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114th Congress }                                        { Rept. 114-317
                        HOUSE OF REPRESENTATIVES
 1st Session   }                                        {    Part 1

======================================================================

 
AMENDING THE INTERNAL REVENUE CODE OF 1986 TO MODIFY AND MAKE PERMANENT 
                           BONUS DEPRECIATION

                                _______
                                

October 28, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Ryan of Wisconsin, from the Committee on Ways and Means, submitted 
                             the following


                              R E P O R T


                             together with


                            DISSENTING VIEWS


                        [To accompany H.R. 2510]


      [Including cost estimate of the Congressional Budget Office]


    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2510) 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...........................................6
          A. Purpose and Summary.................................     6
          B. Background and Need for Legislation.................     6
          C. Legislative History.................................     7
 II. EXPLANATION OF THE BILL..........................................7
          A. Bonus Depreciation Modified and Made Permanent (sec. 
              168(k) of the Code)................................     7
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.......................    21
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......25
          A. Committee Oversight Findings and Recommendations....    25
          B. Statement of General Performance Goals and 
              Objectives.........................................    25
          C. Information Relating to Unfunded Mandates...........    25
          D. Applicability of House Rule XXI 5(b)................    26
          E. Tax Complexity Analysis.............................    26
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................    32
          G. Duplication of Federal Programs.....................    32
          H. Disclosure of Directed Rule Makings.................    32
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........32
          A. Text of Existing Law Amended or Repealed by the 
              Bill, as Reported..................................    32
          B. Changes in Existing Law Proposed by the Bill, as 
              Reported...........................................    89
VII. DISSENTING VIEWS...............................................153

    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; Applicable to Qualified Improvement Property.--
          (1) In general.--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, or
                          ``(IV) which is qualified 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).
                          ``(iii) Inflation adjustment.--In the case of 
                        any taxable year beginning in a calendar year 
                        after 2015, 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 `2014' 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.''.
          (2) Qualified improvement property.--Section 168(k)(3) of 
        such Code is amended to read as follows:
          ``(3) Qualified improvement property.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `qualified improvement 
                property' means any improvement to an interior portion 
                of a building which is nonresidential real property if 
                such improvement is placed in service after the date 
                such building was first placed in service.
                  ``(B) Certain improvements not included.--Such term 
                shall not include any improvement for which the 
                expenditure is attributable to--
                          ``(i) the enlargement of the building,
                          ``(ii) any elevator or escalator, or
                          ``(iii) the internal structural framework of 
                        the building.''.
  (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) and (2)(D) shall not 
                        apply to any qualified property placed in 
                        service during such taxable year,
                          ``(ii) the applicable depreciation method 
                        used under this section with respect to such 
                        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 (and, in the case of any such 
                                property which is a passenger 
                                automobile (as defined in section 
                                280F(d)(5)), if paragraph (2)(D) 
                                applied to such automobile), 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 
                                paragraphs (1) and (2)(D) 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 
                        subparagraph (A) or subsection (b)(2)(D), 
                        (b)(3)(D), or (g)(7).
                          ``(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, 2014, 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, 
                                2015 (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) and (2)(D) shall 
                                not apply to any qualified property 
                                placed in service during such taxable 
                                year, and
                                  ``(II) the applicable depreciation 
                                method used under this section with 
                                respect to such 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 Certain Plants 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 certain plants bearing fruits and 
        nuts.--
                  ``(A) In general.--In the case of any specified plant 
                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)) during a taxable year for which 
                the taxpayer has elected the application of this 
                paragraph--
                          ``(i) a depreciation deduction equal to 50 
                        percent of the adjusted basis of such specified 
                        plant shall be allowed under section 167(a) for 
                        the taxable year in which such specified plant 
                        is so planted or grafted, and
                          ``(ii) the adjusted basis of such specified 
                        plant shall be reduced by the amount of such 
                        deduction.
                  ``(B) Specified plant.--For purposes of this 
                paragraph, the term `specified plant' means--
                          ``(i) any tree or vine which bears fruits or 
                        nuts, and
                          ``(ii) any other plant which will have more 
                        than one yield of fruits or nuts and which 
                        generally has a period of more than 2 years 
                        from the time of planting or grafting to the 
                        time at which such plant begins bearing fruits 
                        or nuts.
                Such term shall not include any property which is 
                planted or grafted outside of the United States.
                  ``(C) Election revocable only with consent.--An 
                election under this paragraph may be revoked only with 
                the consent of the Secretary.
                  ``(D) Additional depreciation may be claimed only 
                once.--If this paragraph applies to any specified 
                plant, such specified plant shall not be treated as 
                qualified property in the taxable year in which placed 
                in service.
                  ``(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)(6) of such Code is amended--
                  (A) by redesignating subparagraphs (A) and (B) as 
                subparagraphs (D) and (E), respectively,
                  (B) by striking all that precedes subparagraph (D) 
                (as so redesignated) and inserting the following:
          ``(6) Qualified leasehold improvement property.--For purposes 
        of this subsection--
                  ``(A) In general.--The term `qualified leasehold 
                improvement property' means any improvement to an 
                interior portion of a building which is nonresidential 
                real property if--
                          ``(i) such improvement is made under or 
                        pursuant to a lease (as defined in subsection 
                        (h)(7))--
                                  ``(I) by the lessee (or any 
                                sublessee) of such portion, or
                                  ``(II) by the lessor of such portion,
                          ``(ii) such portion is to be occupied 
                        exclusively by the lessee (or any sublessee) of 
                        such portion, and
                          ``(iii) such improvement is placed in service 
                        more than 3 years after the date the building 
                        was first placed in service.
                  ``(B) Certain improvements not included.--Such term 
                shall not include any improvement for which the 
                expenditure is attributable to--
                          ``(i) the enlargement of the building,
                          ``(ii) any elevator or escalator,
                          ``(iii) any structural component benefitting 
                        a common area, or
                          ``(iv) the internal structural framework of 
                        the building.
                  ``(C) Definitions and special rules.--For purposes of 
                this paragraph--
                          ``(i) Commitment to lease treated as lease.--
                        A commitment to enter into a lease shall be 
                        treated as a lease, and the parties to such 
                        commitment shall be treated as lessor and 
                        lessee, respectively.
                          ``(ii) Related persons.--A lease between 
                        related persons shall not be considered a 
                        lease. For purposes of the preceding sentence, 
                        the term `related persons' means--
                                  ``(I) members of an affiliated group 
                                (as defined in section 1504), and
                                  ``(II) persons having a relationship 
                                described in subsection (b) of section 
                                267; except that, for purposes of this 
                                clause, the phrase `80 percent or more' 
                                shall be substituted for the phrase 
                                `more than 50 percent' each place it 
                                appears in such subsection.'', and
                  (C) by striking ``subparagraph (A)'' in subparagraph 
                (E) (as so redesignated) and inserting ``subparagraph 
                (D)''.
          (2) Section 168(e)(7)(B) of such Code is amended by striking 
        ``qualified leasehold improvement property'' and inserting 
        ``qualified improvement property''.
          (3) Section 168(e)(8) of such Code is amended by striking 
        subparagraph (D).
          (4) 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, paragraphs (1) and (2)(D) shall not apply to any 
        qualified property in such class placed in service during such 
        taxable year. An election under this paragraph may be revoked 
        only with the consent of the Secretary.''.
          (5) Section 168(l)(3) of such Code is amended--
                  (A) by striking ``section 168(k)'' in subparagraph 
                (A) and inserting ``subsection (k)'', and
                  (B) by striking ``section 168(k)(2)(D)(i)'' in 
                subparagraph (B) and inserting ``subsection 
                (k)(2)(B)''.
          (6) Section 168(l)(4) of such Code is amended by striking 
        ``subparagraph (E) of section 168(k)(2)'' and all that follows 
        and inserting ``subsection (k)(2)(C) shall apply.''.
          (7) Section 168(l)(5) of such Code is amended by striking 
        ``section 168(k)(2)(G)'' and inserting ``subsection 
        (k)(2)(E)''.
          (8) 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 allowed as a deduction by reason 
        of section 168(k)(5) (relating to special rules for certain 
        plants bearing fruits and nuts).''.
          (9) 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.''.
          (10) Section 168(k) of such Code is amended by striking 
        ``Acquired After December 31, 2007, and Before January 1, 
        2015'' 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, 2014, in taxable 
        years ending after such date.
          (2) Expansion of election to accelerate amt credits in lieu 
        of bonus depreciation.--
                  (A) In general.--The amendment made by subsection (b) 
                shall apply to taxable years ending after December 31, 
                2014.
                  (B) Transitional rule.--In the case of any taxable 
                year beginning before January 1, 2015, and ending after 
                December 31, 2014, the limitation under section 
                168(k)(4)(B)(ii) of the Internal Revenue Code of 1986 
                (as amended by this section) shall be the sum of--
                          (i) the product of--
                                  (I) the maximum increase amount 
                                (within the meaning of section 
                                168(k)(4)(C)(iii) of such Code, as in 
                                effect before the amendments made by 
                                this section), multiplied by
                                  (II) a fraction the numerator of 
                                which is the number of days in the 
                                taxable year before January 1, 2015, 
                                and the denominator of which is the 
                                number of days in the taxable year, 
                                plus
                          (ii) the product of--
                                  (I) such limitation (determined 
                                without regard to this subparagraph), 
                                multiplied by
                                  (II) a fraction the numerator of 
                                which is the number of days in the 
                                taxable year after December 31, 2014, 
                                and the denominator of which is the 
                                number of days in the taxable year.
          (3) Special rules for certain plants bearing fruits and 
        nuts.--The amendments made by subsection (c) (other than 
        paragraph (1) thereof) shall apply to specified plants (as 
        defined in section 168(k)(5)(B) of the Internal Revenue Code of 
        1986, as amended by this section) planted or grafted after 
        December 31, 2014.

SEC. 2. BUDGETARY EFFECTS.

  The budgetary effects of this Act shall not be entered on either 
PAYGO scorecard maintained pursuant to section 4(d) of the Statutory 
Pay-As-You-Go Act of 2010.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    H.R. 2510, 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, 2014, in taxable years ending after such 
date. A similar, temporary provision expired for property 
placed in service after December 31, 2014. H.R. 2510 expands 
the scope of qualifying property eligible for bonus 
depreciation to include qualified improvement property, and 
permits certain plants bearing fruit or nuts to be eligible for 
bonus depreciation when planted or grafted, rather than when 
placed in service. H.R. 2510 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, 2014, H.R. 2510 permits 
taxpayers to claim unused alternative minimum tax (``AMT'') 
credits in lieu of bonus depreciation. H.R. 2510 limits the 
credits claimed in any taxable year to the lesser of (1) 50 
percent of the taxpayer's AMT credit in 2015, or (2) the 
taxpayer's AMT credits for taxable years ending before 2015 
(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, making permanent, and expanding the 50-
percent bonus depreciation deduction, H.R. 2510 continues an 
important incentive for businesses and farms that have 
struggled through the economic challenges of the past seven 
years to invest in critical business assets. Permanent 50-
percent bonus depreciation provides essential certainty for 
American businesses, allowing them to plan for future 
investments and lowering the cost of capital. By expanding 
bonus depreciation to qualified improvement property, H.R. 2510 
encourages investment in businesses that have survived the 
sluggish economic recovery. H.R. 2510 also ensures 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. 2510 provides 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. 2510 was introduced on May 21, 2015, and was referred 
to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 2510, a bill 
to modify and make permanent bonus depreciation, on September 
17, 2015, 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 and placed in service before January 1, 2015 (January 
1, 2016 for certain longer-lived and transportation 
property).\1\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \2\Sec. 168(k)(2)(G). See also Treas. Reg. sec. 1.168(k)-1(d).
    \3\Treas. Reg. sec. 1.168(k)-1(f)(7).
    \4\Sec. 168(k)(1)(B).
    \5\Ibid.
    \6\Sec. 168(k)(2)(D)(iii). For the definition of a class of 
property, see Treas. Reg. sec. 1.168(k)-1(e)(2).
---------------------------------------------------------------------------
    The interaction of the additional first-year depreciation 
allowance with the otherwise applicable depreciation allowance 
may be illustrated as follows. Assume that in 2014, a taxpayer 
purchased new depreciable property and placed it in service.\7\ 
The property's cost is $10,000, 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 $5,000. The remaining $5,000 of the 
cost of the property is depreciable under the rules applicable 
to five-year property. Thus, $1,000 also is allowed as a 
depreciation deduction in 2014.\8\ The total depreciation 
deduction with respect to the property for 2014 is $6,000. The 
remaining $4,000 adjusted basis of the property generally is 
recovered through otherwise applicable depreciation rules.
---------------------------------------------------------------------------
    \7\Assume that the cost of the property is not eligible for 
expensing under section 179 or Treas. Reg. sec. 1.263(a)-1(f).
    \8\$1,000 results from the application of the half-year convention 
and the 200-percent declining balance method to the remaining $5,000.
---------------------------------------------------------------------------
    Property qualifying for the additional first-year 
depreciation deduction must meet all of the following 
requirements.\9\ 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.\10\ Second, the original use\11\ of the property must 
commence with the taxpayer.\12\ 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, 2015. An extension of the placed-in-
service date of one year (i.e., before January 1, 2016) is 
provided for certain property with a recovery period of 10 
years or longer and certain transportation property.\13\
---------------------------------------------------------------------------
    \9\Requirements relating to actions taken before 2008 are not 
described herein since they have little (if any) remaining effect.
    \10\The 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).
    \11\The 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).
    \12\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).
    \13\Property qualifying for the extended placed-in-service date 
must have an estimated production 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.
---------------------------------------------------------------------------
    To qualify, property must be acquired (1) before January 1, 
2015, or (2) pursuant to a written binding contract which was 
entered before January 1, 2015. 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 before January 1, 
2015.\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 
first-year depreciation. With respect to such property, only 
the portion of the basis that is properly attributable to the 
costs incurred before January 1, 2015 (``progress 
expenditures'') is eligible for the additional first-year 
depreciation deduction.\16\
---------------------------------------------------------------------------
    \14\Sec. 168(k)(2)(E)(i).
    \15\Treas. Reg. sec. 1.168(k)-1(b)(4)(iii).
    \16\Sec. 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.
---------------------------------------------------------------------------
    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).\17\ 
While the underlying section 280F limitation is indexed for 
inflation,\18\ the additional $8,000 amount is not indexed for 
inflation.
---------------------------------------------------------------------------
    \17\Sec. 168(k)(2)(F).
    \18\See sec. 280F(d)(7).
---------------------------------------------------------------------------

Qualified leasehold improvement property

    Qualified leasehold improvement property is any improvement 
to an interior portion of a building that is nonresidential 
real property, provided certain requirements are met.\19\ The 
improvement must be made under or pursuant to a lease either by 
the lessee (or sublessee), or by the lessor, of that portion of 
the building to be occupied exclusively by the lessee (or 
sublessee). The improvement must be placed in service more than 
three years after the date the building was first placed in 
service. Qualified leasehold 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 benefiting a common 
area, or the internal structural framework of the building. For 
these purposes, a binding commitment to enter into a lease is 
treated as a lease, and the parties to the commitment are 
treated as lessor and lessee. A lease between related persons 
is not considered a lease for this purpose.
---------------------------------------------------------------------------
    \19\Sec. 168(k)(3). The additional first-year depreciation 
deduction 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).
---------------------------------------------------------------------------

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.\20\ 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 before January 
1, 2015 (January 1, 2016 in the case of certain longer-lived 
and transportation property).\21\
---------------------------------------------------------------------------
    \20\See sec. 460.
    \21\Sec. 460(c)(6). Other dates involving prior years are not 
described herein.
---------------------------------------------------------------------------

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.''\22\ 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.\23\
---------------------------------------------------------------------------
    \22\Sec. 168(k)(4). Eligible qualified property means qualified 
property eligible for bonus depreciation with minor effective date 
differences having little (if any) remaining significance.
    \23\Sec. 168(k)(4)(A).
---------------------------------------------------------------------------
    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 that 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.\24\
---------------------------------------------------------------------------
    \24\Secs. 168(k)(4)(H), (I), (J), and (K).
---------------------------------------------------------------------------
    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.\25\ The aggregate 
increase in credits allowable by reason of the increased 
limitation is treated as refundable.\26\
---------------------------------------------------------------------------
    \25\Sec. 168(k)(4)(B)(ii).
    \26\Sec. 168(k)(4)(F).
---------------------------------------------------------------------------
    The bonus depreciation amount generally is equal to 20 
percent of bonus depreciation for eligible qualified property 
that could be claimed as a deduction absent an election under 
this provision.\27\ As originally enacted, the bonus 
depreciation amount for all taxable years was limited to the 
lesser of (1) $30 million, or (2) 6 percent of the minimum tax 
credits allocable to the adjusted net minimum tax imposed for 
taxable years beginning before January 1, 2006.\28\ However, 
extensions of this provision have provided that this limitation 
applies separately to property subject to each extension.
---------------------------------------------------------------------------
    \27\For 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. This 
determination is made using the most accelerated depreciation method 
and the shortest life otherwise allowable for each property. Sec. 
168(k)(4)(C).
    \28\Sec. 168(k)(4)(C)(iii).
---------------------------------------------------------------------------
    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.\29\
---------------------------------------------------------------------------
    \29\Sec. 168(k)(4)(C)(iv).
---------------------------------------------------------------------------
    In the case of a corporation making an election that 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.\30\
---------------------------------------------------------------------------
    \30\Sec. 168(k)(4)(G)(ii).
---------------------------------------------------------------------------

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 plants, a farmer generally incurs costs to cultivate, 
spray, fertilize and irrigate the plants to their crop-
producing stage (i.e., preproductive period costs).\31\ 
Preproductive period costs may be deducted or capitalized, 
depending on the preproductive period of the plant,\32\ as well 
as whether the farmer elects to have section 263A not 
apply.\33\ After the plants start producing fruit or nuts, a 
farmer can depreciate the capitalized costs of the plants 
(i.e., the acquisition costs of the seeds, seedlings, or plants 
and their original planting that were capitalized when 
incurred, as well as the preproductive period costs if section 
263A applied).\34\ A 10-year recovery period is assigned to any 
tree or vine bearing fruits or nuts.\35\ A seven-year recovery 
period generally applies to other plants bearing fruits or 
nuts.\36\
---------------------------------------------------------------------------
    \31\See 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.
    \32\See 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.
    \33\See section 263A(d)(3).
    \34\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.
    \35\Sec. 168(e)(3)(D)(ii).
    \36\Sec. 168(e)(3)(C)(v).
---------------------------------------------------------------------------

                           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 promotes capital investment, 
modernization, and growth.
    Businesses frequently remodel or renovate the interiors of 
their offices and buildings. The Committee believes that 
businesses should not be treated differently based on whether 
the building in which they operate is owned or leased. Because 
many taxpayers own the building in which they operate their 
business, the Committee believes that expanding the definition 
of qualified property to include qualified improvement property 
generally without regard to whether the improvements are 
property subject to a lease provides clarity and relief to many 
businesses.
    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 the $8,000 amount for automobile price 
inflation.

