I 
108TH CONGRESS 
1ST SESSION H. R. 1339
To amend the Internal Revenue Code of 1986 to provide that the deduction 
for depreciation shall be computed on a neutral cost recovery basis. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 18, 2003
Mr. SMITH of Michigan 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 provide 
that the deduction for depreciation shall be computed 
on a neutral cost recovery basis.
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 of 2003’’. 
SEC. 2. 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 tangible 
property placed in service after December 31, 2003, 
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 
‘‘(vi) a common trust fund.’’
(b) MINIMUM TAX TREATMENT.—
(1) Paragraph (1) of section 56(a) of such Code 
is amended by adding at the end thereof the fol-
lowing new subparagraph:
‘‘(E) USE OF NEUTRAL COST RECOVERY 
RATIO.—In the case of property to which sec-
tion 168(k) applies and which is placed in serv-
ice after December 31, 2003, the deduction al-
lowable under this paragraph with respect to 
such property for any taxable year (after the 
taxable year during which the property is 
placed in service) shall be—
‘‘(i) the amount so allowable for such 
taxable year without regard to this sub-
paragraph, multiplied by 
‘‘(ii) the applicable neutral cost recov-
ery ratio for such taxable year (as deter-
mined under section 168(k)). 
This subparagraph shall not apply to any prop-
erty with respect to which there is an election 
in effect not to have section 168(k)) apply.’’
(2) Subparagraph (C) of section 56(g)(4) of 
such Code is amended by adding at the end the fol-
lowing new clause: 
‘‘(v) NEUTRAL COST RECOVERY DE-
DUCTION.—Clause (i) shall not apply to 
the additional deduction allowable by rea-
son of section 168(k).’’