416 
ital account. Any expense which is so treated shall be al-
lowed as a deduction for the taxable year in which it is 
paid or incurred. 
‘‘(b) QUALIFIED DISASTER EXPENSE.—For purposes 
of this section, the term ‘qualified disaster expense’ means 
any expenditure— 
‘‘(1) which is paid or incurred in connection 
with a trade or business or with business-related 
property, 
‘‘(2) which is— 
‘‘(A) for the abatement or control of haz-
ardous substances that were released on account 
of a federally declared disaster occurring before 
January 1, 2010, 
‘‘(B) for the removal of debris from, or the 
demolition of structures on, real property which 
is business-related property damaged or de-
stroyed as a result of a federally declared dis-
aster occurring before such date, or 
‘‘(C) for the repair of business-related prop-
erty damaged as a result of a federally declared 
disaster occurring before such date, and 
‘‘(3) which is otherwise chargeable to capital ac-
count.
417 
‘‘(c) OTHER DEFINITIONS.—For purposes of this sec-
tion— 
‘‘(1) BUSINESS-RELATED PROPERTY.—The term 
‘business-related property’ means property— 
‘‘(A) held by the taxpayer for use in a trade 
or business or for the production of income, or 
‘‘(B) described in section 1221(a)(1) in the 
hands of the taxpayer. 
‘‘(2) FEDERALLY
DECLARED
DISASTER.—The 
term ‘federally declared disaster’ has the meaning 
given such term by section 165(h)(3)(C)(i). 
‘‘(d) DEDUCTION RECAPTURED AS ORDINARY INCOME 
ON SALE, ETC.—Solely for purposes of section 1245, in the 
case of property to which a qualified disaster expense would 
have been capitalized but for this section— 
‘‘(1) the deduction allowed by this section for 
such expense shall be treated as a deduction for depre-
ciation, and 
‘‘(2) such property (if not otherwise section 1245 
property) shall be treated as section 1245 property 
solely for purposes of applying section 1245 to such 
deduction. 
‘‘(e) COORDINATION WITH OTHER PROVISIONS.—Sec-
tions 198, 280B, and 468 shall not apply to amounts which 
are treated as expenses under this section.
418 
‘‘(f) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section.’’. 
(b) CLERICAL AMENDMENT.—The table of sections for 
part VI of subchapter B of chapter 1 is amended by insert-
ing after the item relating to section 198 the following new 
item: 
‘‘Sec. 198A. Expensing of Qualified Disaster Expenses.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to amounts paid or incurred after De-
cember 31, 2007 in connection with disaster declared after 
such date. 
SEC. 708. NET OPERATING LOSSES ATTRIBUTABLE TO FED-
ERALLY DECLARED DISASTERS. 
(a) IN GENERAL.—Paragraph (1) of section 172(b) is 
amended by adding at the end the following new subpara-
graph: 
‘‘(J) CERTAIN LOSSES ATTRIBUTABLE FED-
ERALLY DECLARED DISASTERS.—In the case of a 
taxpayer who has a qualified disaster loss (as de-
fined in subsection (j)), such loss shall be a net 
operating loss carryback to each of the 5 taxable 
years preceding the taxable year of such loss.’’. 
(b) QUALIFIED DISASTER LOSS.—Section 172 is 
amended by redesignating subsections (j) and (k) as sub-
419 
sections (k) and (l), respectively, and by inserting after sub-
section (i) the following new subsection: 
‘‘(j) RULES
RELATING
TO
QUALIFIED
DISASTER 
LOSSES.—For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified disaster 
loss’ means the lesser of— 
‘‘(A) the sum of— 
‘‘(i) the losses allowable under section 
165 for the taxable year— 
‘‘(I) attributable to a federally de-
clared disaster (as defined in section 
165(h)(3)(C)(i)) occurring before Janu-
ary 1, 2010, and 
‘‘(II) occurring in a disaster area 
(as defined in section 165(h)(3)(C)(ii)), 
and 
‘‘(ii) the deduction for the taxable year 
for qualified disaster expenses which is al-
lowable under section 198A(a) or which 
would be so allowable if not otherwise treat-
ed as an expense, or 
‘‘(B) the net operating loss for such taxable 
year. 