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 access capital better in order to expand and 
invest in new facilities and equipment.

Special rules for certain plants

    The Committee believes that allowing growers of certain 
plants bearing 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 plant produces a 
commercially viable or harvestable crop of fruits or nuts, 
encourages farmers to invest in long-term crop businesses.

                        EXPLANATION OF PROVISION

Bonus depreciation

    The provision modifies and makes permanent the 50-percent 
additional first-year depreciation deduction.\37\
---------------------------------------------------------------------------
    \37\Due 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).
---------------------------------------------------------------------------
    The provision allows additional first-year depreciation for 
qualified improvement property without regard to whether the 
improvements are property subject to a lease, and also removes 
the requirement that the improvement must be placed in service 
more than three years after the date the building was first 
placed in service.
    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 
(such that both the underlying section 280F limitation and the 
additional $8,000 amount are indexed for inflation). The 
increase does not apply to a taxpayer who elects to accelerate 
AMT credits in lieu of bonus depreciation for a taxable year.
    The provision also makes permanent the special rule for the 
allocation of bonus depreciation to a long-term contract.

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, 2014 (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, 2015 (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 than 50 percent of the 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 certain plants

    The provision provides an election for certain plants 
bearing fruits and nuts. Under the election, 50 percent of the 
adjusted basis of a specified plant is deductible for regular 
tax and AMT purposes in the year planted or grafted by the 
taxpayer, and the adjusted basis is reduced by amount of the 
deduction.\38\ A specified plant is any tree or vine that bears 
fruits or nuts, and any other plant that will have more than 
one yield of fruits or nuts and generally has a period of more 
than two years from planting or grafting to the time it begins 
bearing fruits or nuts.\39\ The election is revocable only with 
the consent of the Secretary, and if the election is made with 
respect to any specified plant, such plant is not treated as 
qualified property eligible for bonus depreciation in the 
subsequent taxable year in which it is placed in service.
---------------------------------------------------------------------------
    \38\Any amount deducted under this election is not subject to 
capitalization under section 263A.
    \39\A specified plant does not include any property that is planted 
or grafted outside of the United States.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after December 31, 2014, in taxable years ending after such 
date.
    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, 2014.\40\ 
For a taxable year beginning before January 1, 2015, and ending 
after December 31, 2014, 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 2014 
and the revised limitations to property placed in service in 
2015.
---------------------------------------------------------------------------
    \40\The partnership rule added by the provision applies to property 
placed in service after December 31, 2014.
---------------------------------------------------------------------------
    The provision relating to certain plants bearing fruits and 
nuts is effective for specified plants planted or grafted after 
December 31, 2014.
    The budgetary effects of the bill are not entered on either 
PAYGO scorecard maintained under section 4(d) of the Statutory 
Pay-As-You-Go Act of 2010.

                      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. 2510, a bill to modify and make permanent 
bonus depreciation, on September 17, 2015.
    The Chairman's amendment in the nature of a substitute was 
adopted by a voice vote (with a quorum being present).
    The bill, H.R. 2510, was ordered favorably reported as 
amended to the House of Representatives by a roll call vote of 
24 yeas to 13 nays (with a quorum being present). The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Ryan.......................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Brady......................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Nunes......................        X   ........  .........  Mr. Lewis........  ........        X   .........
Mr. Tiberi.....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Reichert...................        X   ........  .........  Mr. Becerra......  ........  ........  .........
Mr. Boustany...................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Roskam.....................        X   ........  .........  Mr. Thompson.....  ........  ........  .........
Mr. Price......................        X   ........  .........  Mr. Larson.......  ........        X   .........
Mr. Buchanan...................        X   ........  .........  Mr. Blumenauer...  ........        X   .........
Mr. Smith (NE).................        X   ........  .........  Mr. Kind.........  ........        X   .........
Ms. Jenkins....................        X   ........  .........  Mr. Pascrell.....  ........        X   .........
Mr. Paulsen....................        X   ........  .........  Mr. Crowley......  ........        X   .........
Mr. Marchant...................        X   ........  .........  Mr. Davis........  ........        X   .........
Ms. Black......................        X   ........  .........  Ms. Sanchez......  ........        X   .........
Mr. Reed.......................        X   ........  .........
Mr. Young......................        X   ........  .........
Mr. Kelly......................        X   ........  .........
Mr. Renacci....................        X   ........  .........
Mr. Meehan.....................        X   ........  .........
Ms. Noem.......................        X   ........  .........
Mr. Holding....................        X   ........  .........
Mr. Smith (MO).................        X   ........  .........
Mr. Dold.......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                     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. 2510, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal budget receipts for fiscal years 2016-2025:

                                                                                          FISCAL YEARS
                                                                                      [Millions of Dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
      2016             2017            2018            2019            2020            2021            2022            2023            2024            2025           2016-20         2016-25
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
      -97,532          -43,362         -33,977         -26,345         -20,657         -16,827         -12,043          -9,731          -9,878         -10,307        -221,872       -280,659
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

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, October 28, 2015.
Hon. Paul Ryan,
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. 2510, 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 Peter 
Huether.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 2510--A Bill to Amend the Internal Revenue Code of 1986 to Modify 
        and Make Permanent Bonus Depreciation

    Summary: H.R. 2510 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, 2015. Under current law that 
additional deduction expired for most property placed in 
service after December 31, 2014. The bill would also expand the 
definition of qualified property and make other modifications 
to that deduction.
    Because of the magnitude of its budgetary effects, this 
bill is ``major legislation,'' as defined in section 3112 of S. 
Con. Res. 11, the Concurrent Resolution on the Budget for 
Fiscal Year 2016. Hence, the cost estimate prepared by CBO and 
the staff of the Joint Committee on Taxation (JCT) incorporates 
the federal budgetary effects of changes in economic output and 
other macroeconomic variables that would result from enacting 
the legislation.
    JCT estimates that enacting the bill would increase 
deficits by about $267 billion over the 2016-2025 period. That 
estimate includes two components. First, excluding 
macroeconomic feedback effects, JCT estimates that the bill 
would increase deficits by about $281 billion over the 2016-
2025 period. In addition, the macroeconomic feedback would 
reduce deficits by about $14 billion over that period, JCT 
estimates.\1\ Most of the effects on deficits would result from 
changes in revenues. In addition, JCT estimates that enacting 
the legislation would decrease revenues and increase the on-
budget deficit by at least $5 billion in one or more of the 
four consecutive 10-year periods beginning in 2026. That 
estimate includes macroeconomic feedback.
---------------------------------------------------------------------------
    \1\ For more details, see Joint Committee on Taxation, A Report to 
the Congressional Budget Office of H.R. 2510, ``Macroeconomic Effects 
of the Bonus Depreciation Modified and Made Permanent,'' as Ordered to 
be Reported by the House Committee on Ways and Means (JCX-134-15), 
October 27, 2015.
---------------------------------------------------------------------------
    Enacting the legislation would affect direct spending and 
revenues; therefore, pay-as-you-go procedures apply.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA).
    Estimated Cost to the Federal Government: The estimated 
budgetary impacts of the bill are shown in Table 1.

           TABLE 1--SUMMARY OF ESTIMATED EFFECTS ON DIRECT SPENDING AND REVENUES OF A BILL TO AMEND THE INTERNAL REVENUE CODE OF 1986 TO MODIFY AND MAKE PERMANENT BONUS DEPRECIATION
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         By fiscal year, in billions of dollars--
                                                         ---------------------------------------------------------------------------------------------------------------------------------------
                                                             2016       2017       2018       2019       2020       2021       2022       2023       2024       2025     2016-2020    2016-2025
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        ESTIMATED CHANGES WITHOUT MACROECONOMIC FEEDBACK
 
Effects on Outlays......................................          0          0          0          0          0          0          0          0          0          0            0            0
Effects on Revenues.....................................      -97.5      -43.4      -34.0      -26.3      -20.7      -16.8      -12.0       -9.7       -9.9      -10.3       -221.9       -280.7
    On-budget...........................................      -97.5      -43.4      -34.0      -26.3      -20.7      -16.8      -12.0       -9.7       -9.9      -10.3       -221.9       -280.7
    Off-budget..........................................          0          0          0          0          0          0          0          0          0          0            0            0
Effects on the Deficita.................................       97.5       43.4       34.0       26.3       20.7       16.8       12.0        9.7        9.9       10.3        221.9        280.7
    On-budget...........................................       97.5       43.4       34.0       26.3       20.7       16.8       12.0        9.7        9.9       10.3        221.9        280.7
    Off-budget..........................................          0          0          0          0          0          0          0          0          0          0            0            0
 
                                                                      ESTIMATED BUDGETARY IMPACT OF MACROECONOMIC FEEDBACK
 
Effects on Outlays......................................        1.2        2.0        2.2        2.3        2.2        2.1        1.8        1.5        1.1        0.6          9.9         17.0
Effects on Revenues.....................................        2.2        2.5        2.3        2.4        2.5        2.8        3.1        3.6        4.3        5.0         11.9         30.7
    On-budget...........................................        1.4        0.8        0.5        0.7        0.6        1.0        1.1        1.3        1.9        2.5          4.0         11.8
    Off-budget..........................................        0.8        1.7        1.8        1.7        1.9        1.8        2.0        2.3        2.4        2.5          7.9         18.9
Effects on the Deficita.................................       -0.9       -0.5       -0.1       -0.1       -0.3       -0.7       -1.3       -2.1       -3.2       -4.4         -2.0        -13.7
    On-budget...........................................       -0.2        1.2        1.7        1.6        1.6        1.1        0.7        0.2       -0.8       -1.9          5.9          5.2
    Off-budget..........................................       -0.8       -1.7       -1.8       -1.7       -1.9       -1.8       -2.0       -2.3       -2.4       -2.5         -7.9        -18.9
 
                                                                    TOTAL ESTIMATED CHANGES, INCLUDING MACROECONOMIC FEEDBACK
 
Effects on Outlays......................................        1.2        2.0        2.2        2.3        2.2        2.1        1.8        1.5        1.1        0.6          9.9         17.0
Effects on Revenues.....................................      -95.4      -40.8      -31.7      -23.9      -18.2      -14.1       -8.9       -6.1       -5.6       -5.3       -210.0       -249.9
    On-budget...........................................      -96.1      -42.6      -33.5      -25.6      -20.0      -15.9      -10.9       -8.4       -8.0       -7.8       -217.8       -268.8
    Off-budget..........................................        0.8        1.7        1.8        1.7        1.9        1.8        2.0        2.3        2.4        2.5          7.9         18.9
Effects on the Deficita.................................       96.6       42.8       33.9       26.2       20.4       16.1       10.7        7.6        6.7        5.9        219.9        267.0
    On-budget...........................................       97.4       44.6       35.7       27.9       22.2       17.9       12.7        9.9        9.1        8.4        227.8        285.8
    Off-budget..........................................       -0.8       -1.7       -1.8       -1.7       -1.9       -1.8       -2.0       -2.3       -2.4       -2.5         -7.9       -18.9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
aPositive numbers indicate increases in the deficit, and negative numbers indicate reductions in the deficit.
Note: Components may not sum to totals because of rounding.

    Basis of Estimate: H.R. 2510 would extend the additional 
first-year depreciation deduction that expired for most 
property placed in service after December 31, 2014. H.R. 2510 
would also expand the definition of qualified property to 
include certain qualified improvement property and provide a 
special election for certain plants bearing nuts or fruits. In 
addition, the legislation would permanently extend an increase 
in the limitation on depreciation deductions allowed in the 
first year with respect to certain passenger automobiles, and 
index that increase for automobile price inflation. Finally, 
the legislation would 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.
    JCT estimates that the bill would increase deficits by 
about $281 billion over the 2016-2025 period, excluding the 
effects of macroeconomic feedback. Reductions in revenues 
account for all of that effect.
    JCT expects that the bill would reduce the cost of capital 
and thereby increase the capital stock over the 2016-2025 
period. As a result, JCT estimates that gross domestic product 
(GDP) would be higher, increasing revenues by about $31 billion 
over the 2016-2025 period. At the same time, a small increase 
in interest rates from higher federal debt would increase the 
cost of federal debt service by about $17 billion over the 
2016-2025 period. The net effect of the macroeconomic feedback 
would be to reduce deficits by about $14 billion over the 10-
year period.
    Long-Term Impacts: JCT estimates that enacting the 
legislation would decrease revenues and increase the on-budget 
deficit by at least $5 billion in one or more of the four 
consecutive 10-year periods beginning in 2026. That estimate 
includes macroeconomic feedback.
    JCT has estimated the following long-term effects:
    ``In the second and third decades after enactment, because 
the bill is expected to result in continuing increases in 
Federal debt, it is expected to make private borrowing more 
expensive, reducing investment incentives, and thus reducing 
the rate of increase in capital stock, GDP, and associated 
revenues relative to those effects within the budget period. 
The extent to which this crowding out of private investment 
incentives could eventually lead to the macroeconomic effects 
of the proposal reducing revenues relative to the conventional 
estimate is too uncertain to enable a prediction on the sign of 
the macroeconomic revenue feedback effects in the second or 
third decades after enactment and beyond.''
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in revenues and outlays that are 
subject to those pay-as-you-go procedures are shown in the 
following table, with and without the macroeconomic feedback. 
Only on-budget changes to outlays or revenues are subject to 
pay-as-you-go procedures.

 TABLE 2--CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR A BILL TO AMEND THE INTERNAL REVENUE CODE OF 1986 TO MODIFY AND MAKE PERMANENT BONUS DEPRECIATION, AS ORDERED REPORTED BY THE HOUSE WAYS AND
                                                                              MEANS COMMITTEE ON SEPTEMBER 17, 2015
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               By fiscal year, in millions of dollars--
                                     -----------------------------------------------------------------------------------------------------------------------------------------------------------
                                          2016         2017         2018         2019         2020         2021         2022         2023         2024         2025      2016-2020    2016-2025
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             NET INCREASE IN THE ON-BUDGET DEFICIT EXCLUDING MACROECONOMIC FEEDBACK
 
Statutory Pay-As-You-Go Effects.....       97,532       43,362       33,977       26,345       20,657       16,827       12,043        9,731        9,878       10,307      221,872      280,659
Memorandum:
    Changes in Revenues.............      -97,532      -43,362      -33,977      -26,345      -20,657      -16,827      -12,043       -9,731       -9,878      -10,307     -221,872     -280,659
    Changes in Outlays..............            0            0            0            0            0            0            0            0            0            0            0            0
 
                                                             NET INCREASE IN THE ON-BUDGET DEFICIT INCLUDING MACROECONOMIC FEEDBACK
 
Statutory Pay-As-You-Go Effects.....       97,356       44,575       35,704       27,919       22,229       17,915       12,699        9,894        9,126        8,423      227,781      285,840
Memorandum:
    Changes in Revenues.............      -96,135      -42,588      -33,466      -25,646      -20,011      -15,851      -10,901       -8,402       -8,007       -7,807     -217,844     -268,815
    Changes in Outlays..............        1,221        1,987        2,238        2,273        2,218        2,064        1,798        1,492        1,119          616        9,937      17,025
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to totals because of rounding.

    Intergovernmental and private-sector impact: JCT has 
determined that the bill contains no intergovernmental or 
private-sector mandates as defined in the Unfunded Mandates 
Reform Act.
    Estimate prepared by: Federal Revenues: Peter Huether and 
staff of the Joint Committee on Taxation; Macroeconomic 
Feedback: Staff of the Joint Committee on Taxation.
    Estimate approved by: David Weiner, Assistant Director for 
Tax Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, and pursuant to S. Con. Res. 
11 (Concurrent Resolution on the Budget for Fiscal Year 2016) 
section 3112, the staff of the Joint Committee on Taxation 
provides the following analysis of H.R. 2510, as reported by 
the House Committee on Ways and Means on September 17, 2015.

Overview

    The following discussion analyzes the macroeconomic effects 
of the bill. The estimate of the macroeconomic revenue feedback 
effects of this legislation and the following supplementary 
analysis were produced using the Joint Committee on Taxation 
staff's Macroeconomic Equilibrium Growth model to simulate the 
macroeconomic effects of the bill. This analysis is presented 
relative to the 2015 economic and receipts baseline (``present 
law''), published by the Congressional Budget Office (``CBO'') 
in January, 2015.\41\
---------------------------------------------------------------------------
    \41\Congressional Budget Office, The Budget and Economic Outlook: 
Fiscal Years 2015-2025, January 26, 2015.
---------------------------------------------------------------------------
    The bill amends section 168(k) to make permanent ``bonus 
depreciation,'' a first-year depreciation deduction equal to 50 
percent of the adjusted basis of qualified property, generally 
effective for property placed in service after December 31, 
2014. The bill also provides that a corporation eligible for 
bonus depreciation may elect to claim additional AMT credits in 
lieu of claiming the additional depreciation deduction. This 
bill is projected to reduce the after-tax cost of capital, thus 
providing an incentive for additional savings and investment. 
Within the budget window, the primary effect of the bill on the 
economy is a projected increase in the stock of capital of 
about 0.4 percent during the first half of the budget period 
(2016-2019) and about 1.2 percent in the second half of the 
budget period (2020-2025). This increase in the capital stock 
is projected to result in an increase in Gross Domestic Product 
(``GDP'') of about 0.2 percent during the budget period, and in 
receipts of about 0.1 percent during that period. These changes 
in investment are projected to be mirrored by small changes in 
hours worked and wages. The effects on wages increase over 
time, as the build-up of capital stock increases worker 
productivity. Because the size of these effects depends on how 
strongly investors respond to the incentives, and to a lesser 
extent for this bill, on the actions of the Federal Reserve 
Board, the exact magnitude of these effects is subject to some 
uncertainty. In the longer run, increasing deficits are 
expected to reduce the investment incentives provided by the 
proposal.
            Budgetary effects
    The growth generated by the increase in capital stock is 
projected to reduce the revenue loss from the proposal by about 
$30.7 billion over the 2016-2025 budget period. This revenue 
``feedback'' begins slowly as it takes time for the effects of 
increasing capital stock to affect economic growth. At the same 
time, an increase in interest rates generated by the increase 
in Federal debt is expected to increase the cost of Federal 
debt service by about $17 billion over the budget window. 
Because the bill is projected to have a negligible effect on 
employment and consumption, it is projected to have a 
negligible effect on other outlays. Overall, the budgetary 
effects of changes in economic growth are projected to reduce 
the deficit by $13.7 billion during the budget window. Details 
of the estimate appear on Table 1.


