ELECTION TO ACCELERATE AMT CREDITS IN LIEU OF BONUS

DEPRECIATION.— 

(A) IN GENERAL.—If a corporation elects to have this 

paragraph apply for any taxable year— 

(i) paragraphs (1)(A), (2)(D)(i), and (5)(A)(i) shall not 

apply for such taxable year, 

(ii) the applicable depreciation method used under 

this section with respect to any qualified property shall 

be the straight line method, and 

(iii) the limitation imposed by section 53(c) for such 

taxable year shall be increased by the bonus depreciation amount which is determined for such taxable year 

under subparagraph (B). 

(B) 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 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 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) LIMITATION.—The bonus depreciation amount for 

any taxable year shall not exceed the lesser of— 

(I) 50 percent of the minimum tax credit under 

section 53(b) for the first taxable year ending after 

December 31, 2013, or 

(II) the minimum tax credit under section 53(b) 

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able years ending before January 1, 2014 (determined by treating credits as allowed on a first-in, 

first-out basis). 

(iii) 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. 

(C) 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). 

(D) OTHER RULES.— 

(i) ELECTION.—Any election under this paragraph 

may be revoked only with the consent of the Secretary. 

(ii) PARTNERSHIPS WITH ELECTING PARTNERS.—In the 

case of a corporation which is a partner in a partnership and which makes an election under subparagraph 

(A) for the taxable year, for purposes of determining 

such corporation’s distributive share of partnership 

items under section 702 for such taxable year— 

(I) paragraphs (1)(A), (2)(D)(i), and (5)(A)(i) 

shall not apply, and 

(II) the applicable depreciation method used 

under this section with respect to any qualified 

property shall be the straight line method. 

(iii) CERTAIN PARTNERSHIPS.—In the case of a partnership in which more than 50 percent of the capital 

and profits interests are owned (directly or indirectly) 

at all times during the taxable year by 1 corporation 

(or by corporations treated as 1 taxpayer under subparagraph (B)(iii)), each partner shall compute its 

bonus depreciation amount under clause (i) of subparagraph (B) by taking into account its distributive share 

of the amounts determined by the partnership under 

subclauses (I) and (II) of such clause for the taxable 

year of the partnership ending with or within the taxable year of the partner. 

(5) SPECIAL RULES FOR TREES AND VINES BEARING FRUITS

AND NUTS.— 

(A) IN GENERAL.—In the case of any tree or vine bearing 

fruits or nuts which is planted, or is grafted to a plant that 

has already been planted, by the taxpayer in the ordinary 

course of the taxpayer’s farming business (as defined in section 263A(e)(4))— 

(i) a depreciation deduction equal to 50 percent of the 

adjusted basis of such tree or vine shall be allowed 

under section 167(a) for the taxable year in which such 

tree or vine is so planted or grafted, and 

(ii) the adjusted basis of such tree or vine shall be reduced by the amount of such deduction. 


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(B) ELECTION OUT.—If a taxpayer makes an election 

under this subparagraph for any taxable year, this paragraph shall not apply to any tree or vine planted or grafted 

during such taxable year. An election under this subparagraph may be revoked only with the consent of the Secretary. 

(C) ADDITIONAL DEPRECIATION MAY BE CLAIMED ONLY

ONCE.—If this paragraph applies to any tree or vine, such 

tree or vine shall not be treated as qualified property in the 

taxable year in which placed in service. 

(D) COORDINATION WITH ELECTION TO ACCELERATE AMT 

CREDITS.—If a corporation makes an election under paragraph (4) for any taxable year, the amount under paragraph (4)(B)(i)(I) for such taxable year shall be increased by 

the amount determined under subparagraph (A)(i) for such 

taxable year. 

(E) DEDUCTION ALLOWED IN COMPUTING MINIMUM TAX.— 

Rules similar to the rules of paragraph (2)(E) shall apply 

for purposes of this paragraph. 

(6) ELECTION OUT.—If a taxpayer makes an election under 

this paragraph 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 (or, in the case of paragraph (5), planted 

or grafted) during such taxable year. An election under this 

paragraph may be revoked only with the consent of the Secretary. 

(l) SPECIAL ALLOWANCE FOR SECOND GENERATION BIOFUEL

PLANT PROPERTY.— 

(1) * * * 

* * * * * * * 

(5) ALLOWANCE AGAINST ALTERNATIVE MINIMUM TAX.—For 

purposes of this subsection, rules similar to the rules of øsection 168(k)(2)(G)¿ section 168(k)(2)(E) shall apply. 

* * * * * * * 

PART IX—ITEMS NOT DEDUCTIBLE 

* * * * * * * 

SEC. 263A. CAPITALIZATION AND INCLUSION IN INVENTORY COSTS OF 

CERTAIN EXPENSES. 