‘‘(2) COORDINATION WITH SUBSECTION (b)(2).— 
For purposes of applying subsection (b)(2), a quali-
420 
fied disaster loss for any taxable year shall be treated 
in a manner similar to the manner in which a speci-
fied liability loss is treated. 
‘‘(3) ELECTION.—Any taxpayer entitled to a 5- 
year carryback under subsection (b)(1)(J) from any 
loss year may elect to have the carryback period with 
respect to such loss year determined without regard to 
subsection (b)(1)(J). Such election shall be made in 
such manner as may be prescribed by the Secretary 
and shall be made by the due date (including exten-
sions of time) for filing the taxpayer’s return for the 
taxable year of the net operating loss. Such election, 
once made for any taxable year, shall be irrevocable 
for such taxable year. 
‘‘(4) EXCLUSION.—The term ‘qualified disaster 
loss’ shall not include any loss with respect to any 
property described in section 1400N(p)(3).’’. 
(c) LOSS DEDUCTION ALLOWED IN COMPUTING AL-
TERNATIVE MINIMUM TAXABLE INCOME.—Subsection (d) of 
section 56 is amended by adding at the end the following 
new paragraph: 
‘‘(3) NET OPERATING LOSS ATTRIBUTABLE TO 
FEDERALLY DECLARED DISASTERS.—In the case of a 
taxpayer which has a qualified disaster loss (as de-
fined by section 172(b)(1)(J)) for the taxable year,
421 
paragraph (1) shall be applied by increasing the 
amount determined under subparagraph (A)(ii)(I) 
thereof by the sum of the carrybacks and carryovers 
of such loss.’’. 
(d) CONFORMING AMENDMENTS.— 
(1) Clause (ii) of section 172(b)(1)(F) is amend-
ed by inserting ‘‘or qualified disaster loss (as defined 
in subsection (j))’’ before the period at the end of the 
last sentence. 
(2) Paragraph (1) of section 172(i) is amended 
by adding at the end the following new flush sentence: 
‘‘Such term shall not include any qualified disaster 
loss (as defined in subsection (j)).’’. 
(e) EFFECTIVE DATE.—The amendments made by this 
section shall apply to losses arising in taxable years begin-
ning after December 31, 2007, in connection with disasters 
declared after such date. 
SEC. 709. WAIVER OF CERTAIN MORTGAGE REVENUE BOND 
REQUIREMENTS FOLLOWING FEDERALLY DE-
CLARED DISASTERS. 
(a) IN GENERAL.—Subsection (k) of section 143 is 
amended by adding at the end the following new paragraph: 
‘‘(12) SPECIAL
RULES
FOR
RESIDENCES
DE-
STROYED IN FEDERALLY DECLARED DISASTERS.—
422 
‘‘(A) PRINCIPAL RESIDENCE DESTROYED.— 
At the election of the taxpayer, if the principal 
residence (within the meaning of section 121) of 
such taxpayer is— 
‘‘(i) rendered unsafe for use as a resi-
dence by reason of a federally declared dis-
aster occurring before January 1, 2010, or 
‘‘(ii) demolished or relocated by reason 
of an order of the government of a State or 
political subdivision thereof on account of a 
federally declared disaster occurring before 
such date, 
then, for the 2-year period beginning on the date 
of the disaster declaration, subsection (d)(1) shall 
not apply with respect to such taxpayer and sub-
section (e) shall be applied by substituting ‘110’ 
for ‘90’ in paragraph (1) thereof. 
‘‘(B) PRINCIPAL RESIDENCE DAMAGED.— 
‘‘(i) IN GENERAL.—At the election of 
the taxpayer, if the principal residence 
(within the meaning of section 121) of such 
taxpayer was damaged as the result of a 
federally declared disaster occurring before 
January 1, 2010, any owner-financing pro-
vided in connection with the repair or re-
423 
construction of such residence shall be treat-
ed as a qualified rehabilitation loan. 