            Second and third decade effects
    In the second and third decades after enactment, because 
the bill is expected to result in continuing increases in 
Federal debt, it is expected to make private borrowing more 
expensive, reducing investment incentives, and thus reducing 
the rate of increase in capital stock, GDP, and associated 
revenues relative to those effects within the budget period. 
The extent to which this crowding out of private investment 
incentives could eventually lead to the macroeconomic effects 
of the bill reducing revenues relative to the conventional 
estimate is too uncertain to enable a prediction on the sign of 
the macroeconomic revenue feedback effects in the second or 
third decades after enactment and beyond.

Data, models, and assumptions used in the analysis

    We analyzed the proposal using the Joint Committee staff 
macroeconomic equilibrium growth model (``MEG'').\42\ While the 
model is based on economic data from the National Income and 
Product Accounts, taxable income is adjusted to reflect taxable 
income as measured by reporting on tax returns. The MEG model 
is based on the standard, neoclassical assumption that the 
amount of output is determined by the availability of labor and 
capital, and in the long run demand for labor and capital 
equals the amount supplied by households. Individuals are 
assumed to make decisions based on observed characteristics of 
the economy, including wages, prices, interest rates, tax 
rates, and government spending levels. 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.
---------------------------------------------------------------------------
    \42\A detailed description of the MEG model and its behavioral 
parameters may be found in: Joint Committee on Taxation, Macroeconomic 
Analysis of Various Proposals to Provide $500 Billion in Tax Relief, 
(JCX-4-05), March 1, 2005, and Joint Committee on Taxation, Overview of 
the Work of the Staff of the Joint Committee on Taxation to Model the 
Macroeconomic Effects of Proposed Tax Legislation to Comply with House 
Rule XIII.3(h)(2), (JCX-105-03), December 22, 2003.
---------------------------------------------------------------------------
    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. Under an ``Aggressive Fed'' 
policy, it is assumed that the Federal Reserve Board would work 
to counteract any demand incentives resulting from fiscal 
policy. ``Neutral Fed'' simulations assume that the Federal 
Reserve Board targets a fixed monetary growth rate, and does 
not try to counteract fiscal policy. The macroeconomic revenue 
effects provided in the estimate were generated using the 
assumption that the Federal Reserve Board would be neutral 
toward the policy in the beginning of the budget period, 
consistent with current Federal Reserve policy, and gradually 
begin to counteract the expansionary effects of growing 
deficits over the budget period.
    Labor supply decisions are modeled separately for four 
groups: low income primary earners, low income secondary 
earners, other primary earners, and other secondary earners. 
Firms make investment decisions based on an expected after-tax 
rate of return. The simulation used for this estimate includes 
the high substitution elasticity parameters for labor supply as 
reported in Table 2, below.
    Information about the effects of the proposal on individual 
and business average tax rates and effective marginal tax 
rates, and on after-tax returns to capital and labor is 
obtained from various JCT tax models\43\ (used in the 
production of conventional revenue estimates) to characterize 
the effects of the bill within the MEG model. Changes in 
deductions, credits and exclusions can impact effective 
marginal tax rates as well as average tax rates. Table 2 
provides a summary of key behavioral parameters in the MEG 
model.
---------------------------------------------------------------------------
    \43\Descriptions of the JCT conventional estimating models may be 
found in JCX-46-11, Testimony of the Staff of the Joint Committee on 
Taxation before the House Committee on Ways and Means Regarding 
Economic Modeling, September 21, 2011, JCX-75-15, Estimating Changes in 
the Federal Individual Income tax: Description of the Individual Tax 
Model, April 24, 2015, and other documents at www.jct.gov under 
``Estimating Methodology.''

                              TABLE 2.--KEY PARAMETER ASSUMPTIONS IN THE MEG MODEL
----------------------------------------------------------------------------------------------------------------
  Labor supply elasticities in  disaggregated labor                        High  Elasticity     Low  Elasticity
                        supply                               Income          Substitution        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 baseline rates.               -0.1               0.2                  0.1
----------------------------------------------------------------------------------------------------------------
                                         Savings/consumption parameters
----------------------------------------------------------------------------------------------------------------
Rate of time preference..............................                                  0.015
Intertemporal elasticity of substitution.............                                  0.35
Derived long-run savings elasticity to the after tax                                   0.25
 rate of return on capital...........................
----------------------------------------------------------------------------------------------------------------

     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. 2510 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).
    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 modifies and makes permanent the 50-percent 
additional first-year depreciation deduction.
    The bill allows additional first-year depreciation for 
qualified improvement property without regard to whether the 
improvements are property subject to a lease, and also removes 
the requirement that the improvement must be placed in service 
more than three years after the date the building was first 
placed in service.
    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 in lieu of bonus depreciation for a 
taxable year.
    The bill also makes permanent the special rule for the 
allocation of bonus depreciation to a long-term contract.
            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, 2014 (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, 2015 (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 of the 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 certain plants
    The bill provides an election for certain plants bearing 
fruits and nuts. Under the election, 50 percent of the adjusted 
basis of a specified plant is deductible for regular tax and 
AMT purposes in the year planted or grafted by the taxpayer, 
and the adjusted basis is reduced by amount of the deduction. A 
specified plant is any tree or vine that bears fruits or nuts, 
and any other plant that will have more than one yield of 
fruits or nuts and generally has a period of more than two 
years from planting or grafting to the time it begins bearing 
fruits or nuts. The election is revocable only with the consent 
of the Secretary, and if the election is made with respect to 
any specified plant, such plant is not treated as qualified 
property 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

    The reporting requirements are unchanged by this provision. 
Capital assets purchased during the tax year will still need to 
be reported on Form 4562, Depreciation and Amortization 
(Including Information on Listed Property); however, the 
current year tax deduction associated with such assets will 
increase.


  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(g)(2) of H. Res. 5 (114th 
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(i) of H. Res. 5 (114th 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


  A. Text of Existing Law Amended or Repealed by the Bill, as Reported

    In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *



SEC. 168. ACCELERATED COST RECOVERY SYSTEM.

  (a) General Rule.--Except as otherwise provided in this 
section, the depreciation deduction provided by section 167(a) 
for any tangible property shall be determined by using--
          (1) the applicable depreciation method,
          (2) the applicable recovery period, and
          (3) the applicable convention.
  (b) Applicable Depreciation Method.--For purposes of this 
section--
          (1) In general.--Except as provided in paragraphs (2) 
        and (3), the applicable depreciation method is--
                  (A) the 200 percent declining balance method,
                  (B) switching to the straight line method for 
                the 1st taxable year for which using the 
                straight line method with respect to the 
                adjusted basis as of the beginning of such year 
                will yield a larger allowance.
          (2) 150 percent declining balance method in certain 
        cases.--Paragraph (1) shall be applied by substituting 
        ``150 percent'' for ``200 percent'' in the case of--
                  (A) any 15-year or 20-year property not 
                referred to in paragraph (3),
                  (B) any property used in a farming business 
                (within the meaning of section 263A(e)(4)),
                  (C) any property (other than property 
                described in paragraph (3)) which is a 
                qualified smart electric meter or qualified 
                smart electric grid system, or
                  (D) any property (other than property 
                described in paragraph (3)) with respect to 
                which the taxpayer elects under paragraph (5) 
                to have the provisions of this paragraph apply.
          (3) Property to which straight line method applies.--
        The applicable depreciation method shall be the 
        straight line method in the case of the following 
        property:
                  (A) Nonresidential real property.
                  (B) Residential rental property.
                  (C) Any railroad grading or tunnel bore.
                  (D) Property with respect to which the 
                taxpayer elects under paragraph (5) to have the 
                provisions of this paragraph apply.
                  (E) Property described in subsection 
                (e)(3)(D)(ii).
                  (F) Water utility property described in 
                subsection (e)(5).
                  (G) Qualified leasehold improvement property 
                described in subsection (e)(6).
                  (H) Qualified restaurant property described 
                in subsection (e)(7).
                  (I) Qualified retail improvement property 
                described in subsection (e)(8).
          (4) Salvage value treated as zero.--Salvage value 
        shall be treated as zero.
          (5) Election.--An election under paragraph (2)(D) or 
        (3)(D) may be made with respect to 1 or more classes of 
        property for any taxable year and once made with 
        respect to any class shall apply to all property in 
        such class placed in service during such taxable year. 
        Such an election, once made, shall be irrevocable.
  (c) Applicable Recovery Period.--For purposes of this 
section, the applicable recovery period shall be determined in 
accordance with the following table:


 
------------------------------------------------------------------------
         In the case of:            The applicable recovery period is:
------------------------------------------------------------------------
3-year property                   3 years
5-year property                   5 years
7-year property                   7 years
10-year property                  10 years
15-year property                  15 years
20-year property                  20 years
Water utility property            25 years
Residential rental property       27.5 years
Nonresidential real property      39 years.
Any railroad grading or tunnel    50 years.
 bore
------------------------------------------------------------------------

  (d) Applicable Convention.--For purposes of this section--
          (1) In general.--Except as otherwise provided in this 
        subsection, the applicable convention is the half-year 
        convention.
          (2) Real property.--In the case of--
                  (A) nonresidential real property,
                  (B) residential rental property, and
                  (C) any railroad grading or tunnel bore, the 
                applicable convention is the mid-month 
                convention.
          (3) Special rule where substantial property placed in 
        service during last 3 months of taxable year.--
                  (A) In general.--Except as provided in 
                regulations, if during any taxable year--
                          (i) the aggregate bases of property 
                        to which this section applies placed in 
                        service during the last 3 months of the 
                        taxable year, exceed
                          (ii) 40 percent of the aggregate 
                        bases of property to which this section 
                        applies placed in service during such 
                        taxable year,
        the applicable convention for all property to which 
        this section applies placed in service during such 
        taxable year shall be the mid-quarter convention.
                  (B) Certain property not taken into 
                account.--For purposes of subparagraph (A), 
                there shall not be taken into account--
                          (i) any nonresidential real property 
                        residential rental property, and 
                        railroad grading or tunnel bore, and
                          (ii) any other property placed in 
                        service and disposed of during the same 
                        taxable year.
          (4) Definitions.--
                  (A) Half-year convention.--The half-year 
                convention is a convention which treats all 
                property placed in service during any taxable 
                year (or disposed of during any taxable year) 
                as placed in service (or disposed of) on the 
                mid-point of such taxable year.
                  (B) Mid-month convention.--The mid-month 
                convention is a convention which treats all 
                property placed in service during any month (or 
                disposed of during any month) as placed in 
                service (or disposed of) on the mid-point of 
                such month.
                  (C) Mid-quarter convention.--The mid-quarter 
                convention is a convention which treats all 
                property placed in service during any quarter 
                of a taxable year (or disposed of during any 
                quarter of a taxable year) as placed in service 
                (or disposed of) on the mid-point of such 
                quarter.
  (e) Classification of Property.--For purposes of this 
section--
          (1) In general.--Except as otherwise provided in this 
        subsection, property shall be classified under the 
        following table:


 
------------------------------------------------------------------------
                                      If such property has a class life
   Property shall be treated as:                (in years) of:
------------------------------------------------------------------------
3-year property                      4 or less
5-year property                      More than 4 but less than 10
7-year property                      10 or more but less than 16
10-year property                     16 or more but less than 20
15-year property                     20 or more but less than 25
20-year property                     25 or more.
------------------------------------------------------------------------

          (2) Residential rental or nonresidential real 
        property.--
                  (A) Residential rental property.--
                          (i) Residential rental property.--The 
                        term ``residential rental property'' 
                        means any building or structure if 80 
                        percent or more of the gross rental 
                        income from such building or structure 
                        for the taxable year is rental income 
                        from dwelling units.
                          (ii) Definitions.--For purposes of 
                        clause (i)--
                                  (I) the term ``dwelling 
                                unit'' means a house or 
                                apartment used to provide 
                                living accommodations in a 
                                building or structure, but does 
                                not include a unit in a hotel, 
                                motel, or other establishment 
                                more than one-half of the units 
                                in which are used on a 
                                transient basis, and
                                  (II) if any portion of the 
                                building or structure is 
                                occupied by the taxpayer, the 
                                gross rental income from such 
                                building or structure shall 
                                include the rental value of the 
                                portion so occupied.
                  (B) Nonresidential real property.--The term 
                ``nonresidential real property'' means section 
                1250 property which is not--
                          (i) residential rental property, or
                          (ii) property with a class life of 
                        less than 27.5 years.
          (3) Classification of certain property.--
                  (A) 3-year property.--The term ``3-year 
                property'' includes--
                          (i) any race horse--
                                  (I) which is placed in 
                                service before January 1, 2015, 
                                and
                                  (II) which is placed in 
                                service after December 31, 
                                2014, and which is more than 2 
                                years old at the time such 
                                horse is placed in service by 
                                such purchaser,
                          (ii) any horse other than a race 
                        horse which is more than 12 years old 
                        at the time it is placed in service, 
                        and
                          (iii) any qualified rent-to-own 
                        property.
                  (B) 5-year property.--The term ``5-year 
                property'' includes--
                          (i) any automobile or light general 
                        purpose truck,
                          (ii) any semi-conductor manufacturing 
                        equipment,
                          (iii) any computer-based telephone 
                        central office switching equipment,
                          (iv) any qualified technological 
                        equipment,
                          (v) any section 1245 property used in 
                        connection with research and 
                        experimentation,
                          (vi) any property which--
                                  (I) is described in 
                                subparagraph (A) of section 
                                48(a)(3) (or would be so 
                                described if ``solar or wind 
                                energy'' were substituted for 
                                ``solar energy'' in clause (i) 
                                thereof and the last sentence 
                                of such section did not apply 
                                to such subparagraph),
                                  (II) is described in 
                                paragraph (15) of section 48(l) 
                                (as in effect on the day before 
                                the date of the enactment of 
                                the Revenue Reconciliation Act 
                                of 1990) and is a qualifying 
                                small power production facility 
                                within the meaning of section 
                                3(17)(C) of the Federal Power 
                                Act (16 U.S.C. 796(17)(C)), as 
                                in effect on September 1, 1986, 
                                or
                                  (III) is described in section 
                                48(l)(3)(A)(ix) (as in effect 
                                on the day before the date of 
                                the enactment of the Revenue 
                                Reconciliation Act of 1990), 
                                and
                          (vii) any machinery or equipment 
                        (other than any grain bin, cotton 
                        ginning asset, fence, or other land 
                        improvement) which is used in a farming 
                        business (as defined in section 
                        263A(e)(4)), the original use of which 
                        commences with the taxpayer after 
                        December 31, 2008, and which is placed 
                        in service before January 1, 2010.
                Nothing in any provision of law shall be 
                construed to treat property as not being 
                described in clause (vi)(I) (or the 
                corresponding provisions of prior law) by 
                reason of being public utility property (within 
                the meaning of section 48(a)(3)).
                  (C) 7-year property.--The term ``7-year 
                property'' includes--
                          (i) any railroad track, and
                          (ii) any motorsports entertainment 
                        complex,
                          (iii) any Alaska natural gas 
                        pipeline,
                          (iv) any natural gas gathering line 
                        the original use of which commences 
                        with the taxpayer after April 11, 2005, 
                        and
                          (v) any property which--
                                  (I) does not have a class 
                                life, and
                                  (II) is not otherwise 
                                classified under paragraph (2) 
                                or this paragraph.
                  (D) 10-year property.--The term ``10-year 
                property'' includes--
                          (i) any single purpose agricultural 
                        or horticultural structure (within the 
                        meaning of subsection (i)(13)),
                          (ii) any tree or vine bearing fruit 
                        or nuts,
                          (iii) any qualified smart electric 
                        meter, and
                          (iv) any qualified smart electric 
                        grid system.
                  (E) 15-year property.--The term ``15-year 
                property'' includes--
                          (i) any municipal wastewater 
                        treatment plant,
                          (ii) any telephone distribution plant 
                        and comparable equipment used for 2-way 
                        exchange of voice and data 
                        communications,
                          (iii) any section 1250 property which 
                        is a retail motor fuels outlet (whether 
                        or not food or other convenience items 
                        are sold at the outlet),
                          (iv) any qualified leasehold 
                        improvement property placed in service 
                        before January 1, 2015,
                          (v) any qualified restaurant property 
                        placed in service before January 1, 
                        2015,
                          (vi) initial clearing and grading 
                        land improvements with respect to gas 
                        utility property,
                          (vii) any section 1245 property (as 
                        defined in section 1245(a)(3)) used in 
                        the transmission at 69 or more 
                        kilovolts of electricity for sale and 
                        the original use of which commences 
                        with the taxpayer after April 11, 2005,
                          (viii) any natural gas distribution 
                        line the original use of which 
                        commences with the taxpayer after April 
                        11, 2005, and which is placed in 
                        service before January 1, 2011, and
                          (ix) any qualified retail improvement 
                        property placed in service after 
                        December 31, 2008, and before January 
                        1, 2015.
                  (F) 20-year property.--The term ``20-year 
                property'' means initial clearing and grading 
                land improvements with respect to any electric 
                utility transmission and distribution plant.
          (4) Railroad grading or tunnel bore.--The term 
        ``railroad grading or tunnel bore'' means all 
        improvements resulting from excavations (including 
        tunneling), construction of embankments, clearings, 
        diversions of roads and streams, sodding of slopes, and 
        from similar work necessary to provide, construct, 
        reconstruct, alter, protect, improve, replace, or 
        restore a roadbed or right-of-way for railroad track.
          (5) Water utility property.--The term ``water utility 
        property'' means property--
                  (A) which is an integral part of the 
                gathering, treatment, or commercial 
                distribution of water, and which, without 
                regard to this paragraph, would be 20-year 
                property, and
                  (B) any municipal sewer.
          (6) Qualified leasehold improvement property.--The 
        term ``qualified leasehold improvement property'' has 
        the meaning given such term in section 168(k)(3) except 
        that the following special rules shall apply:
                  (A) Improvements made by lessor.--In the case 
                of an improvement made by the person who was 
                the lessor of such improvement when such 
                improvement was placed in service, such 
                improvement shall be qualified leasehold 
                improvement property (if at all) only so long 
                as such improvement is held by such person.
                  (B) Exception for changes in form of 
                business.--Property shall not cease to be 
                qualified leasehold improvement property under 
                subparagraph (A) by reason of--
                          (i) death,
                          (ii) a transaction to which section 
                        381(a) applies,
                          (iii) a mere change in the form of 
                        conducting the trade or business so 
                        long as the property is retained in 
                        such trade or business as qualified 
                        leasehold improvement property and the 
                        taxpayer retains a substantial interest 
                        in such trade or business,
                          (iv) the acquisition of such property 
                        in an exchange described in section 
                        1031, 1033, or 1038 to the extent that 
                        the basis of such property includes an 
                        amount representing the adjusted basis 
                        of other property owned by the taxpayer 
                        or a related person, or
                          (v) the acquisition of such property 
                        by the taxpayer in a transaction 
                        described in section 332, 351, 361, 
                        721, or 731 (or the acquisition of such 
                        property by the taxpayer from the 
                        transferee or acquiring corporation in 
                        a transaction described in such 
                        section), to the extent that the basis 
                        of the property in the hands of the 
                        taxpayer is determined by reference to 
                        its basis in the hands of the 
                        transferor or distributor.
          (7) Qualified restaurant property.--
                  (A) In general.--The term ``qualified 
                restaurant property'' means any section 1250 
                property which is--
                          (i) a building, or
                          (ii) an improvement to a building, if 
                        more than 50 percent of the building's 
                        square footage is devoted to 
                        preparation of, and seating for on-
                        premises consumption of, prepared 
                        meals.
                  (B) Exclusion from bonus depreciation.--
                Property described in this paragraph which is 
                not qualified leasehold improvement property 
                shall not be considered qualified property for 
                purposes of subsection (k).
          (8) Qualified retail improvement property.--
                  (A) In general.--The term ``qualified retail 
                improvement property'' means any improvement to 
                an interior portion of a building which is 
                nonresidential real property if--
                          (i) such portion is open to the 
                        general public and is used in the 
                        retail trade or business of selling 
                        tangible personal property to the 
                        general public, and
                          (ii) such improvement is placed in 
                        service more than 3 years after the 
                        date the building was first placed in 
                        service.
                  (B) Improvements made by owner.--In the case 
                of an improvement made by the owner of such 
                improvement, such improvement shall be 
                qualified retail improvement property (if at 
                all) only so long as such improvement is held 
                by such owner. Rules similar to the rules under 
                paragraph (6)(B) shall apply for purposes of 
                the preceding sentence.
                  (C) Certain improvements not included.--Such 
                term shall not include any improvement for 
                which the expenditure is attributable to--
                          (i) the enlargement of the building,
                          (ii) any elevator or escalator,
                          (iii) any structural component 
                        benefitting a common area, or
                          (iv) the internal structural 
                        framework of the building.
                  (D) Exclusion from bonus depreciation.--
                Property described in this paragraph which is 
                not qualified leasehold improvement property 
                shall not be considered qualified property for 
                purposes of subsection (k).
  (f) Property to Which Section Does Not Apply.--This section 
shall not apply to--
          (1) Certain methods of depreciation.--Any property 
        if--
                  (A) the taxpayer elects to exclude such 
                property from the application of this section, 
                and
                  (B) for the 1st taxable year for which a 
                depreciation deduction would be allowable with 
                respect to such property in the hands of the 
                taxpayer, the property is properly depreciated 
                under the unit-of-production method or any 
                method of depreciation not expressed in a term 
                of years (other than the ret method or similar 
                method).
          (2) Certain public utility property.--Any public 
        utility property (within the meaning of subsection 
        (i)(10)) if the taxpayer does not use a normalization 
        method of accounting.
          (3) Films and video tape.--Any motion picture film or 
        video tape.
          (4) Sound recordings.--Any works which result from 
        the fixation of a series of musical, spoken, or other 
        sounds, regardless of the nature of the material (such 
        as discs, tapes, or other phonorecordings) in which 
        such sounds are embodied.
          (5) Certain property placed in service in churning 
        transactions.--
                  (A) In general.--Property--
                          (i) described in paragraph (4) of 
                        section 168(e) (as in effect before the 
                        amendments made by the Tax Reform Act 
                        of 1986), or
                          (ii) which would be described in such 
                        paragraph if such paragraph were 
                        applied by substituting ``1987'' for 
                        ``1981'' and ``1986'' for ``1980'' each 
                        place such terms appear.
                  (B) Subparagraph (A)(ii) not to apply.--
                Clause (ii) of subparagraph (A) shall not apply 
                to--
                          (i) any residential rental property 
                        or nonresidential real property,
                          (ii) any property if, for the 1st 
                        taxable year in which such property is 
                        placed in service--
                                  (I) the amount allowable as a 
                                deduction under this section 
                                (as in effect before the date 
                                of the enactment of this 
                                paragraph) with respect to such 
                                property is greater than,
                                  (II) the amount allowable as 
                                a deduction under this section 
                                (as in effect on or after such 
                                date and using the half-year 
                                convention) for such taxable 
                                year, or
                          (iii) any property to which this 
                        section (as amended by the Tax Reform 
                        Act of 1986) applied in the hands of 
                        the transferor.
                  (C) Special rule.--In the case of any 
                property to which this section would apply but 
                for this paragraph, the depreciation deduction 
                under section 167 shall be determined under the 
                provisions of this section as in effect before 
                the amendments made by section 201 of the Tax 
                Reform Act of 1986.
  (g) Alternative Depreciation System for Certain Property.--
          (1) In general.--In the case of--
                  (A) any tangible property which during the 
                taxable year is used predominantly outside the 
                United States,
                  (B) any tax-exempt use property,
                  (C) any tax-exempt bond financed property,
                  (D) any imported property covered by an 
                Executive order under paragraph (6), and
                  (E) any property to which an election under 
                paragraph (7) applies,
        the depreciation deduction provided by section 167(a) 
        shall be determined under the alternative depreciation 
        system.
          (2) Alternative depreciation system.--For purposes of 
        paragraph (1), the alternative depreciation system is 
        depreciation determined by using--
                  (A) the straight line method (without regard 
                to salvage value),
                  (B) the applicable convention determined 
                under subsection (d), and
                  (C) a recovery period determined under the 
                following table:


 
------------------------------------------------------------------------
         In the case of:               The recovery period shall be:
------------------------------------------------------------------------
(i) Property not described in      The class life.
 clause (ii) or (iii)
(ii) Personal property with no     12 years.
 class life
(iii) Nonresidential real and      40 years.
 residential rental property
(iv) Any railroad grading or       50 years.
 tunnel bore or water utility
 property
------------------------------------------------------------------------

          (3) Special rules for determining class life.--
                  (A) Tax-exempt use property subject to 
                lease.--In the case of any tax-exempt use 
                property subject to a lease, the recovery 
                period used for purposes of paragraph (2) shall 
                (notwithstanding any other subparagraph of this 
                paragraph) in no event be less than 125 percent 
                of the lease term.
                  (B) Special rule for certain property 
                assigned to classes.--For purposes of paragraph 
                (2), in the case of property described in any 
                of the following subparagraphs of subsection 
                (e)(3), the class life shall be determined as 
                follows:


 
------------------------------------------------------------------------
      If property is described in
             subparagraph:                      The class life is:
------------------------------------------------------------------------
(A)(iii)                                 4
(B)(ii)                                  5
(B)(iii)                                 9.5
(B)(vii)                                 10
(C)(i)                                   10
(C)(iii)...........                      22
(C)(iv)                                  14
(D)(i)                                   15
(D)(ii)                                  20
(E)(i)                                   24
(E)(ii)                                  24
(E)(iii)                                 20
(E)(iv)                                  39
(E)(v)                                   39
(E)(vi)                                  20
(E)(vii)                                 30
(E)(viii)                                35
(E)(ix)                                  39
(F)                                      25
------------------------------------------------------------------------

