I 
110TH CONGRESS 
2D SESSION 
H. R. 6601 
To amend the Internal Revenue Code of 1986 to simplify the deduction 
for business use of the home and to make other changes affecting 
small businesses. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 24, 2008 
Ms. VELA´ZQUEZ introduced the following bill; which was referred to the 
Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to simplify 
the deduction for business use of the home and to make 
other changes affecting small businesses. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Small Business Tax 
Modernization Act of 2008’’. 
SEC. 2. STANDARD DEDUCTION FOR BUSINESS USE OF 
HOME. 
(a) IN GENERAL.—Subsection (c) of section 280A of 
the Internal Revenue Code of 1986 (relating to disallow-
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ance of certain expenses in connection with business use 
of home, rental of vacation homes, etc.) is amended by 
adding at the end the following new paragraph: 
‘‘(7) STANDARD HOME OFFICE DEDUCTION.— 
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is allowed a deduction for the use of 
a home office because of a use described in 
paragraphs (1), (2), or (4) of this subsection, 
notwithstanding the limitations of paragraph 
(5), if such individual elects the application of 
this paragraph for the taxable year, such indi-
vidual shall be allowed a deduction equal to the 
standard home office deduction for the taxable 
year in lieu of the deductions otherwise allow-
able under this chapter for such taxable year by 
reason of being attributed to such use. 
‘‘(B) STANDARD
HOME
OFFICE
DEDUC-
TION.—For purposes of this paragraph, the 
standard home office deduction is the lesser 
of— 
‘‘(i) $2,000, or 
‘‘(ii) the gross income derived from 
the individual’s trade or business for which 
such use occurs. 
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‘‘(C) INFLATION
ADJUSTMENT.—In the 
case of any taxable year beginning in a calendar 
year after 2008, the dollar amount in subpara-
graph (B)(i) shall be increased by an amount 
equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, determined by substituting ‘2007’ for 
‘1992’ in subparagraph (B) thereof. 
Any increase determined under the preceding 
sentence shall be rounded to the nearest mul-
tiple of $100.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 3. DE MINIMIS EXCEPTION TO EXCLUSIVE USE RE-
QUIREMENT. 
(a) IN GENERAL.—Subsection (c) of section 280A of 
the Internal Revenue Code of 1986 (relating to disallow-
ance of certain expenses in connection with business use 
of home, rental of vacation homes, etc.) is amended by 
redesignating paragraphs (5) and (6) as paragraphs (6) 
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and (7), respectively, and by inserting after paragraph (4) 
the following new paragraph: 
‘‘(5) DE MINIMIS NONBUSINESS USE.—In ap-
plying paragraph (1), personal use shall not be 
taken into account if such use is so small as to make 
accounting for it unreasonable or administratively 
impracticable.’’. 
(b) CONFORMING AMENDMENT.—Subparagraph (A) 
of section 280A(d)(4) of such Code is amended by striking 
‘‘subsection (c)(5)’’ and inserting ‘‘subsection (c)(6)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 4. REMOVAL OF CELLULAR TELEPHONES AND SIMI-
LAR 
TELECOMMUNICATIONS 
EQUIPMENT 
FROM LISTED PROPERTY. 
(a) IN GENERAL.—Subparagraph (A) of section 
280F(d)(4) of the Internal Revenue Code of 1986 (defin-
ing listed property) is amended by adding ‘‘and’’ at the 
end of clause (iv), by striking clause (v), and by redesig-
nating clause (vi) as clause (v). 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to property placed in service after 
December 31, 2007. 
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SEC. 5. NONRESIDENT ALIENS PERMITTED TO BE S COR-
PORATION SHAREHOLDERS. 
(a) IN GENERAL.—Paragraph (1) of section 1361(b) 
of the Internal Revenue Code of 1986 (defining an S cor-
poration) is amended by adding ‘‘and’’ at the end of sub-
paragraph (B), by striking subparagraph (C), and by re-
designating subparagraph (D) as subparagraph (C). 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 6. INCREASED DEDUCTION OF BUSINESS MEALS AND 
ENTERTAINMENT EXPENSES FOR QUALIFIED 
SMALL BUSINESSES. 