‘‘(ii) 
LIMITATION.—The 
aggregate 
owner-financing to which clause (i) applies 
shall not exceed the lesser of— 
‘‘(I) the cost of such repair or re-
construction, or 
‘‘(II) $150,000. 
‘‘(C) FEDERALLY
DECLARED
DISASTER.— 
For purposes of this paragraph, the term ‘feder-
ally declared disaster’ has the meaning given 
such term by section 165(h)(3)(C)(i). 
‘‘(D) ELECTION; DENIAL OF DOUBLE BEN-
EFIT.— 
‘‘(i) ELECTION.—An election under 
this paragraph may not be revoked except 
with the consent of the Secretary. 
‘‘(ii) DENIAL OF DOUBLE BENEFIT.—If 
a taxpayer elects the application of this 
paragraph, paragraph (11) shall not apply 
with respect to the purchase or financing of 
any residence by such taxpayer.’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to disasters occurring after December 
31, 2007.
424 
SEC. 710. SPECIAL DEPRECIATION ALLOWANCE FOR QUALI-
FIED DISASTER PROPERTY. 
(a) IN GENERAL.—Section 168, as amended by this 
Act, is amended by adding at the end the following new 
subsection: 
‘‘(n) SPECIAL ALLOWANCE FOR QUALIFIED DISASTER 
ASSISTANCE PROPERTY.— 
‘‘(1) IN GENERAL.—In the case of any qualified 
disaster assistance property— 
‘‘(A) the depreciation deduction provided by 
section 167(a) for the taxable year in which such 
property is placed in service shall include an al-
lowance equal to 50 percent of the adjusted basis 
of the qualified disaster assistance property, and 
‘‘(B) the adjusted basis of the qualified dis-
aster assistance property shall be reduced by the 
amount of such deduction before computing the 
amount otherwise allowable as a depreciation de-
duction under this chapter for such taxable year 
and any subsequent taxable year. 
‘‘(2) QUALIFIED
DISASTER
ASSISTANCE
PROP-
ERTY.—For purposes of this subsection— 
‘‘(A) IN GENERAL.—The term ‘qualified dis-
aster assistance property’ means any property— 
‘‘(i)(I) which is described in subsection 
(k)(2)(A)(i), or
425 
‘‘(II) which is nonresidential real 
property or residential rental property, 
‘‘(ii) substantially all of the use of 
which is— 
‘‘(I) in a disaster area with re-
spect to a federally declared disaster 
occurring before January 1, 2010, and 
‘‘(II) in the active conduct of a 
trade or business by the taxpayer in 
such disaster area, 
‘‘(iii) which— 
‘‘(I) rehabilitates property dam-
aged, or replaces property destroyed or 
condemned, as a result of such feder-
ally declared disaster, except that, for 
purposes of this clause, property shall 
be treated as replacing property de-
stroyed or condemned if, as part of an 
integrated plan, such property replaces 
property which is included in a con-
tinuous area which includes real prop-
erty destroyed or condemned, and 
‘‘(II) is similar in nature to, and 
located in the same county as, the
426 
property being rehabilitated or re-
placed, 
‘‘(iv) the original use of which in such 
disaster area commences with an eligible 
taxpayer on or after the applicable disaster 
date, 
‘‘(v) which is acquired by such eligible 
taxpayer by purchase (as defined in section 
179(d)) on or after the applicable disaster 
date, but only if no written binding con-
tract for the acquisition was in effect before 
such date, and 
‘‘(vi) which is placed in service by such 
eligible taxpayer on or before the date which 
is the last day of the third calendar year 
following the applicable disaster date (the 
fourth calendar year in the case of nonresi-
dential real property and residential rental 
property). 
‘‘(B) EXCEPTIONS.— 
‘‘(i) OTHER
BONUS
DEPRECIATION 
PROPERTY.—The term ‘qualified disaster 
assistance property’ shall not include—