                  (C) Qualified technological equipment.--In 
                the case of any qualified technological 
                equipment, the recovery period used for 
                purposes of paragraph (2) shall be 5 years.
                  (D) Automobiles, etc..--In the case of any 
                automobile or light general purpose truck, the 
                recovery period used for purposes of paragraph 
                (2) shall be 5 years.
                  (E) Certain real property.--In the case of 
                any section 1245 property which is real 
                property with no class life, the recovery 
                period used for purposes of paragraph (2) shall 
                be 40 years.
          (4) Exception for certain property used outside 
        United States.--Subparagraph (A) of paragraph (1) shall 
        not apply to--
                  (A) any aircraft which is registered by the 
                Administrator of the Federal Aviation Agency 
                and which is operated to and from the United 
                States or is operated under contract with the 
                United States;
                  (B) rolling stock which is used within and 
                without the United States and which is--
                          (i) of a rail carrier subject to part 
                        A of subtitle IV of title 49, or
                          (ii) of a United States person (other 
                        than a corporation described in clause 
                        (i)) but only if the rolling stock is 
                        not leased to one or more foreign 
                        persons for periods aggregating more 
                        than 12 months in any 24-month period;
                  (C) any vessel documented under the laws of 
                the United States which is operated in the 
                foreign or domestic commerce of the United 
                States;
                  (D) any motor vehicle of a United States 
                person (as defined in section 7701(a)(30)) 
                which is operated to and from the United 
                States;
                  (E) any container of a United States person 
                which is used in the transportation of property 
                to and from the United States;
                  (F) any property (other than a vessel or an 
                aircraft) of a United States person which is 
                used for the purpose of exploring for, 
                developing, removing, or transporting resources 
                from the outer Continental Shelf (within the 
                meaning of section 2 of the Outer Continental 
                Shelf Lands Act, as amended and supplemented; 
                (43 U.S.C. 1331));
                  (G) any property which is owned by a domestic 
                corporation (other than a corporation which has 
                an election in effect under section 936) or by 
                a United States citizen (other than a citizen 
                entitled to the benefits of section 931 or 933) 
                and which is used predominantly in a possession 
                of the United States by such a corporation or 
                such a citizen, or by a corporation created or 
                organized in, or under the law of, a possession 
                of the United States;
                  (H) any communications satellite (as defined 
                in section 103(3) of the Communications 
                Satellite Act of 1962, 47 U.S.C. 702(3)), or 
                any interest therein, of a United States 
                person;
                  (I) any cable, or any interest therein, of a 
                domestic corporation engaged in furnishing 
                telephone service to which section 
                168(i)(10)(C) applies (or of a wholly owned 
                domestic subsidiary of such a corporation), if 
                such cable is part of a submarine cable system 
                which constitutes part of a communication link 
                exclusively between the United States and one 
                or more foreign countries;
                  (J) any property (other than a vessel or an 
                aircraft) of a United States person which is 
                used in international or territorial waters 
                within the northern portion of the Western 
                Hemisphere for the purpose of exploring for, 
                developing, removing, or transporting resources 
                from ocean waters or deposits under such 
                waters;
                  (K) any property described in section 
                48(l)(3)(A)(ix) (as in effect on the day before 
                the date of the enactment of the Revenue 
                Reconciliation Act of 1990) which is owned by a 
                United States person and which is used in 
                international or territorial waters to generate 
                energy for use in the United States; and
                  (L) any satellite (not described in 
                subparagraph (H)) or other spacecraft (or any 
                interest therein) held by a United States 
                person if such satellite or other spacecraft 
                was launched from within the United States.
        For purposes of subparagraph (J), the term ``northern 
        portion of the Western Hemisphere'' means the area 
        lying west of the 30th meridian west of Greenwich, east 
        of the international dateline, and north of the 
        Equator, but not including any foreign country which is 
        a country of South America.
          (5) Tax-exempt bond financed property.--For purposes 
        of this subsection--
                  (A) In general.--Except as otherwise provided 
                in this paragraph, the term ``tax-exempt bond 
                financed property'' means any property to the 
                extent such property is financed (directly or 
                indirectly) by an obligation the interest on 
                which is exempt from tax under section 103(a).
                  (B) Allocation of bond proceeds.--For 
                purposes of subparagraph (A), the proceeds of 
                any obligation shall be treated as used to 
                finance property acquired in connection with 
                the issuance of such obligation in the order in 
                which such property is placed in service.
                  (C) Qualified residential rental projects.--
                The term ``tax-exempt bond financed property'' 
                shall not include any qualified residential 
                rental project (within the meaning of section 
                142(a)(7)).
          (6) Imported property.--
                  (A) Countries maintaining trade restrictions 
                or engaging in discriminatory acts.--If the 
                President determines that a foreign country--
                          (i) maintains nontariff trade 
                        restrictions, including variable import 
                        fees, which substantially burden United 
                        States commerce in a manner 
                        inconsistent with provisions of trade 
                        agreements, or
                          (ii) engages in discriminatory or 
                        other acts (including tolerance of 
                        international cartels) or policies 
                        unjustifiably restricting United States 
                        commerce,
                the President may by Executive order provide 
                for the application of paragraph (1)(D) to any 
                article or class of articles manufactured or 
                produced in such foreign country for such 
                period as may be provided by such Executive 
                order. Any period specified in the preceding 
                sentence shall not apply to any property 
                ordered before (or the construction, 
                reconstruction, or erection of which began 
                before) the date of the Executive order unless 
                the President determines an earlier date to be 
                in the public interest and specifies such date 
                in the Executive order.
                  (B) Imported property.--For purposes of this 
                subsection, the term ``imported property'' 
                means any property if--
                          (i) such property was completed 
                        outside the United States, or
                          (ii) less than 50 percent of the 
                        basis of such property is attributable 
                        to value added within the United 
                        States.
                For purposes of this subparagraph, the term 
                ``United States'' includes the Commonwealth of 
                Puerto Rico and the possessions of the United 
                States.
          (7) Election to use alternative depreciation 
        system.--
                  (A) In general.--If the taxpayer makes an 
                election under this paragraph with respect to 
                any class of property for any taxable year, the 
                alternative depreciation system under this 
                subsection shall apply to all property in such 
                class placed in service during such taxable 
                year. Notwithstanding the preceding sentence, 
                in the case of nonresidential real property or 
                residential rental property, such election may 
                be made separately with respect to each 
                property.
                  (B) Election irrevocable.--An election under 
                subparagraph (A), once made, shall be 
                irrevocable.
  (h) Tax-Exempt Use Property.--
          (1) In general.--For purposes of this section--
                  (A) Property other than nonresidential real 
                property.--Except as otherwise provided in this 
                subsection, the term ``tax-exempt use 
                property'' means that portion of any tangible 
                property (other than nonresidential real 
                property) leased to a tax-exempt entity.
                  (B) Nonresidential real property.--
                          (i) In general.--In the case of 
                        nonresidential real property, the term 
                        ``tax-exempt use property'' means that 
                        portion of the property leased to a 
                        tax-exempt entity in a disqualified 
                        lease.
                          (ii) Disqualified lease.--For 
                        purposes of this subparagraph, the term 
                        ``disqualified lease'' means any lease 
                        of the property to a tax-exempt entity, 
                        but only if--
                                  (I) part or all of the 
                                property was financed (directly 
                                or indirectly) by an obligation 
                                the interest on which is exempt 
                                from tax under section 103(a) 
                                and such entity (or a related 
                                entity) participated in such 
                                financing,
                                  (II) under such lease there 
                                is a fixed or determinable 
                                price purchase or sale option 
                                which involves such entity (or 
                                a related entity) or there is 
                                the equivalent of such an 
                                option,
                                  (III) such lease has a lease 
                                term in excess of 20 years, or
                                  (IV) such lease occurs after 
                                a sale (or other transfer) of 
                                the property by, or lease of 
                                the property from, such entity 
                                (or a related entity) and such 
                                property has been used by such 
                                entity (or a related entity) 
                                before such sale (or other 
                                transfer) or lease.
                          (iii) 35-percent threshold test.--
                        Clause (i) shall apply to any property 
                        only if the portion of such property 
                        leased to tax-exempt entities in 
                        disqualified leases is more than 35 
                        percent of the property.
                          (iv) Treatment of improvements.--For 
                        purposes of this subparagraph, 
                        improvements to a property (other than 
                        land) shall not be treated as a 
                        separate property.
                          (v) Leasebacks during 1st 3 months of 
                        use not taken into account.--Subclause 
                        (IV) of clause (ii) shall not apply to 
                        any property which is leased within 3 
                        months after the date such property is 
                        first used by the tax-exempt entity (or 
                        a related entity).
                  (C) Exception for short-term leases.--
                          (i) In general.--Property shall not 
                        be treated as tax-exempt use property 
                        merely by reason of a short-term lease.
                          (ii) Short-term lease.--For purposes 
                        of clause (i), the term ``short-term 
                        lease'' means any lease the term of 
                        which is--
                                  (I) less than 3 years, and
                                  (II) less than the greater of 
                                1 year or 30 percent of the 
                                property's present class life.
                  In the case of nonresidential real property 
                and property with no present class life, 
                subclause (II) shall not apply.
                  (D) Exception where property used in 
                unrelated trade or business.--The term ``tax-
                exempt use property'' shall not include any 
                portion of a property if such portion is 
                predominantly used by the tax-exempt entity 
                (directly or through a partnership of which 
                such entity is a partner) in an unrelated trade 
                or business the income of which is subject to 
                tax under section 511. For purposes of 
                subparagraph (B)(iii), any portion of a 
                property so used shall not be treated as leased 
                to a tax-exempt entity in a disqualified lease.
                  (E) Nonresidential real property defined.--
                For purposes of this paragraph, the term 
                ``nonresidential real property'' includes 
                residential rental property.
          (2) Tax-exempt entity.--
                  (A) In general.--For purposes of this 
                subsection, the term ``tax-exempt entity'' 
                means--
                          (i) the United States, any State or 
                        political subdivision thereof, any 
                        possession of the United States, or any 
                        agency or instrumentality of any of the 
                        foregoing,
                          (ii) an organization (other than a 
                        cooperative described in section 521) 
                        which is exempt from tax imposed by 
                        this chapter,
                          (iii) any foreign person or entity, 
                        and
                          (iv) any Indian tribal government 
                        described in section 7701(a)(40).
                For purposes of applying this subsection, any 
                Indian tribal government referred to in clause 
                (iv) shall be treated in the same manner as a 
                State.
                  (B) Exception for certain property subject to 
                United States tax and used by foreign person or 
                entity.--Clause (iii) of subparagraph (A) shall 
                not apply with respect to any property if more 
                than 50 percent of the gross income for the 
                taxable year derived by the foreign person or 
                entity from the use of such property is--
                          (i) subject to tax under this 
                        chapter, or
                          (ii) included under section 951 in 
                        the gross income of a United States 
                        shareholder for the taxable year with 
                        or within which ends the taxable year 
                        of the controlled foreign corporation 
                        in which such income was derived.
                For purposes of the preceding sentence, any 
                exclusion or exemption shall not apply for 
                purposes of determining the amount of the gross 
                income so derived, but shall apply for purposes 
                of determining the portion of such gross income 
                subject to tax under this chapter.
                  (C) Foreign person or entity.--For purposes 
                of this paragraph, the term ``foreign person or 
                entity'' means--
                          (i) any foreign government, any 
                        international organization, or any 
                        agency or instrumentality of any of the 
                        foregoing, and
                          (ii) any person who is not a United 
                        States person.
                Such term does not include any foreign 
                partnership or other foreign pass-thru entity.
                  (D) Treatment of certain taxable 
                instrumentalities.--For purposes of this 
                subsection, a corporation shall not be treated 
                as an instrumentality of the United States or 
                of any State or political subdivision thereof 
                if--
                          (i) all of the activities of such 
                        corporation are subject to tax under 
                        this chapter, and
                          (ii) a majority of the board of 
                        directors of such corporation is not 
                        selected by the United States or any 
                        State or political subdivision thereof.
                  (E) Certain previously tax-exempt 
                organizations.--
                          (i) In general.--For purposes of this 
                        subsection, an organization shall be 
                        treated as an organization described in 
                        subparagraph (A)(ii) with respect to 
                        any property (other than property held 
                        by such organization) if such 
                        organization was an organization (other 
                        than a cooperative described in section 
                        521) exempt from tax imposed by this 
                        chapter at any time during the 5-year 
                        period ending on the date such property 
                        was first used by such organization. 
                        The preceding sentence and subparagraph 
                        (D)(ii) shall not apply to the Federal 
                        Home Loan Mortgage Corporation.
                          (ii) Election not to have clause (i) 
                        apply.--
                                  (I) In general.--In the case 
                                of an organization formerly 
                                exempt from tax under section 
                                501(a) as an organization 
                                described in section 
                                501(c)(12), clause (i) shall 
                                not apply to such organization 
                                with respect to any property if 
                                such organization elects not to 
                                be exempt from tax under 
                                section 501(a) during the tax-
                                exempt use period with respect 
                                to such property.
                                  (II) Tax-exempt use period.--
                                For purposes of subclause (I), 
                                the term ``tax-exempt use 
                                period'' means the period 
                                beginning with the taxable year 
                                in which the property described 
                                in subclause (I) is first used 
                                by the organization and ending 
                                with the close of the 15th 
                                taxable year following the last 
                                taxable year of the applicable 
                                recovery period of such 
                                property.
                                  (III) Election.--Any election 
                                under subclause (I), once made, 
                                shall be irrevocable.
                          (iii) Treatment of successor 
                        organizations.--Any organization which 
                        is engaged in activities substantially 
                        similar to those engaged in by a 
                        predecessor organization shall succeed 
                        to the treatment under this 
                        subparagraph of such predecessor 
                        organization.
                          (iv) First used.--For purposes of 
                        this subparagraph, property shall be 
                        treated as first used by the 
                        organization--
                                  (I) when the property is 
                                first placed in service under a 
                                lease to such organization, or
                                  (II) in the case of property 
                                leased to (or held by) a 
                                partnership (or other pass-thru 
                                entity) in which the 
                                organization is a member, the 
                                later of when such property is 
                                first used by such partnership 
                                or pass-thru entity or when 
                                such organization is first a 
                                member of such partnership or 
                                pass-thru entity.
          (3) Special rules for certain high technology 
        equipment.--
                  (A) Exemption where lease term is 5 years or 
                less.--For purposes of this section, the term 
                ``tax-exempt use property'' shall not include 
                any qualified technological equipment if the 
                lease to the tax-exempt entity has a lease term 
                of 5 years or less. Notwithstanding subsection 
                (i)(3)(A)(i), in determining a lease term for 
                purposes of the preceding sentence, there shall 
                not be taken into account any option of the 
                lessee to renew at the fair market value rent 
                determined at the time of renewal; except that 
                the aggregate period not taken into account by 
                reason of this sentence shall not exceed 24 
                months.
                  (B) Exception for certain property.--
                          (i) In general.--For purposes of 
                        subparagraph (A), the term ``qualified 
                        technological equipment'' shall not 
                        include any property leased to a tax-
                        exempt entity if--
                                  (I) part or all of the 
                                property was financed (directly 
                                or indirectly) by an obligation 
                                the interest on which is exempt 
                                from tax under section 103(a),
                                  (II) such lease occurs after 
                                a sale (or other transfer) of 
                                the property by, or lease of 
                                such property from, such entity 
                                (or related entity) and such 
                                property has been used by such 
                                entity (or a related entity) 
                                before such sale (or other 
                                transfer) or lease, or
                                  (III) such tax-exempt entity 
                                is the United States or any 
                                agency or instrumentality of 
                                the United States.
                          (ii) Leasebacks during 1st 3 months 
                        of use not taken into account.--
                        Subclause (II) of clause (i) shall not 
                        apply to any property which is leased 
                        within 3 months after the date such 
                        property is first used by the tax-
                        exempt entity (or a related entity).
          (4) Related entities.--For purposes of this 
        subsection--
                  (A)(i) Each governmental unit and each agency 
                or instrumentality of a governmental unit is 
                related to each other such unit, agency, or 
                instrumentality which directly or indirectly 
                derives its powers, rights, and duties in whole 
                or in part from the same sovereign authority.
                          (ii) For purposes of clause (i), the 
                        United States, each State, and each 
                        possession of the United States shall 
                        be treated as a separate sovereign 
                        authority.
                  (B) Any entity not described in subparagraph 
                (A)(i) is related to any other entity if the 2 
                entities have--
                          (i) significant common purposes and 
                        substantial common membership, or
                          (ii) directly or indirectly 
                        substantial common direction or 
                        control.
                  (C)(i) An entity is related to another entity 
                if either entity owns (directly or through 1 or 
                more entities) a 50 percent or greater interest 
                in the capital or profits of the other entity.
                          (ii) For purposes of clause (i), 
                        entities treated as related under 
                        subparagraph (A) or (B) shall be 
                        treated as 1 entity.
                  (D) An entity is related to another entity 
                with respect to a transaction if such 
                transaction is part of an attempt by such 
                entities to avoid the application of this 
                subsection.
          (5) Tax-exempt use of property leased to 
        partnerships, etc., determined at partner level.--For 
        purposes of this subsection--
                  (A) In general.--In the case of any property 
                which is leased to a partnership, the 
                determination of whether any portion of such 
                property is tax-exempt use property shall be 
                made by treating each tax-exempt entity 
                partner's proportionate share (determined under 
                paragraph (6)(C)) of such property as being 
                leased to such partner.
                  (B) Other pass-thru entities; tiered 
                entities.--Rules similar to the rules of 
                subparagraph (A) shall also apply in the case 
                of any pass-thru entity other than a 
                partnership and in the case of tiered 
                partnerships and other entities.
                  (C) Presumption with respect to foreign 
                entities.--Unless it is otherwise established 
                to the satisfaction of the Secretary, it shall 
                be presumed that the partners of a foreign 
                partnership (and the beneficiaries of any other 
                foreign pass-thru entity) are persons who are 
                not United States persons.
          (6) Treatment of property owned by partnerships, 
        etc..--
                  (A) In general.--For purposes of this 
                subsection, if--
                          (i) any property which (but for this 
                        subparagraph) is not tax-exempt use 
                        property is owned by a partnership 
                        which has both a tax-exempt entity and 
                        a person who is not a tax-exempt entity 
                        as partners, and
                          (ii) any allocation to the tax-exempt 
                        entity of partnership items is not a 
                        qualified allocation,
                an amount equal to such tax-exempt entity's 
                proportionate share of such property shall 
                (except as provided in paragraph (1)(D)) be 
                treated as tax-exempt use property.
                  (B) Qualified allocation.--For purposes of 
                subparagraph (A), the term ``qualified 
                allocation'' means any allocation to a tax-
                exempt entity which--
                          (i) is consistent with such entity's 
                        being allocated the same distributive 
                        share of each item of income, gain, 
                        loss, deduction, credit, and basis and 
                        such share remains the same during the 
                        entire period the entity is a partner 
                        in the partnership, and
                          (ii) has substantial economic effect 
                        within the meaning of section 
                        704(b)(2).
                For purposes of this subparagraph, items 
                allocated under section 704(c) shall not be 
                taken into account.
                  (C) Determination of proportionate share.--
                          (i) In general.--For purposes of 
                        subparagraph (A), a tax-exempt entity's 
                        proportionate share of any property 
                        owned by a partnership shall be 
                        determined on the basis of such 
                        entity's share of partnership items of 
                        income or gain (excluding gain 
                        allocated under section 704(c)), 
                        whichever results in the largest 
                        proportionate share.
                          (ii) Determination where allocations 
                        vary.--For purposes of clause (i), if a 
                        tax-exempt entity's share of 
                        partnership items of income or gain 
                        (excluding gain allocated under section 
                        704(c)) may vary during the period such 
                        entity is a partner in the partnership, 
                        such share shall be the highest share 
                        such entity may receive.
                  (D) Determination of whether property used in 
                unrelated trade or business.--For purposes of 
                this subsection, in the case of any property 
                which is owned by a partnership which has both 
                a tax-exempt entity and a person who is not a 
                tax-exempt entity as partners, the 
                determination of whether such property is used 
                in an unrelated trade or business of such an 
                entity shall be made without regard to section 
                514.
                  (E) Other pass-thru entities; tiered 
                entities.--Rules similar to the rules of 
                subparagraphs (A), (B), (C), and (D) shall also 
                apply in the case of any pass-thru entity other 
                than a partnership and in the case of tiered 
                partnerships and other entities.
                  (F) Treatment of certain taxable entities.--
                          (i) In general.--For purposes of this 
                        paragraph and paragraph (5), except as 
                        otherwise provided in this 
                        subparagraph, any tax-exempt controlled 
                        entity shall be treated as a tax-exempt 
                        entity.
                          (ii) Election.--If a tax-exempt 
                        controlled entity makes an election 
                        under this clause--
                                  (I) such entity shall not be 
                                treated as a tax-exempt entity 
                                for purposes of this paragraph 
                                and paragraph (5), and
                                  (II) any gain recognized by a 
                                tax-exempt entity on any 
                                disposition of an interest in 
                                such entity (and any dividend 
                                or interest received or accrued 
                                by a tax-exempt entity from 
                                such tax-exempt controlled 
                                entity) shall be treated as 
                                unrelated business taxable 
                                income for purposes of section 
                                511.
                        Any such election shall be irrevocable 
                        and shall bind all tax-exempt entities 
                        holding interests in such tax-exempt 
                        controlled entity. For purposes of 
                        subclause (II), there shall only be 
                        taken into account dividends which are 
                        properly allocable to income of the 
                        tax-exempt controlled entity which was 
                        not subject to tax under this chapter.
                          (iii) Tax-exempt controlled entity.--
                                  (I) In general.--The term 
                                ``tax-exempt controlled 