(a) * * * 

* * * * * * * 

(c) GENERAL EXCEPTIONS.— 

(1) * * * 

* * * * * * * 

(7) COORDINATION WITH SECTION 168(k)(5).— This section 

shall not apply to any amount allowable as a deduction by reason of section 168(k)(5) (relating to special rules for trees and 

vines bearing fruits and nuts). 

* * * * * * * 


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Subchapter E—Accounting Periods and Methods 

of Accounting 

* * * * * * * 

PART II—METHODS OF ACCOUNTING 

* * * * * * * 

Subpart B—Taxable Year for Which Items of Gross Income 

Included 

* * * * * * * 

SEC. 460. SPECIAL RULES FOR LONG-TERM CONTRACTS. 

(a) * * * 

* * * * * * * 

(c) ALLOCATION OF COSTS TO CONTRACT.— 

(1) * * * 

* * * * * * * 

(6) SPECIAL RULE FOR ALLOCATION OF BONUS DEPRECIATION

WITH RESPECT TO CERTAIN PROPERTY.— 

(A) * * * 

(B) QUALIFIED PROPERTY.—For purposes of this paragraph, the term ‘‘qualified property’’ means property described in section 168(k)(2) øwhich—¿ which has a recovery period of 7 years or less. 

ø(i) has a recovery period of 7 years or less, and 

ø(ii) is placed in service after December 31, 2009, 

and before January 1, 2011 (January 1, 2012, in the 

case of property described in section 168(k)(2)(B)), or 

after December 31, 2012, and before January 1, 2014 

(January 1, 2015, in the case of property described in 

section 168(k)(2)(B)).¿ 

* * * * * * * 


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(48) 

VII. DISSENTING VIEWS 

The six bills approved by the Republicans at the markup would 

add $304 billion to the deficit. Combined with the $310 billion that 

the six bills approved by Republicans on the Committee in April 

added to the deficit, Republicans have added $614 billion to the 

deficit in two short months—and there does not appear to be an 

end in sight. Even though some of these bills were introduced individually with some bipartisan support, the opposition to these bills 

was based on the position that these tax provisions should not be 

made permanent by adding to the deficit without any revenue offset. This bill alone would add $287 billion to the deficit. 

To put the combined cost ($614 billion) into context, it is 25 percent more than the entire projected federal deficit this year and 

$86 billion more than total non-defense domestic discretionary 

spending (e.g., medical research, education, veterans’ pensions and 

health care, transportation, etc.) will be in 2014. It is almost seven 

times what we spend annually on education, job training, and social services. It is ten times more than we spend on veterans. And, 

it is eleven times more than we spend on medical research and 

public health. 

More specifically, we opposed H.R. 4718 because it would make 

permanent a provision that was designed to be temporary. As stated by the Congressional Research Service (CRS) in Bonus Depreciation: Economic and Budgetary Issues (March 24, 2014), bonus depreciation ‘‘was enacted for a specific, short-term purpose: to provide an economic stimulus during the recession.’’ CRS explained: 

‘‘A temporary investment subsidy was expected to be more effective 

than a permanent one for short-term stimulus, encouraging firms 

to invest while the benefit was in place. Its temporary nature is 

critical to its effectiveness.’’ (Emphasis added.) 

The last decade highlights the temporary nature of this policy. 

It was put in place during the recession at the early part of the 

last decade before being allowed to expire in 2005 as the economy 

improved. In 2008, as a new, deeper recession took hold, the policy 

was put in place again. 

We found it hypocritical that the Republicans would make permanent a provision that was repealed in Chairman Camp’s Tax Reform Act of 2014 discussion draft (the ‘‘Republican tax reform 

plan’’). CRS also stated that ‘‘moving to permanent bonus depreciation is inconsistent with tax reform proposals made by . . . Chairman Camp’s proposal.’’ Indeed, in the Ways and Means Committee 

Majority Tax Staff summary of the Republican tax reform plan, the 

summary of the accelerated cost recovery reform system states: 

‘‘The provision also would repeal the following special depreciation 

provisions: bonus depreciation . . .’’ (Emphasis added.) 

We also found it hypocritical that, four months ago, Republicans 

let emergency unemployment insurance expire for more than 1.3 


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million Americans by arguing that an adequate offset had yet to be 

proposed. In early April, the Senate came to a bipartisan agreement on an offset after months of painstaking negotiations. Yet, 

House Republicans still refuse to act. We also found it irrational 

that Republicans would make permanent a temporary, stimulus 

provision for businesses and let emergency unemployment insurance for individuals (another temporary, stimulus provision) expire. 

Finally, we also opposed the manner in which Republicans were 

proceeding—selecting 10 to make permanent without any offset 

from the approximately 60 tax provisions that expired last year. 

This approach was both fiscally irresponsible and fundamentally 

hypocritical. 

The consideration of this bill should have been part of the consideration of all the expired tax provisions commonly referred to as 

‘‘tax extenders.’’ 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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