I 
108TH CONGRESS 
1ST SESSION H. R. 1079
To amend the Internal Revenue Code of 1986 to increase expensing for 
small business and to allow small business to elect to determine the 
deduction for depreciation on a neutral cost recovery basis for property 
otherwise eligible to be expensed. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 5, 2003
Mr. SMITH of Michigan (for himself, Mr. HOEKSTRA, Mr. EHLERS, and Mr. 
CAMP) 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 increase 
expensing for small business and to allow small business 
to elect to determine the deduction for depreciation on 
a neutral cost recovery basis for property otherwise eligi-
ble to be expensed.
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 ‘‘Neutral Cost Recovery 
Act for Small Business’’.
SEC. 2. INCREASED EXPENSING FOR SMALL BUSINESS. 
(a) IN GENERAL.—Paragraph (1) of section 179(b) 
of the Internal Revenue Code of 1986 (relating to dollar 
limitation) is amended to read as follows: 
‘‘(1) DOLLAR LIMITATION.—The aggregate cost 
which may be taken into account under subsection 
(a) for any taxable year shall not exceed $75,000. 
The dollar amount otherwise applicable under the 
preceding sentence for any taxable year shall be re-
duced by the basis of property which is placed in 
service during such year and which is taken into ac-
count under section 168(k).’’. 
(b) INCREASE IN PHASEOUT THRESHOLD.—Para-
graph (2) of section 179(b) of such Code (relating to re-
duction in limitation) is amended by striking ‘‘$200,000’’ 
and inserting ‘‘$325,000’’. 
(c) CERTAIN COMPUTER SOFTWARE.—Paragraph (1) 
of section 179(d) of such Code (defining section 179 prop-
erty) is amended to read as follows: 
‘‘(1) SECTION 179 PROPERTY.—For purposes of 
this section, the term ‘section 179 property’ means 
property—
‘‘(A) which is—
‘‘(i) tangible property (to which sec-
tion 168 applies), or
‘‘(ii) computer software (as defined in 
section 197(e)(3)(B)) which is described in 
section 197(e)(3)(A)(i) and to which sec-
tion 167 applies, 
‘‘(B) which is section 1245 property (as 
defined in section 1245(a)(3)), and 
‘‘(C) which is acquired by purchase for use 
in the active conduct of a trade or business. 
Such term shall not include any property described 
in section 50(b) and shall not include air condi-
tioning or heating units.’’. 
(d) INFLATION ADJUSTMENT OF DOLLAR LIMITA-
TION AND PHASEOUT THRESHOLD.—Subsection (b) of 
section 179 of such Code is amended by adding at the 
end the following new paragraph: 
‘‘(5) INFLATION ADJUSTMENTS.—
‘‘(A) IN
GENERAL.—In the case of any 
taxable year beginning in a calendar year after 
2003, the dollar amounts in paragraphs (1) and 
(2) shall each 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, by substituting ‘calendar year 2002’ 
for ‘calendar year 1992’ in subparagraph 
(B) thereof. 
‘‘(B) ROUNDING.—
‘‘(i) DOLLAR
LIMITATION.—If the 
amount in paragraph (1) as increased 
under subparagraph (A) is not a multiple 
of $1,000, such amount shall be rounded 
to the nearest multiple of $1,000. 
‘‘(ii) PHASEOUT
AMOUNT.—If the 
amount in paragraph (2) as increased 
under subparagraph (A) is not a multiple 
of $10,000, such amount shall be rounded 
to the nearest multiple of $10,000.’’. 
(e) REVOCATION OF ELECTION.—Paragraph (2) of 
section 179(c) of such Code (relating to election irrev-
ocable) is amended to read as follows: 
‘‘(2) REVOCATION
OF
ELECTION.—The tax-
payer may revoke an election under paragraph (1), 
and any specification contained in any such election, 
with respect to any property. Such revocation, once 
made, shall be irrevocable.’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2002.
SEC. 3. NEUTRAL COST RECOVERY DEPRECIATION ADJUST-
MENT FOR CERTAIN PROPERTY PLACED IN 
SERVICE AFTER DECEMBER 31, 2003. 