                                entity'' means any corporation 
                                (which is not a tax-exempt 
                                entity determined without 
                                regard to this subparagraph and 
                                paragraph (2)(E)) if 50 percent 
                                or more (in value) of the stock 
                                in such corporation is held by 
                                1 or more tax-exempt entities 
                                (other than a foreign person or 
                                entity).
                                  (II) Only 5-percent 
                                shareholders taken into account 
                                in case of publicly traded 
                                stock.--For purposes of 
                                subclause (I), in the case of a 
                                corporation the stock of which 
                                is publicly traded on an 
                                established securities market, 
                                stock held by a tax-exempt 
                                entity shall not be taken into 
                                account unless such entity 
                                holds at least 5 percent (in 
                                value) of the stock in such 
                                corporation. For purposes of 
                                this subclause, related 
                                entities (within the meaning of 
                                paragraph (4)) shall be treated 
                                as 1 entity.
                                  (III) Section 318 to apply.--
                                For purposes of this clause, a 
                                tax-exempt entity shall be 
                                treated as holding stock which 
                                it holds through application of 
                                section 318 (determined without 
                                regard to the 50-percent 
                                limitation contained in 
                                subsection (a)(2)(C) thereof).
                  (G) Regulations.--For purposes of determining 
                whether there is a qualified allocation under 
                subparagraph (B), the regulations prescribed 
                under paragraph (8) for purposes of this 
                paragraph--
                          (i) shall set forth the proper 
                        treatment for partnership guaranteed 
                        payments, and
                          (ii) may provide for the exclusion or 
                        segregation of items.
          (7) Lease.--For purposes of this subsection, the term 
        ``lease'' includes any grant of a right to use 
        property.
          (8) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry 
        out the purposes of this subsection.
  (i) Definitions and Special Rules.--For purposes of this 
section--
          (1) Class life.--Except as provided in this section, 
        the term ``class life'' means the class life (if any) 
        which would be applicable with respect to any property 
        as of January 1, 1986, under subsection (m) of section 
        167 (determined without regard to paragraph (4) and as 
        if the taxpayer had made an election under such 
        subsection). The Secretary, through an office 
        established in the Treasury, shall monitor and analyze 
        actual experience with respect to all depreciable 
        assets. The reference in this paragraph to subsection 
        (m) of section 167 shall be treated as a reference to 
        such subsection as in effect on the day before the date 
        of the enactment of the Revenue Reconciliation Act of 
        1990.
          (2) Qualified technological equipment.--
                  (A) In general.--The term ``qualified 
                technological equipment'' means--
                          (i) any computer or peripheral 
                        equipment,
                          (ii) any high technology telephone 
                        station equipment installed on the 
                        customer's premises, and
                          (iii) any high technology medical 
                        equipment.
                  (B) Computer or peripheral equipment 
                defined.--For purposes of this paragraph--
                          (i) In general.--The term ``computer 
                        or peripheral equipment'' means--
                                  (I) any computer, and
                                  (II) any related peripheral 
                                equipment.
                          (ii) Computer.--The term ``computer'' 
                        means a programmable electronically 
                        activated device which--
                                  (I) is capable of accepting 
                                information, applying 
                                prescribed processes to the 
                                information, and supplying the 
                                results of these processes with 
                                or without human intervention, 
                                and
                                  (II) consists of a central 
                                processing unit containing 
                                extensive storage, logic, 
                                arithmetic, and control 
                                capabilities.
                          (iii) Related peripheral equipment.--
                        The term ``related peripheral 
                        equipment'' means any auxiliary machine 
                        (whether on-line or off-line) which is 
                        designed to be placed under the control 
                        of the central processing unit of a 
                        computer.
                          (iv) Exceptions.--The term ``computer 
                        or peripheral equipment'' shall not 
                        include--
                                  (I) any equipment which is an 
                                integral part of other property 
                                which is not a computer,
                                  (II) typewriters, 
                                calculators, adding and 
                                accounting machines, copiers, 
                                duplicating equipment, and 
                                similar equipment, and
                                  (III) equipment of a kind 
                                used primarily for amusement or 
                                entertainment of the user.
                  (C) High technology medical equipment.--For 
                purposes of this paragraph, the term ``high 
                technology medical equipment'' means any 
                electronic, electromechanical, or computer-
                based high technology equipment used in the 
                screening, monitoring, observation, diagnosis, 
                or treatment of patients in a laboratory, 
                medical, or hospital environment.
          (3) Lease term.--
                  (A) In general.--In determining a lease 
                term--
                          (i) there shall be taken into account 
                        options to renew,
                          (ii) the term of a lease shall 
                        include the term of any service 
                        contract or similar arrangement 
                        (whether or not treated as a lease 
                        under section 7701(e))--
                                  (I) which is part of the same 
                                transaction (or series of 
                                related transactions) which 
                                includes the lease, and
                                  (II) which is with respect to 
                                the property subject to the 
                                lease or substantially similar 
                                property, and
                          (iii) 2 or more successive leases 
                        which are part of the same transaction 
                        (or a series of related transactions) 
                        with respect to the same or 
                        substantially similar property shall be 
                        treated as 1 lease.
                  (B) Special rule for fair rental options on 
                nonresidential real property or residential 
                rental property.--For purposes of clause (i) of 
                subparagraph (A), in the case of nonresidential 
                real property or residential rental property, 
                there shall not be taken into account any 
                option to renew at fair market value, 
                determined at the time of renewal.
          (4) General asset accounts.--Under regulations, a 
        taxpayer may maintain 1 or more general asset accounts 
        for any property to which this section applies. Except 
        as provided in regulations, all proceeds realized on 
        any disposition of property in a general asset account 
        shall be included in income as ordinary income.
          (5) Changes in use.--The Secretary shall, by 
        regulations, provide for the method of determining the 
        deduction allowable under section 167(a) with respect 
        to any tangible property for any taxable year (and the 
        succeeding taxable years) during which such property 
        changes status under this section but continues to be 
        held by the same person.
          (6) Treatments of additions or improvements to 
        property.--In the case of any addition to (or 
        improvement of) any property--
                  (A) any deduction under subsection (a) for 
                such addition or improvement shall be computed 
                in the same manner as the deduction for such 
                property would be computed if such property had 
                been placed in service at the same time as such 
                addition or improvement, and
                  (B) the applicable recovery period for such 
                addition or improvement shall begin on the 
                later of--
                          (i) the date on which such addition 
                        (or improvement) is placed in service, 
                        or
                          (ii) the date on which the property 
                        with respect to which such addition (or 
                        improvement) was made is placed in 
                        service.
          (7) Treatment of certain transferees.--
                  (A) In general.--In the case of any property 
                transferred in a transaction described in 
                subparagraph (B), the transferee shall be 
                treated as the transferor for purposes of 
                computing the depreciation deduction determined 
                under this section with respect to so much of 
                the basis in the hands of the transferee as 
                does not exceed the adjusted basis in the hands 
                of the transferor. In any case where this 
                section as in effect before the amendments made 
                by section 201 of the Tax Reform Act of 1986 
                applied to the property in the hands of the 
                transferor, the reference in the preceding 
                sentence to this section shall be treated as a 
                reference to this section as so in effect.
                  (B) Transactions covered.--The transactions 
                described in this subparagraph are--
                          (i) any transaction described in 
                        section 332, 351, 361, 721, or 731, and
                          (ii) any transaction between members 
                        of the same affiliated group during any 
                        taxable year for which a consolidated 
                        return is made by such group.
                Subparagraph (A) shall not apply in the case of 
                a termination of a partnership under section 
                708(b)(1)(B).
                  (C) Property reacquired by the taxpayer.--
                Under regulations, property which is disposed 
                of and then reacquired by the taxpayer shall be 
                treated for purposes of computing the deduction 
                allowable under subsection (a) as if such 
                property had not been disposed of.
          (8) Treatment of leasehold improvements.--
                  (A) In general.--In the case of any building 
                erected (or improvements made) on leased 
                property, if such building or improvement is 
                property to which this section applies, the 
                depreciation deduction shall be determined 
                under the provisions of this section.
                  (B) Treatment of lessor improvements which 
                are abandoned at termination of lease.--An 
                improvement--
                          (i) which is made by the lessor of 
                        leased property for the lessee of such 
                        property, and
                          (ii) which is irrevocably disposed of 
                        or abandoned by the lessor at the 
                        termination of the lease by such 
                        lessee,
                shall be treated for purposes of determining 
                gain or loss under this title as disposed of by 
                the lessor when so disposed of or abandoned.
                  (C) Cross reference.--For treatment of 
                qualified long-term real property constructed 
                or improved in connection with cash or rent 
                reduction from lessor to lessee, see section 
                110(b).
          (9) Normalization rules.--
                  (A) In general.--In order to use a 
                normalization method of accounting with respect 
                to any public utility property for purposes of 
                subsection (f)(2)--
                          (i) the taxpayer must, in computing 
                        its tax expense for purposes of 
                        establishing its cost of service for 
                        ratemaking purposes and reflecting 
                        operating results in its regulated 
                        books of account, use a method of 
                        depreciation with respect to such 
                        property that is the same as, and a 
                        depreciation period for such property 
                        that is no shorter than, the method and 
                        period used to compute its depreciation 
                        expense for such purposes; and
                          (ii) if the amount allowable as a 
                        deduction under this section with 
                        respect to such property (respecting 
                        all elections made by the taxpayer 
                        under this section) differs from the 
                        amount that would be allowable as a 
                        deduction under section 167 using the 
                        method (including the period, first and 
                        last year convention, and salvage 
                        value) used to compute regulated tax 
                        expense under clause (i), the taxpayer 
                        must make adjustments to a reserve to 
                        reflect the deferral of taxes resulting 
                        from such difference.
                  (B) Use of inconsistent estimates and 
                projections, etc..--
                          (i) In general.--One way in which the 
                        requirements of subparagraph (A) are 
                        not met is if the taxpayer, for 
                        ratemaking purposes, uses a procedure 
                        or adjustment which is inconsistent 
                        with the requirements of subparagraph 
                        (A).
                          (ii) Use of inconsistent estimates 
                        and projections.--The procedures and 
                        adjustments which are to be treated as 
                        inconsistent for purposes of clause (i) 
                        shall include any procedure or 
                        adjustment for ratemaking purposes 
                        which uses an estimate or projection of 
                        the taxpayer's tax expense, 
                        depreciation expense, or reserve for 
                        deferred taxes under subparagraph 
                        (A)(ii) unless such estimate or 
                        projection is also used, for ratemaking 
                        purposes, with respect to the other 2 
                        such items and with respect to the rate 
                        base.
                          (iii) Regulatory authority.--The 
                        Secretary may by regulations prescribe 
                        procedures and adjustments (in addition 
                        to those specified in clause (ii)) 
                        which are to be treated as inconsistent 
                        for purposes of clause (i).
                  (C) Public utility property which does not 
                meet normalization rules.--In the case of any 
                public utility property to which this section 
                does not apply by reason of subsection (f)(2), 
                the allowance for depreciation under section 
                167(a) shall be an amount computed using the 
                method and period referred to in subparagraph 
                (A)(i).
          (10) Public utility property.--The term ``public 
        utility property'' means property used predominantly in 
        the trade or business of the furnishing or sale of--
                  (A) electrical energy, water, or sewage 
                disposal services,
                  (B) gas or steam through a local distribution 
                system,
                  (C) telephone services, or other 
                communication services if furnished or sold by 
                the Communications Satellite Corporation for 
                purposes authorized by the Communications 
                Satellite Act of 1962 (47 U.S.C. 701), or
                  (D) transportation of gas or steam by 
                pipeline, if the rates for such furnishing or 
                sale, as the case may be, have been established 
                or approved by a State or political subdivision 
                thereof, by any agency or instrumentality of 
                the United States, or by a public service or 
                public utility commission or other similar body 
                of any State or political subdivision thereof.
          (11) Research and experimentation.--The term 
        ``research and experimentation'' has the same meaning 
        as the term research and experimental has under section 
        174.
          (12) Section 1245 and 1250 property.--The terms 
        ``section 1245 property'' and ``section 1250 property'' 
        have the meanings given such terms by sections 
        1245(a)(3) and 1250(c), respectively.
          (13) Single purpose agricultural or horticultural 
        structure.--
                  (A) In general.--The term ``single purpose 
                agricultural or horticultural structure'' 
                means--
                          (i) a single purpose livestock 
                        structure, and
                          (ii) a single purpose horticultural 
                        structure.
                  (B) Definitions.--For purposes of this 
                paragraph--
                          (i) Single purpose livestock 
                        structure.--The term ``single purpose 
                        livestock structure'' means any 
                        enclosure or structure specifically 
                        designed, constructed, and used--
                                  (I) for housing, raising, and 
                                feeding a particular type of 
                                livestock and their produce, 
                                and
                                  (II) for housing the 
                                equipment (including any 
                                replacements) necessary for the 
                                housing, raising, and feeding 
                                referred to in subclause (I).
                          (ii) Single purpose horticultural 
                        structure.--The term ``single purpose 
                        horticultural structure'' means--
                                  (I) a greenhouse specifically 
                                designed, constructed, and used 
                                for the commercial production 
                                of plants, and
                                  (II) a structure specifically 
                                designed, constructed, and used 
                                for the commercial production 
                                of mushrooms.
                          (iii) Structures which include work 
                        space.--An enclosure or structure which 
                        provides work space shall be treated as 
                        a single purpose agricultural or 
                        horticultural structure only if such 
                        work space is solely for--
                                  (I) the stocking, caring for, 
                                or collecting of livestock or 
                                plants (as the case may be) or 
                                their produce,
                                  (II) the maintenance of the 
                                enclosure or structure, and
                                  (III) the maintenance or 
                                replacement of the equipment or 
                                stock enclosed or housed 
                                therein.
                          (iv) Livestock.--The term 
                        ``livestock'' includes poultry.
          (14) Qualified rent-to-own property.--
                  (A) In general.--The term ``qualified rent-
                to-own property'' means property held by a 
                rent-to-own dealer for purposes of being 
                subject to a rent-to-own contract.
                  (B) Rent-to-own dealer.--The term ``rent-to-
                own dealer'' means a person that, in the 
                ordinary course of business, regularly enters 
                into rent-to-own contracts with customers for 
                the use of consumer property, if a substantial 
                portion of those contracts terminate and the 
                property is returned to such person before the 
                receipt of all payments required to transfer 
                ownership of the property from such person to 
                the customer.
                  (C) Consumer property.--The term ``consumer 
                property'' means tangible personal property of 
                a type generally used within the home for 
                personal use.
                  (D) Rent-to-own contract.--The term ``rent-
                to-own contract'' means any lease for the use 
                of consumer property between a rent-to-own 
                dealer and a customer who is an individual 
                which--
                          (i) is titled ``Rent-to-Own 
                        Agreement'' or ``Lease Agreement with 
                        Ownership Option,'' or uses other 
                        similar language,
                          (ii) provides for level (or 
                        decreasing where no payment is less 
                        than 40 percent of the largest 
                        payment), regular periodic payments 
                        (for a payment period which is a week 
                        or month),
                          (iii) provides that legal title to 
                        such property remains with the rent-to- 
                        own dealer until the customer makes all 
                        the payments described in clause (ii) 
                        or early purchase payments required 
                        under the contract to acquire legal 
                        title to the item of property,
                          (iv) provides a beginning date and a 
                        maximum period of time for which the 
                        contract may be in effect that does not 
                        exceed 156 weeks or 36 months from such 
                        beginning date (including renewals or 
                        options to extend),
                          (v) provides for payments within the 
                        156-week or 36-month period that, in 
                        the aggregate, generally exceed the 
                        normal retail price of the consumer 
                        property plus interest,
                          (vi) provides for payments under the 
                        contract that, in the aggregate, do not 
                        exceed $10,000 per item of consumer 
                        property,
                          (vii) provides that the customer does 
                        not have any legal obligation to make 
                        all the payments referred to in clause 
                        (ii) set forth under the contract, and 
                        that at the end of each payment period 
                        the customer may either continue to use 
                        the consumer property by making the 
                        payment for the next payment period or 
                        return such property to the rent-to-own 
                        dealer in good working order, in which 
                        case the customer does not incur any 
                        further obligations under the contract 
                        and is not entitled to a return of any 
                        payments previously made under the 
                        contract, and
                          (viii) provides that the customer has 
                        no right to sell, sublease, mortgage, 
                        pawn, pledge, encumber, or otherwise 
                        dispose of the consumer property until 
                        all the payments stated in the contract 
                        have been made.
          (15) Motorsports entertainment complex.--
                  (A) In general.--The term ``motorsports 
                entertainment complex'' means a racing track 
                facility which--
                          (i) is permanently situated on land, 
                        and
                          (ii) during the 36-month period 
                        following the first day of the month in 
                        which the asset is placed in service, 
                        hosts 1 or more racing events for 
                        automobiles (of any type), trucks, or 
                        motorcycles which are open to the 
                        public for the price of admission.
                  (B) Ancillary and support facilities.--Such 
                term shall include, if owned by the taxpayer 
                who owns the complex and provided for the 
                benefit of patrons of the complex--
                          (i) ancillary facilities and land 
                        improvements in support of the 
                        complex's activities (including parking 
                        lots, sidewalks, waterways, bridges, 
                        fences, and landscaping),
                          (ii) support facilities (including 
                        food and beverage retailing, souvenir 
                        vending, and other nonlodging 
                        accommodations), and
                          (iii) appurtenances associated with 
                        such facilities and related attractions 
                        and amusements (including ticket 
                        booths, race track surfaces, suites and 
                        hospitality facilities, grandstands and 
                        viewing structures, props, walls, 
                        facilities that support the delivery of 
                        entertainment services, other special 
                        purpose structures, facades, shop 
                        interiors, and buildings).
                  (C) Exception.--Such term shall not include 
                any transportation equipment, administrative 
                services assets, warehouses, administrative 
                buildings, hotels, or motels.
                  (D) Termination.--Such term shall not include 
                any property placed in service after December 
                31, 2014.
          (16) Alaska natural gas pipeline.--The term ``Alaska 
        natural gas pipeline'' means the natural gas pipeline 
        system located in the State of Alaska which--
                  (A) has a capacity of more than 
                500,000,000,000 Btu of natural gas per day, and
                  (B) is--
                          (i) placed in service after December 
                        31, 2013, or
                          (ii) treated as placed in service on 
                        January 1, 2014, if the taxpayer who 
                        places such system in service before 
                        January 1, 2014, elects such treatment.
        Such term includes the pipe, trunk lines, related 
        equipment, and appurtenances used to carry natural gas, 
        but does not include any gas processing plant.
          (17) Natural gas gathering line.--The term ``natural 
        gas gathering line'' means--
                  (A) the pipe, equipment, and appurtenances 
                determined to be a gathering line by the 
                Federal Energy Regulatory Commission, and
                  (B) the pipe, equipment, and appurtenances 
                used to deliver natural gas from the wellhead 
                or a commonpoint to the point at which such gas 
                first reaches--
                          (i) a gas processing plant,
                          (ii) an interconnection with a 
                        transmission pipeline for which a 
                        certificate as an interstate 
                        transmission pipeline has been issued 
                        by the Federal Energy Regulatory 
                        Commission,
                          (iii) an interconnection with an 
                        intrastate transmission pipeline, or
                          (iv) a direct interconnection with a 
                        local distribution company, a gas 
                        storage facility, or an industrial 
                        consumer.
          (18) Qualified smart electric meters.--
                  (A) In general.--The term ``qualified smart 
                electric meter'' means any smart electric meter 
                which--
                          (i) is placed in service by a 
                        taxpayer who is a supplier of electric 
                        energy or a provider of electric energy 
                        services, and
                          (ii) does not have a class life 
                        (determined without regard to 
                        subsection (e)) of less than 16 years.
                  (B) Smart electric meter.--For purposes of 
                subparagraph (A), the term ``smart electric 
                meter'' means any time-based meter and related 
                communication equipment which is capable of 
                being used by the taxpayer as part of a system 
                that--
                          (i) measures and records electricity 
                        usage data on a time-differentiated 
                        basis in at least 24 separate time 
                        segments per day,
                          (ii) provides for the exchange of 
                        information between supplier or 
                        provider and the customer's electric 
                        meter in support of time-based rates or 
                        other forms of demand response,
                          (iii) provides data to such supplier 
                        or provider so that the supplier or 
                        provider can provide energy usage 
                        information to customers 
                        electronically, and
                          (iv) provides net metering.
          (19) Qualified smart electric grid systems.--
                  (A) In general.--The term ``qualified smart 
                electric grid system'' means any smart grid 
                property which--
                          (i) is used as part of a system for 
                        electric distribution grid 
                        communications, monitoring, and 
                        management placed in service by a 
                        taxpayer who is a supplier of electric 
                        energy or a provider of electric energy 
                        services, and
                          (ii) does not have a class life 
                        (determined without regard to 
                        subsection (e)) of less than 16 years.
                  (B) Smart grid property.--For the purposes of 
                subparagraph (A), the term ``smart grid 
                property'' means electronics and related 
                equipment that is capable of--
                          (i) sensing, collecting, and 
                        monitoring data of or from all portions 
                        of a utility's electric distribution 
                        grid,
                          (ii) providing real-time, two-way 
                        communications to monitor or manage 
                        such grid, and
                          (iii) providing real time analysis of 
                        and event prediction based upon 
                        collected data that can be used to 
                        improve electric distribution system 
                        reliability, quality, and performance.
  (j) Property on Indian Reservations.--
          (1) In general.--For purposes of subsection (a), the 
        applicable recovery period for qualified Indian 
        reservation property shall be determined in accordance 
        with the table contained in paragraph (2) in lieu of 
        the table contained in subsection (c).
          (2) Applicable recovery period for Indian reservation 
        property.--For purposes of paragraph (1)--