(a) IN GENERAL.—Subsection (n) of section 274 of 
the Internal Revenue Code of 1986 (relating to only 50 
percent of meal and entertainment expenses allowed as de-
duction) is amended by adding at the end the following 
new paragraph: 
‘‘(4) SPECIAL RULE FOR SMALL BUSINESSES.— 
‘‘(A) IN GENERAL.—In the case of a quali-
fied small business, paragraph (1) shall be ap-
plied— 
‘‘(i) by substituting ‘75 percent’ for 
‘50 percent’ in the case of taxable years 
beginning in 2008, and 
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‘‘(ii) by substituting ‘80 percent’ for 
‘50 percent’ in the case of taxable years 
beginning after 2008. 
‘‘(B) QUALIFIED
SMALL
BUSINESS.—For 
purposes of subparagraph (A), the term ‘quali-
fied small business’ means, with respect to any 
taxable year— 
‘‘(i) any corporation or partnership 
which meets the gross receipts test of sec-
tion 448(c) for the preceding taxable year, 
and 
‘‘(ii) any sole proprietorship which 
would meet such test if such proprietorship 
were a corporation.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 7. RECOVERY PERIOD FOR DEPRECIATION OF CER-
TAIN SYSTEMS INSTALLED IN NONRESIDEN-
TIAL AND RESIDENTIAL RENTAL BUILDINGS. 
(a) 20-YEAR RECOVERY PERIOD FOR HIGHLY EFFI-
CIENT HVAC&R EQUIPMENT.—Subparagraph (F) of sec-
tion 168(e)(3) of the Internal Revenue Code of 1986 (re-
lating to 20-year property) is amended to read as follows: 
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‘‘(F) 20-YEAR PROPERTY.—The term ‘20- 
year property’ means— 
‘‘(i) initial clearing and grading land 
improvements with respect to any electric 
utility transmission and distribution plant, 
and 
‘‘(ii) any property— 
‘‘(I) which is part of a heating, 
ventilation, air conditioning, or com-
mercial refrigeration system, 
‘‘(II) which exceeds by at least 
10 percent the applicable minimum 
performance standard for such system 
or component under the National Ap-
pliance Energy Conservation Act of 
1987, the Energy Policy Act of 2005, 
or the American Society of Heating, 
Refrigerating 
and 
Air-conditioning 
Engineers Standard 90.1, 
‘‘(III) which is installed on or in 
a building which is nonresidential real 
property or residential rental prop-
erty, 
‘‘(IV) the original use of which 
commences with the taxpayer (the 
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owner or lessor in the case of residen-
tial rental property), and 
‘‘(V) which is placed in service 
before January 1, 2012.’’. 
(b) 25-YEAR
RECOVERY
PERIOD
FOR
CERTAIN 
OTHER HVAC&R EQUIPMENT.—Section 168(e)(3) of 
such Code is amended by inserting after subparagraph (F) 
the following new subparagraph: 
‘‘(G) 25-YEAR PROPERTY.—The term ‘25- 
year property’ means any property— 
‘‘(i) which is part of a heating, ven-
tilation, air conditioning, or commercial re-
frigeration system, 
‘‘(ii) which is not described in sub-
paragraph (F), 
‘‘(iii) which is installed on or in a 
building which is nonresidential real prop-
erty or residential rental property, 
‘‘(iv) the original use of which com-
mences with the taxpayer (the owner or 
lessor in the case of residential rental 
property), and 
‘‘(v) which is placed in service before 
January 1, 2012.’’. 
(c) CONFORMING AMENDMENTS.— 
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(1) The table contained in section 168(c) of 
such Code is amended by inserting after the item re-
lating to 20-year property the following new item: 
‘‘25-year property ................................
25 years’’. 
(2) The table contained in section 467(e)(3)(A) 
of such Code is amended by inserting after the item 
relating to residential rental property and nonresi-
dential real property the following new item: 
‘‘25-year property ................................
25 years’’. 
(d) REQUIREMENT TO USE STRAIGHT LINE METH-
OD.—Paragraph (3) of section 168(b) of such Code (relat-
ing to property to which straight line method applies) is 
amended by redesignating subparagraphs (F), (G), and 
(H) as subparagraphs (G), (H), and (I), respectively, and 
by inserting after subparagraph (E) the following new 
subparagraph: 
‘‘(F) 
Property 
described 
in 
subsection 
(e)(3)(F)(ii) and subsection (e)(3)(G).’’. 
(e) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) of such Code is amended by striking 
the item relating to subparagraph (F) and inserting the 
following new items: 
‘‘(F)(i) ..................................................
(F)(ii) ...................................................
(G) ........................................................
25’’. 
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