(a) IN GENERAL.—Section 168 of the Internal Rev-
enue Code of 1986 (relating to accelerated cost recovery 
system) is amended by adding at the end thereof the fol-
lowing new subsection: 
‘‘(k) DEDUCTION ADJUSTMENT TO ALLOW EQUIVA-
LENT OF EXPENSING FOR CERTAIN PROPERTY PLACED 
IN SERVICE AFTER DECEMBER 31, 2003.—
‘‘(1) IN
GENERAL.—In the case of property 
placed in service after December 31, 2003, that the 
taxpayer would (but for the second sentence of sec-
tion 179(b)(1)) be eligible to fully expense under 
section 179, the deduction under this section with 
respect to such property—
‘‘(A) shall be determined by substituting 
‘150 percent’ for ‘200 percent’ in subsection 
(b)(1) in the case of property to which the 200 
percent declining balance method would other-
wise apply, and 
‘‘(B) for any taxable year after the taxable 
year during which the property is placed in 
service shall be—
‘‘(i) the amount determined under this 
section for such taxable year without re-
gard to this subparagraph, multiplied by 
‘‘(ii) the applicable neutral cost recov-
ery ratio for such taxable year.
‘‘(2) APPLICABLE
NEUTRAL
COST
RECOVERY 
RATIO.—For purposes of paragraph (1)—
‘‘(A) IN GENERAL.—The applicable neutral 
cost recovery ratio for the property for any tax-
able year is the number determined by—
‘‘(i) dividing—
‘‘(I) the gross domestic product 
deflator for the calendar quarter end-
ing in such taxable year which cor-
responds to the calendar quarter dur-
ing which the property was placed in 
service by the taxpayer, by 
‘‘(II) the gross domestic product 
deflator for the calendar quarter dur-
ing which the property was placed in 
service by the taxpayer, and 
‘‘(ii) then multiplying the number de-
termined under clause (i) by the number 
equal to 1.035 to the nth power where ‘n’ 
is the number of full years in the period
beginning on the 1st day of the calendar 
quarter during which the property was 
placed in service by the taxpayer and end-
ing on the day before the beginning of the 
corresponding calendar quarter ending 
during such taxable year. 
The applicable neutral cost recovery ratio shall 
never be less than 1. The applicable neutral 
cost recovery ratio shall be rounded to the near-
est 1⁄1000. 
‘‘(B) SPECIAL RULE FOR CERTAIN PROP-
ERTY.—In the case of property described in 
paragraph (2) or (3) of subsection (b) or in 
subsection (g), the applicable neutral cost recov-
ery ratio shall be determined without regard to 
subparagraph (A)(ii). 
‘‘(3) GROSS DOMESTIC PRODUCT DEFLATOR.—
For purposes of paragraph (2), the gross domestic 
product deflator for any calendar quarter is the im-
plicit price deflator for the gross domestic product 
for such quarter (as shown in the first revision 
thereof). 
‘‘(4) ELECTION
NOT
TO
HAVE
SUBSECTION 
APPLY.—This subsection shall not apply to any 
property if the taxpayer elects not to have this sub-
section apply to such property. Such an election, 
once made, shall be irrevocable.
‘‘(5) CHURNING
TRANSACTIONS.—This sub-
section shall not apply to any property if this section 
would not apply to such property were subsection 
(f)(5)(A)(ii) applied by substituting ‘2004’ for 
‘1981’ and ‘2003’ for ‘1980’. 
‘‘(6) ADDITIONAL DEDUCTION NOT TO AFFECT 
BASIS OR RECAPTURE.—
‘‘(A) 
IN
GENERAL.—The 
additional 
amount determined under this section by reason 
of this subsection shall not be taken into ac-
count in determining the adjusted basis of any 
property or of any interest in a pass-thru entity 
which holds such property and shall not be 
treated as a deduction for depreciation for pur-
poses of sections 1245 and 1250. 
‘‘(B) PASS-THRU ENTITY DEFINED.—For 
purposes of subparagraph (A), the term ‘pass-
thru entity’ means—
‘‘(i) a regulated investment company, 
‘‘(ii) a real estate investment trust, 
‘‘(iii) an S corporation, 
‘‘(iv) a partnership, 
‘‘(v) an estate or trust, and
‘‘(v) NEUTRAL COST RECOVERY DE-
DUCTION.—Clause (i) shall not apply to 
the additional deduction allowable by rea-
son of section 168(k).’’
(c) COORDINATION WITH DEPRECIATION LIMITA-
TION ON CERTAIN AUTOMOBILES.—Clause (i) of section 
280F(a)(1)(B) of such Code is amended by adding at the 
end the following new sentence: ‘‘For purposes of this 
clause, the unrecovered basis of any passenger automobile 
shall be treated as including the additional amount deter-
mined under section 168 by reason of subsection (k) there-
of to the extent not allowed as a deduction by reason of 
this paragraph for any taxable year in the recovery pe-
riod.’’
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2003.
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