 
------------------------------------------------------------------------
         In the case of:            The applicable recovery period is:
------------------------------------------------------------------------
3-year property                   2 years
5-year property                   3 years
7-year property                   4 years
10-year property                  6 years
15-year property                  9 years
20-year property                  12 years
Nonresidential real property      22 years.
------------------------------------------------------------------------

          (3) Deduction allowed in computing minimum tax.--For 
        purposes of determining alternative minimum taxable 
        income under section 55, the deduction under subsection 
        (a) for property to which paragraph (1) applies shall 
        be determined under this section without regard to any 
        adjustment under section 56.
          (4) Qualified Indian reservation property defined.--
        For purposes of this subsection--
                  (A) In general.--The term ``qualified Indian 
                reservation property'' means property which is 
                property described in the table in paragraph 
                (2) and which is--
                          (i) used by the taxpayer 
                        predominantly in the active conduct of 
                        a trade or business within an Indian 
                        reservation,
                          (ii) not used or located outside the 
                        Indian reservation on a regular basis,
                          (iii) not acquired (directly or 
                        indirectly) by the taxpayer from a 
                        person who is related to the taxpayer 
                        (within the meaning of section 
                        465(b)(3)(C)), and
                          (iv) not property (or any portion 
                        thereof) placed in service for purposes 
                        of conducting or housing class I, II, 
                        or III gaming (as defined in section 4 
                        of the Indian Regulatory Act (25 U.S.C. 
                        2703)).
                  (B) Exception for alternative depreciation 
                property.--The term ``qualified Indian 
                reservation property'' does not include any 
                property to which the alternative depreciation 
                system under subsection (g) applies, 
                determined--
                          (i) without regard to subsection 
                        (g)(7) (relating to election to use 
                        alternative depreciation system), and
                          (ii) after the application of section 
                        280F(b) (relating to listed property 
                        with limited business use).
                  (C) Special rule for reservation 
                infrastructure investment.--
                          (i) In general.--Subparagraph (A)(ii) 
                        shall not apply to qualified 
                        infrastructure property located outside 
                        of the Indian reservation if the 
                        purpose of such property is to connect 
                        with qualified infrastructure property 
                        located within the Indian reservation.
                          (ii) Qualified infrastructure 
                        property.--For purposes of this 
                        subparagraph, the term ``qualified 
                        infrastructure property'' means 
                        qualified Indian reservation property 
                        (determined without regard to 
                        subparagraph (A)(ii)) which--
                                  (I) benefits the tribal 
                                infrastructure,
                                  (II) is available to the 
                                general public, and
                                  (III) is placed in service in 
                                connection with the taxpayer's 
                                active conduct of a trade or 
                                business within an Indian 
                                reservation.
                        Such term includes, but is not limited 
                        to, roads, power lines, water systems, 
                        railroad spurs, and communications 
                        facilities.
          (5) Real estate rentals.--For purposes of this 
        subsection, the rental to others of real property 
        located within an Indian reservation shall be treated 
        as the active conduct of a trade or business within an 
        Indian reservation.
          (6) Indian reservation defined.--For purposes of this 
        subsection, the term ``Indian reservation'' means a 
        reservation, as defined in--
                  (A) section 3(d) of the Indian Financing Act 
                of 1974 (25 U.S.C. 1452(d)), or
                  (B) section 4(10) of the Indian Child Welfare 
                Act of 1978 (25 U.S.C. 1903(10)).
        For purposes of the preceding sentence, such section 
        3(d) shall be applied by treating the term ``former 
        Indian reservations in Oklahoma'' as including only 
        lands which are within the jurisdictional area of an 
        Oklahoma Indian tribe (as determined by the Secretary 
        of the Interior) and are recognized by such Secretary 
        as eligible for trust land status under 25 CFR Part 151 
        (as in effect on the date of the enactment of this 
        sentence).
          (7) Coordination with nonrevenue laws.--Any reference 
        in this subsection to a provision not contained in this 
        title shall be treated for purposes of this subsection 
        as a reference to such provision as in effect on the 
        date of the enactment of this paragraph.
          (8) Termination.--This subsection shall not apply to 
        property placed in service after December 31, 2014.
  (k) Special Allowance for Certain Property Acquired After 
December 31, 2007, and Before January 1, 2015.--
          (1) Additional allowance.--In the case of any 
        qualified 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 allowance equal to 50 percent of the 
                adjusted basis of the qualified property, and
                  (B) the adjusted basis of the qualified 
                property shall be reduced by the amount of such 
                deduction before computing the amount otherwise 
                allowable as a depreciation deduction under 
                this chapter for such taxable year and any 
                subsequent taxable year.
          (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, or
                                  (IV) which is qualified 
                                leasehold improvement property,
                          (ii) the original use of which 
                        commences with the taxpayer after 
                        December 31, 2007,
                          (iii) which is--
                                  (I) acquired by the taxpayer 
                                after December 31, 2007, and 
                                before January 1, 2015, but 
                                only if no written binding 
                                contract for the acquisition 
                                was in effect before January 1, 
                                2008, or
                                  (II) acquired by the taxpayer 
                                pursuant to a written binding 
                                contract which was entered into 
                                after December 31, 2007, and 
                                before January 1, 2015, and
                          (iv) which is placed in service by 
                        the taxpayer before January 1, 2015, 
                        or, in the case of property described 
                        in subparagraph (B) or (C), before 
                        January 1, 2016.
                  (B) Certain property having longer production 
                periods treated as qualified property.--
                          (i) In general.--The term ``qualified 
                        property'' includes any property if 
                        such property--
                                  (I) meets the requirements of 
                                clauses (i), (ii), (iii), and 
                                (iv) of subparagraph (A),
                                  (II) has a recovery period of 
                                at least 10 years or is 
                                transportation property,
                                  (III) is subject to section 
                                263A, and
                                  (IV) meets the requirements 
                                of clause (iii) of section 
                                263A(f)(1)(B) (determined as if 
                                such clause also applies to 
                                property which has a long 
                                useful life (within the meaning 
                                of section 263A(f))).
                          (ii) Only pre-January 1, 2015, 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, 2015.
                          (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.
                          (iv) Application of subparagraph.--
                        This subparagraph shall not apply to 
                        any property which is described in 
                        subparagraph (C).
                  (C) Certain aircraft.--The term ``qualified 
                property'' includes property--
                          (i) which meets the requirements of 
                        clauses (ii), (iii), and (iv) of 
                        subparagraph (A),
                          (ii) which is an aircraft which is 
                        not a transportation property (as 
                        defined in subparagraph (B)(iii)) other 
                        than for agricultural or firefighting 
                        purposes,
                          (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--
                                  (I) 10 percent of the cost, 
                                or
                                  (II) $100,000, and
                          (iv) which has--
                                  (I) an estimated production 
                                period exceeding 4 months, and
                                  (II) a cost exceeding 
                                $200,000.
                  (D) Exceptions.--
                          (i) 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).
                          (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)).
                          (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 apply to all property in such 
                        class placed in service during such 
                        taxable year.
                  (E) Special rules.--
                          (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, 2015.
                          (ii) Sale-leasebacks.--For purposes 
                        of clause (iii) and subparagraph 
                        (A)(ii), if property is--
                                  (I) originally placed in 
                                service after December 31, 
                                2007, 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).
                          (iii) Syndication.--For purposes of 
                        subparagraph (A)(ii), if--
                                  (I) property is originally 
                                placed in service after 
                                December 31, 2007, 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.
                          (iv) Limitations related to users and 
                        related parties.--The term ``qualified 
                        property'' shall not include any 
                        property if--
                                  (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
                                  (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.
                  (F) 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).
                  (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.
          (3) Qualified leasehold improvement property.--For 
        purposes of this subsection--
                  (A) In general.--The term ``qualified 
                leasehold improvement property'' means any 
                improvement to an interior portion of a 
                building which is nonresidential real property 
                if--
                          (i) such improvement is made under or 
                        pursuant to a lease (as defined in 
                        subsection (h)(7))--
                                  (I) by the lessee (or any 
                                sublessee) of such portion, or
                                  (II) by the lessor of such 
                                portion,
                          (ii) such portion is to be occupied 
                        exclusively by the lessee (or any 
                        sublessee) of such portion, and
                          (iii) such improvement is placed in 
                        service more than 3 years after the 
                        date the building was first placed in 
                        service.
                  (B) Certain improvements not included.--Such 
                term shall not include any improvement for 
                which the expenditure is attributable to--
                          (i) the enlargement of the building,
                          (ii) any elevator or escalator,
                          (iii) any structural component 
                        benefiting a common area, and
                          (iv) the internal structural 
                        framework of the building.
                  (C) Definitions and special rules.--For 
                purposes of this paragraph--
                          (i) Commitment to lease treated as 
                        lease.--A commitment to enter into a 
                        lease shall be treated as a lease, and 
                        the parties to such commitment shall be 
                        treated as lessor and lessee, 
                        respectively.
                          (ii) Related persons.--A lease 
                        between related persons shall not be 
                        considered a lease. For purposes of the 
                        preceding sentence, the term ``related 
                        persons'' means--
                                  (I) members of an affiliated 
                                group (as defined in section 
                                1504), and
                                  (II) persons having a 
                                relationship described in 
                                subsection (b) of section 267; 
                                except that, for purposes of 
                                this clause, the phrase ``80 
                                percent or more'' shall be 
                                substituted for the phrase 
                                ``more than 50 percent'' each 
                                place it appears in such 
                                subsection.
          (4) Election to accelerate the AMT and research 
        credits in lieu of bonus depreciation.--
                  (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--
                          (i) paragraph (1) shall not apply to 
                        any eligible qualified property placed 
                        in service by the taxpayer,
                          (ii) the applicable depreciation 
                        method used under this section with 
                        respect to such property shall be the 
                        straight line method, and
                          (iii) each of the limitations 
                        described in subparagraph (B) for any 
                        such taxable year shall be increased by 
                        the bonus depreciation amount which 
                        is--
                                  (I) determined for such 
                                taxable year under subparagraph 
                                (C), and
                                  (II) allocated to such 
                                limitation under subparagraph 
                                (E).
                  (B) Limitations to be increased.--The 
                limitations described in this subparagraph 
                are--
                          (i) the limitation imposed by section 
                        38(c), and
                          (ii) the limitation imposed by 
                        section 53(c).
                  (C) 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 
                                eligible 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 
                                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)(D), (b)(3)(D), or (g)(7) and 
                        without regard to subparagraph (A)(ii).
                          (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.
                          (iii) Maximum increase amount.--For 
                        purposes of clause (ii), the term 
                        ``maximum increase amount'' means, with 
                        respect to any corporation, the lesser 
                        of--
                                  (I) $30,000,000, or
                                  (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).
                          (iv) 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.
                  (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--
                          (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,
                          (ii) ``April 1, 2008'' shall be 
                        substituted for ``January 1, 2008'' in 
                        subparagraph (A)(iii)(I) thereof, and
                          (iii) only adjusted basis 
                        attributable to manufacture, 
                        construction, or production--
                                  (I) after March 31, 2008, and 
                                before January 1, 2010, and
                                  (II) after December 31, 2010, 
                                and before January 1, 2015, 
                                shall be taken into account 
                                under subparagraph (B)(ii) 
                                thereof.
                  (E) Allocation of bonus depreciation 
                amounts.--
                          (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.
                          (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--
                                  (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
                                  (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.
                          (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--
                                  (I) from taxable years 
                                beginning before January 1, 
                                2006, and
                                  (II) properly allocable 
                                (determined under the rules of 
                                section 38(d)) to the research 
                                credit determined under section 
                                41(a).
                          (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 net 
                        minimum tax for taxable years beginning 
                        before January 1, 2006. For purposes of 
                        the preceding sentence, credits shall 
                        be treated as allowed on a first-in, 
                        first- out basis.
                  (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).
                  (G) Other rules.--
                          (i) Election.--Any election under 
                        this paragraph (including any 
                        allocation under subparagraph (E)) may 
                        be revoked only with the consent of the 
                        Secretary.
                          (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--
                                  (I) paragraph (1) shall not 
                                apply to any eligible qualified 
                                property, and
                                  (II) the applicable 
                                depreciation method used under 
                                this section with respect to 
                                such property shall be the 
                                straight line method.
                          (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).
                  (H) Special rules for extension property.--
                          (i) 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--
                                  (I) the taxpayer may elect 
                                not to have this paragraph 
                                apply to extension property, 
                                but
                                  (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.
                          (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--
                                  (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
                                  (II) if the taxpayer makes 
                                the election under subclause 
                                (I), this paragraph shall only 
                                apply to eligible qualified 
                                property which is extension 
                                property.
                          (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).
                  (I) Special rules for round 2 extension 
                property.--
                          (i) In general.--In the case of round 
                        2 extension property, this paragraph 
                        shall be applied without regard to--
                                  (I) the limitation described 
                                in subparagraph (B)(i) thereof, 
                                and
                                  (II) the business credit 
                                increase amount under 
                                subparagraph (E)(iii) thereof.
                          (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--
                                  (I) the taxpayer may elect 
                                not to have this paragraph 
                                apply to round 2 extension 
                                property, but
                                  (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.
                          (iii) Taxpayers not previously 
                        electing acceleration.--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--
                                  (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
                                  (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.
                          (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 application 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).
                  (J) Special rules for round 3 extension 
                property.--
                          (i) In general.--In the case of round 
                        3 extension property, this paragraph 
                        shall be applied without regard to--
                                  (I) the limitation described 
                                in subparagraph (B)(i) thereof, 
                                and
                                  (II) the business credit 
                                increase amount under 
                                subparagraph (E)(iii) thereof.
                          (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--
                                  (I) the taxpayer may elect 
                                not to have this paragraph 
                                apply to round 3 extension 
                                property, but
                                  (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.
                          (iii) Taxpayers not previously 
                        electing acceleration.--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 its first 
                        taxable year ending after December 31, 
                        2010--
                                  (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
                                  (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.
                          (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 application 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).
                  (K) Special rules for round 4 extension 
                property.--
                          (i) In general.--In the case of round 
                        4 extension property, in applying this 
                        paragraph to any taxpayer--
                                  (I) the limitation described 
                                in subparagraph (B)(i) and the 
                                business credit increase amount 
                                under subparagraph (E)(iii) 
                                thereof shall not apply, and
                                  (II) the bonus depreciation 
                                amount, maximum amount, and 
                                maximum increase amount shall 
                                be computed separately from 
                                amounts computed with respect 
                                to eligible qualified property 
                                which is not round 4 extension 
                                property.
                          (ii) Election.--
                                  (I) A taxpayer who has an 
                                election in effect under this 
                                paragraph for round 3 extension 
                                property shall be treated as 
                                having an election in effect 
                                for round 4 extension property 
                                unless the taxpayer elects to 
                                not have this paragraph apply 
                                to round 4 extension property.
                                  (II) A taxpayer who does not 
                                have an election in effect 
                                under this paragraph for round 
                                3 extension property may elect 
                                to have this paragraph apply to 
                                round 4 extension property.
                          (iii) Round 4 extension property.--
                        For purposes of this subparagraph, the 
                        term `round 4 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 125(a) of the Tax Increase 
                        Prevention Act of 2014 (and the 
                        application of such extension to this 
                        paragraph pursuant to the amendment 
                        made by section 125(c) of such Act).
          (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''.
  (l) Special Allowance for Second Generation Biofuel Plant 
Property.--
          (1) Additional allowance.--In the case of any 
        qualified second generation biofuel plant 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 allowance equal to 50 percent of the 
                adjusted basis of such property, and
                  (B) the adjusted basis of such property shall 
                be reduced by the amount of such deduction 
                before computing the amount otherwise allowable 
                as a depreciation deduction under this chapter 
                for such taxable year and any subsequent 
                taxable year.
          (2) Qualified second generation biofuel plant 
        property.--The term ``qualified second generation 
        biofuel plant property'' means property of a character 
        subject to the allowance for depreciation--
                  (A) which is used in the United States solely 
                to produce second generation biofuel (as 
                defined in section 40(b)(6)(E)),
                  (B) the original use of which commences with 
                the taxpayer after the date of the enactment of 
                this subsection,
                  (C) which is acquired by the taxpayer by 
                purchase (as defined in section 179(d)) after 
                the date of the enactment of this subsection, 
                but only if no written binding contract for the 
                acquisition was in effect on or before the date 
                of the enactment of this subsection, and
                  (D) which is placed in service by the 
                taxpayer before January 1, 2015.
          (3) Exceptions.--
                  (A) Bonus depreciation property under 
                subsection (k).--Such term shall not include 
                any property to which section 168(k) applies.
                  (B) Alternative depreciation property.--Such 
                term shall not include any property described 
                in section 168(k)(2)(D)(i).
                  (C) Tax-exempt bond-financed property.--Such 
                term shall not include any property any portion 
                of which is financed with the proceeds of any 
                obligation the interest on which is exempt from 
                tax under section 103.
                  (D) Election out.--If a taxpayer makes an 
                election under this subparagraph 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 during such 
                taxable year.
          (4) Special rules.--For purposes of this subsection, 
        rules similar to the rules of subparagraph (E) of 
        section 168(k)(2) shall apply, except that such 
        subparagraph shall be applied--
                  (A) by substituting ``the date of the 
                enactment of subsection (l)'' for ``December 
                31, 2007'' each place it appears therein, and
                  (B) by substituting ``qualified second 
                generation biofuel plant property'' for 
                ``qualified property'' in clause (iv) thereof.
          (5) Allowance against alternative minimum tax.--For 
        purposes of this subsection, rules similar to the rules 
        of section 168(k)(2)(G) shall apply.
          (6) Recapture.--For purposes of this subsection, 
        rules similar to the rules under section 179(d)(10) 
        shall apply with respect to any qualified second 
        generation biofuel plant property which ceases to be 
        qualified second generation biofuel plant property.
          (7) Denial of double benefit.--Paragraph (1) shall 
        not apply to any qualified second generation biofuel 
        plant property with respect to which an election has 
        been made under section 179C (relating to election to 
        expense certain refineries).
  (m) Special Allowance for Certain Reuse and Recycling 
Property.--
          (1) In general.--In the case of any qualified reuse 
        and recycling 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 allowance equal to 50 percent of the 
                adjusted basis of the qualified reuse and 
                recycling property, and
                  (B) the adjusted basis of the qualified reuse 
                and recycling property shall be reduced by the 
                amount of such deduction before computing the 
                amount otherwise allowable as a depreciation 
                deduction under this chapter for such taxable 
                year and any subsequent taxable year.
          (2) Qualified reuse and recycling property.--For 
        purposes of this subsection--
                  (A) In general.--The term ``qualified reuse 
                and recycling property'' means any reuse and 
                recycling property--
                          (i) to which this section applies,
                          (ii) which has a useful life of at 
                        least 5 years,
                          (iii) the original use of which 
                        commences with the taxpayer after 
                        August 31, 2008, and
                          (iv) which is--
                                  (I) acquired by purchase (as 
                                defined in section 179(d)(2)) 
                                by the taxpayer after August 
                                31, 2008, but only if no 
                                written binding contract for 
                                the acquisition was in effect 
                                before September 1, 2008, or
                                  (II) acquired by the taxpayer 
                                pursuant to a written binding 
                                contract which was entered into 
                                after August 31, 2008.
                  (B) Exceptions.--
                          (i) Bonus depreciation property under 
                        subsection (k).--The term ``qualified 
                        reuse and recycling property'' shall 
                        not include any property to which 
                        subsection (k) (determined without 
                        regard to paragraph (4) thereof) 
                        applies.
                          (ii) Alternative depreciation 
                        property.--The term ``qualified reuse 
                        and recycling property'' shall not 
                        include any property to which the 
                        alternative depreciation system under 
                        subsection (g) applies, determined 
                        without regard to paragraph (7) of 
                        subsection (g) (relating to election to 
                        have system apply).
                          (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 apply to all property in such 
                        class placed in service during such 
                        taxable year.
                  (C) Special rule for self-constructed 
                property.--In the case of a taxpayer 
                manufacturing, constructing, or producing 
                property for the taxpayer's own use, the 
                requirements of clause (iv) of subparagraph (A) 
                shall be treated as met if the taxpayer begins 
                manufacturing, constructing, or producing the 
                property after August 31, 2008.
                  (D) Deduction allowed in computing minimum 
                tax.--For purposes of determining alternative 
                minimum taxable income under section 55, the 
                deduction under subsection (a) for qualified 
                reuse and recycling property shall be 
                determined under this section without regard to 
                any adjustment under section 56.
          (3) Definitions.--For purposes of this subsection--
                  (A) Reuse and recycling property.--
                          (i) In general.--The term ``reuse and 
                        recycling property'' means any 
                        machinery and equipment (not including 
                        buildings or real estate), along with 
                        all appurtenances thereto, including 
                        software necessary to operate such 
                        equipment, which is used exclusively to 
                        collect, distribute, or recycle 
                        qualified reuse and recyclable 
                        materials.
                          (ii) Exclusion.--Such term does not 
                        include rolling stock or other 
                        equipment used to transport reuse and 
                        recyclable materials.
                  (B) Qualified reuse and recyclable 
                materials.--
                          (i) In general.--The term ``qualified 
                        reuse and recyclable materials'' means 
                        scrap plastic, scrap glass, scrap 
                        textiles, scrap rubber, scrap 
                        packaging, recovered fiber, scrap 
                        ferrous and nonferrous metals, or 
                        electronic scrap generated by an 
                        individual or business.
                          (ii) Electronic scrap.--For purposes 
                        of clause (i), the term ``electronic 
                        scrap'' means--
                                  (I) any cathode ray tube, 
                                flat panel screen, or similar 
                                video display device with a 
                                screen size greater than 4 
                                inches measured diagonally, or
                                  (II) any central processing 
                                unit.
                  (C) Recycling or recycle.--The term 
                ``recycling'' or ``recycle'' means that process 
                (including sorting) by which worn or 
                superfluous materials are manufactured or 
                processed into specification grade commodities 
                that are suitable for use as a replacement or 
                substitute for virgin materials in 
                manufacturing tangible consumer and commercial 
                products, including packaging.
  (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 allowance equal to 50 percent of the 
                adjusted basis of the qualified disaster 
                assistance property, and
                  (B) the adjusted basis of the qualified 
                disaster assistance property shall be reduced 
                by the amount of such deduction before 
                computing the amount otherwise allowable as a 
                depreciation deduction under this chapter for 
                such taxable year and any subsequent taxable 
                year.
          (2) Qualified disaster assistance property.--For 
        purposes of this subsection--
                  (A) In general.--The term ``qualified 
                disaster assistance property'' means any 
                property--
                          (i)(I) which is described in 
                        subsection (k)(2)(A)(i), or
                                  (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 
                                respect 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 
                                damaged, or replaces property 
                                destroyed or condemned, as a 
                                result of such federally 
                                declared disaster, except that, 
                                for purposes of this clause, 
                                property shall be treated as 
                                replacing property destroyed or 
                                condemned if, as part of an 
                                integrated plan, such property 
                                replaces property which is 
                                included in a continuous area 
                                which includes real property 
                                destroyed or condemned, and
                                  (II) is similar in nature to, 
                                and located in the same county 
                                as, the property being 
                                rehabilitated or replaced,
                          (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 contract 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 nonresidential real 
                        property and residential rental 
                        property).
                  (B) Exceptions.--
                          (i) Other bonus depreciation 
                        property.--The term ``qualified 
                        disaster assistance property'' shall 
                        not include--
                                  (I) any property to which 
                                subsection (k) (determined 
                                without regard to paragraph 
                                (4)), (l), or (m) applies,
                                  (II) any property to which 
                                section 1400N(d) applies, and
                                  (III) any property described 
                                in section 1400N(p)(3).
                          (ii) Alternative depreciation 
                        property.--The term ``qualified 
                        disaster assistance property'' shall 
                        not include any property to which the 
                        alternative depreciation system under 
                        subsection (g) applies, determined 
                        without regard to paragraph (7) of 
                        subsection (g) (relating to election to 
                        have system apply).
                          (iii) Tax-exempt bond financed 
                        property.--Such term shall not include 
                        any property any portion of which is 
                        financed with the proceeds of any 
                        obligation the interest on which is 
                        exempt from tax under section 103.
                          (iv) Qualified revitalization 
                        buildings.--Such term shall not include 
                        any qualified revitalization building 
                        with respect to which the taxpayer has 
                        elected the application of paragraph 
                        (1) or (2) of section 1400I(a).
                          (v) 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 apply to all property in such 
                        class placed in service during such 
                        taxable year.
                  (C) Special rules.--For purposes of this 
                subsection, rules similar to the rules of 
                subparagraph (E) of subsection (k)(2) shall 
                apply, except that such subparagraph shall be 
                applied--
                          (i) by substituting ``the applicable 
                        disaster date'' for ``December 31, 
                        2007'' each place it appears therein,
                          (ii) without regard to ``and before 
                        January 1, 2015'' in clause (i) 
                        thereof, and
                          (iii) by substituting ``qualified 
                        disaster assistance property'' for 
                        ``qualified property'' in clause (iv) 
                        thereof.
                  (D) Allowance against alternative minimum 
                tax.--For purposes of this subsection, rules 
                similar to the rules of subsection (k)(2)(G) 
                shall apply.
          (3) Other definitions.--For purposes of this 
        subsection--
                  (A) Applicable disaster date.--The term 
                ``applicable disaster date'' means, with 
                respect to any federally declared disaster, the 
                date on which such federally declared disaster 
                occurs.
                  (B) Federally declared disaster.--The term 
                ``federally declared disaster'' has the meaning 
                given such term under section 165(h)(3)(C)(i).
                  (C) Disaster area.--The term ``disaster 
                area'' has the meaning given such term under 
                section 165(h)(3)(C)(ii).
                  (D) Eligible taxpayer.--The term ``eligible 
                taxpayer'' means a taxpayer who has suffered an 
                economic loss attributable to a federally 
                declared disaster.
          (4) Recapture.--For purposes of this subsection, 
        rules similar to the rules under section 179(d)(10) 
        shall apply with respect to any qualified disaster 
        assistance property which ceases to be qualified 
        disaster assistance property.

           *       *       *       *       *       *       *


PART IX--ITEMS NOT DEDUCTIBLE

           *       *       *       *       *       *       *



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

  (a) Nondeductibility of Certain Direct and Indirect Costs.--
          (1) In general.--In the case of any property to which 
        this section applies, any costs described in paragraph 
        (2)--
                  (A) in the case of property which is 
                inventory in the hands of the taxpayer, shall 
                be included in inventory costs, and
                  (B) in the case of any other property, shall 
                be capitalized.
          (2) Allocable costs.--The costs described in this 
        paragraph with respect to any property are--
                  (A) the direct costs of such property, and
                  (B) such property's proper share of those 
                indirect costs (including taxes) part or all of 
                which are allocable to such property.
        Any cost which (but for this subsection) could not be 
        taken into account in computing taxable income for any 
        taxable year shall not be treated as a cost described 
        in this paragraph.
  (b) Property to Which Section Applies.--Except as otherwise 
provided in this section, this section shall apply to--
          (1) Property produced by taxpayer.--Real or tangible 
        personal property produced by the taxpayer.
          (2) Property acquired for resale.--
                  (A) In general.--Real or personal property 
                described in section 1221(a)(1) which is 
                acquired by the taxpayer for resale.
                  (B) Exception for taxpayer with gross 
                receipts of $10,000,000 or less.--Subparagraph 
                (A) shall not apply to any personal property 
                acquired during any taxable year by the 
                taxpayer for resale if the average annual gross 
                receipts of the taxpayer (or any predecessor) 
                for the 3-taxable year period ending with the 
                taxable year preceding such taxable year do not 
                exceed $10,000,000.
                  (C) Aggregation rules, etc..--For purposes of 
                subparagraph (B), rules similar to the rules of 
                paragraphs (2) and (3) of section 448(c) shall 
                apply.
        For purposes of paragraph (1), the term ``tangible 
        personal property'' shall include a film, sound 
        recording, video tape, book, or similar property.
  (c) General Exceptions.--
          (1) Personal use property.--This section shall not 
        apply to any property produced by the taxpayer for use 
        by the taxpayer other than in a trade or business or an 
        activity conducted for profit.
          (2) Research and experimental expenditures.--This 
        section shall not apply to any amount allowable as a 
        deduction under section 174.
          (3) Certain development and other costs of oil and 
        gas wells or other mineral property.--This section 
        shall not apply to any cost allowable as a deduction 
        under section 167(h), 179B, 263(c), 263(i), 291(b)(2), 
        616, or 617.
          (4) Coordination with long-term contract rules.--This 
        section shall not apply to any property produced by the 
        taxpayer pursuant to a long-term contract.
          (5) Timber and certain ornamental trees.--This 
        section shall not apply to--
                  (A) trees raised, harvested, or grown by the 
                taxpayer other than trees described in clause 
                (ii) of subsection (e)(4)(B) (after application 
                of the last sentence thereof), and
                  (B) any real property underlying such trees.
          (6) Coordination with section 59(e).--Paragraphs (2) 
        and (3) shall apply to any amount allowable as a 
        deduction under section 59(e) for qualified 
        expenditures described in subparagraphs (B), (C), (D), 
        and (E) of paragraph (2) thereof.
  (d) Exception for Farming Businesses.--
          (1) Section not to apply to certain property.--
                  (A) In general.--This section shall not apply 
                to any of the following which is produced by 
                the taxpayer in a farming business:
                          (i) Any animal.
                          (ii) Any plant which has a 
                        preproductive period of 2 years or 
                        less.
                  (B) Exception for taxpayers required to use 
                accrual method.--Subparagraph (A) shall not 
                apply to any corporation, partnership, or tax 
                shelter required to use an accrual method of 
                accounting under section 447 or 448(a)(3).
          (2) Treatment of certain plants lost by reason of 
        casualty.--
                  (A) In general.--If plants bearing an edible 
                crop for human consumption were lost or damaged 
                (while in the hands of the taxpayer) by reason 
                of freezing temperatures, disease, drought, 
                pests, or casualty, this section shall not 
                apply to any costs of the taxpayer of 
                replanting plants bearing the same type of crop 
                (whether on the same parcel of land on which 
                such lost or damaged plants were located or any 
                other parcel of land of the same acreage in the 
                United States).
                  (B) Special rule for person with minority 
                interest who materially participates.--
                Subparagraph (A) shall apply to amounts paid or 
                incurred by a person (other than the taxpayer 
                described in subparagraph (A)) if--
                          (i) the taxpayer described in 
                        subparagraph (A) has an equity interest 
                        of more than 50 percent in the plants 
                        described in subparagraph (A) at all 
                        times during the taxable year in which 
                        such amounts were paid or incurred, and
                          (ii) such other person holds any part 
                        of the remaining equity interest and 
                        materially participates in the 
                        planting, maintenance, cultivation, or 
                        development of such the plants 
                        described in subparagraph (A) during 
                        the taxable year in which such amounts 
                        were paid or incurred.
                The determination of whether an individual 
                materially participates in any activity shall 
                be made in a manner similar to the manner in 
                which such determination is made under section 
                2032A(e)(6).
          (3) Election to have this section not apply.--
                  (A) In general.--If a taxpayer makes an 
                election under this paragraph, this section 
                shall not apply to any plant produced in any 
                farming business carried on by such taxpayer.
                  (B) Certain persons not eligible.--No 
                election may be made under this paragraph by a 
                corporation, partnership, or tax shelter, if 
                such corporation, partnership, or tax shelter 
                is required to use an accrual method of 
                accounting under section 447 or 448(a)(3).
                  (C) Special rule for citrus and almond 
                growers.--An election under this paragraph 
                shall not apply with respect to any item which 
                is attributable to the planting, cultivation, 
                maintenance, or development of any citrus or 
                almond grove (or part thereof) and which is 
                incurred before the close of the 4th taxable 
                year beginning with the taxable year in which 
                the trees were planted. For purposes of the 
                preceding sentence, the portion of a citrus or 
                almond grove planted in 1 taxable year shall be 
                treated separately from the portion of such 
                grove planted in another taxable year.
                  (D) Election.--Unless the Secretary otherwise 
                consents, an election under this paragraph may 
                be made only for the taxpayer's 1st taxable 
                year which begins after December 31, 1986, and 
                during which the taxpayer engages in a farming 
                business. Any such election, once made, may be 
                revoked only with the consent of the Secretary.
  (e) Definitions and special rules for purposes of subsection 
(d)
          (1) Recapture of expensed amounts on disposition.--
                  (A) In general.--In the case of any plant 
                with respect to which amounts would have been 
                capitalized under subsection (a) but for an 
                election under subsection (d)(3)--
                          (i) such plant (if not otherwise 
                        section 1245 property) shall be treated 
                        as section 1245 property, and
                          (ii) for purposes of section 1245, 
                        the recapture amount shall be treated 
                        as a deduction allowed for depreciation 
                        with respect to such property.
                  (B) Recapture amount.--For purposes of 
                subparagraph (A), the term ``recapture amount'' 
                means any amount allowable as a deduction to 
                the taxpayer which, but for an election under 
                subsection (d)(3), would have been capitalized 
                with respect to the plant.
          (2) Effects of election on depreciation.--
                  (A) In general.--If the taxpayer (or any 
                related person) makes an election under 
                subsection (d)(3), the provisions of section 
                168(g)(2) (relating to alternative 
                depreciation) shall apply to all property of 
                the taxpayer used predominantly in the farming 
                business and placed in service in any taxable 
                year during which any such election is in 
                effect.
                  (B) Related person.--For purposes of 
                subparagraph (A), the term ``related person'' 
                means--
                          (i) the taxpayer and members of the 
                        taxpayer's family,
                          (ii) any corporation (including an S 
                        corporation) if 50 percent or more (in 
                        value) of the stock of such corporation 
                        is owned (directly or through the 
                        application of section 318) by the 
                        taxpayer or members of the taxpayer's 
                        family,
                          (iii) a corporation and any other 
                        corporation which is a member of the 
                        same controlled group described in 
                        section 1563(a)(1), and
                          (iv) any partnership if 50 percent or 
                        more (in value) of the interests in 
                        such partnership is owned directly or 
                        indirectly by the taxpayer or members 
                        of the taxpayer's family.
                  (C) Members of family.--For purposes of this 
                paragraph, the term ``family'' means the 
                taxpayer, the spouse of the taxpayer, and any 
                of their children who have not attained age 18 
                before the close of the taxable year.
          (3) Preproductive period.--
                  (A) In general.--For purposes of this 
                section, the term ``preproductive period'' 
                means--
                          (i) in the case of a plant which will 
                        have more than 1 crop or yield, the 
                        period before the 1st marketable crop 
                        or yield from such plant, or
                          (ii) in the case of any other plant, 
                        the period before such plant is 
                        reasonably expected to be disposed of.
                For purposes of this subparagraph, use by the 
                taxpayer in a farming business of any supply 
                produced in such business shall be treated as a 
                disposition.
                  (B) Rule for determining period.--In the case 
                of a plant grown in commercial quantities in 
                the United States, the preproductive period for 
                such plant if grown in the United States shall 
                be based on the nationwide weighted average 
                preproductive period for such plant.
          (4) Farming business.--For purposes of this section--
                  (A) In general.--The term ``farming 
                business'' means the trade or business of 
                farming.
                  (B) Certain trades and businesses included.--
                The term ``farming business'' shall include the 
                trade or business of--
                          (i) operating a nursery or sod farm, 
                        or
                          (ii) the raising or harvesting of 
                        trees bearing fruit, nuts, or other 
                        crops, or ornamental trees.
                For purposes of clause (ii), an evergreen tree 
                which is more than 6 years old at the time 
                severed from the roots shall not be treated as 
                an ornamental tree.
          (5) Certain inventory valuation methods permitted.--
        The Secretary shall by regulations permit the taxpayer 
        to use reasonable inventory valuation methods to 
        compute the amount required to be capitalized under 
        subsection (a) in the case of any plant.
  (f) Special Rules for Allocation of Interest to Property 
Produced by the Taxpayer.--
          (1) Interest capitalized only in certain cases.--
        Subsection (a) shall only apply to interest costs which 
        are--
                  (A) paid or incurred during the production 
                period, and
                  (B) allocable to property which is described 
                in subsection (b)(1) and which has--
                          (i) a long useful life,
                          (ii) an estimated production period 
                        exceeding 2 years, or
                          (iii) an estimated production period 
                        exceeding 1 year and a cost exceeding 
                        $1,000,000.
          (2) Allocation rules.--
                  (A) In general.--In determining the amount of 
                interest required to be capitalized under 
                subsection (a) with respect to any property--
                          (i) interest on any indebtedness 
                        directly attributable to production 
                        expenditures with respect to such 
                        property shall be assigned to such 
                        property, and
                          (ii) interest on any other 
                        indebtedness shall be assigned to such 
                        property to the extent that the 
                        taxpayer's interest costs could have 
                        been reduced if production expenditures 
                        (not attributable to indebtedness 
                        described in clause (i)) had not been 
                        incurred.
                  (B) Exception for qualified residence 
                interest.--Subparagraph (A) shall not apply to 
                any qualified residence interest (within the 
                meaning of section 163(h)).
                  (C) Special rule for flow-through entities.--
                Except as provided in regulations, in the case 
                of any flow-through entity, this paragraph 
                shall be applied first at the entity level and 
                then at the beneficiary level.
          (3) Interest relating to property used to produce 
        property.--This subsection shall apply to any interest 
        on indebtedness allocable (as determined under 
        paragraph (2)) to property used to produce property to 
        which this subsection applies to the extent such 
        interest is allocable (as so determined) to the 
        produced property.
          (4) Definitions.--For purposes of this subsection--
                  (A) Long useful life.--Property has a long 
                useful life if such property is--
                          (i) real property, or
                          (ii) property with a class life of 20 
                        years or more (as determined under 
                        section 168).
                  (B) Production period.--The term ``production 
                period'' means, when used with respect to any 
                property, the period--
                          (i) beginning on the date on which 
                        production of the property begins, and
                          (ii) ending on the date on which the 
                        property is ready to be placed in 
                        service or is ready to be held for 
                        sale.
                  (C) Production expenditures.--The term 
                ``production expenditures'' means the costs 
                (whether or not incurred during the production 
                period) required to be capitalized under 
                subsection (a) with respect to the property.
  (g) Production.--For purposes of this section--
          (1) In general.--The term ``produce'' includes 
        construct, build, install, manufacture, develop, or 
        improve.
          (2) Treatment of property produced under contract for 
        the taxpayer.--The taxpayer shall be treated as 
        producing any property produced for the taxpayer under 
        a contract with the taxpayer; except that only costs 
        paid or incurred by the taxpayer (whether under such 
        contract or otherwise) shall be taken into account in 
        applying subsection (a) to the taxpayer.
  (h) Exemption for Free Lance Authors, Photographers, and 
Artists.--
          (1) In general.--Nothing in this section shall 
        require the capitalization of any qualified creative 
        expense.
          (2) Qualified creative expense.--For purposes of this 
        subsection, the term ``qualified creative expense'' 
        means any expense--
                  (A) which is paid or incurred by an 
                individual in the trade or business of such 
                individual (other than as an employee) of being 
                a writer, photographer, or artist, and
                  (B) which, without regard to this section, 
                would be allowable as a deduction for the 
                taxable year.
        Such term does not include any expense related to 
        printing, photographic plates, motion picture films, 
        video tapes, or similar items.
          (3) Definitions.--For purposes of this subsection--
                  (A) Writer.--The term ``writer'' means any 
                individual if the personal efforts of such 
                individual create (or may reasonably be 
                expected to create) a literary manuscript, 
                musical composition (including any accompanying 
                words), or dance score.
                  (B) Photographer.--The term ``photographer'' 
                means any individual if the personal efforts of 
                such individual create (or may reasonably be 
                expected to create) a photograph or 
                photographic negative or transparency.
                  (C) Artist.--
                          (i) In general.--The term ``artist'' 
                        means any individual if the personal 
                        efforts of such individual create (or 
                        may reasonably be expected to create) a 
                        picture, painting, sculpture, statue, 
                        etching, drawing, cartoon, graphic 
                        design, or original print edition.
                          (ii) Criteria.--In determining 
                        whether any expense is paid or incurred 
                        in the trade or business of being an 
                        artist, the following criteria shall be 
                        taken into account:
                                  (I) The originality and 
                                uniqueness of the item created 
                                (or to be created).
                                  (II) The predominance of 
                                aesthetic value over 
                                utilitarian value of the item 
                                created (or to be created).
                  (D) Treatment of certain corporations.--
                          (i) In general.--If--
                                  (I) substantially all of the 
                                stock of a corporation is owned 
                                by a qualified employee-owner 
                                and members of his family (as 
                                defined in section 267(c)(4)), 
                                and
                                  (II) the principal activity 
                                of such corporation is 
                                performance of personal 
                                services directly related to 
                                the activities of the qualified 
                                employee-owner and such 
                                services are substantially 
                                performed by the qualified 
                                employee-owner,
                        this subsection shall apply to any 
                        expense of such corporation which 
                        directly relates to the activities of 
                        such employee-owner in the same manner 
                        as if such expense were incurred by 
                        such employee-owner.
                          (ii) Qualified employee-owner.--For 
                        purposes of this subparagraph, the term 
                        ``qualified employee-owner'' means any 
                        individual who is an employee-owner of 
                        the corporation (as defined in section 
                        269A(b)(2)) and who is a writer, 
                        photographer, or artist.
  (i) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including--
          (1) regulations to prevent the use of related 
        parties, pass-thru entities, or intermediaries to avoid 
        the application of this section, and
          (2) regulations providing for simplified procedures 
        for the application of this section in the case of 
        property described in subsection (b)(2).

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Subchapter E--Accounting Periods and Methods of Accounting

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PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *



Subpart B--Taxable Year for Which Items of Gross Income Included

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

  (a) Requirement That Percentage of Completion Method be 
Used.--In the case of any long-term contract, the taxable 
income from such contract shall be determined under the 
percentage of completion method (as modified by subsection 
(b)).
  (b) Percentage of Completion Method.--
          (1) Requirements of percentage of completion 
        method.--Except as provided in paragraph (3), in the 
        case of any long-term contract with respect to which 
        the percentage of completion method is used--
                  (A) the percentage of completion shall be 
                determined by comparing costs allocated to the 
                contract under subsection (c) and incurred 
                before the close of the taxable year with the 
                estimated total contract costs, and
                  (B) upon completion of the contract (or, with 
                respect to any amount properly taken into 
                account after completion of the contract, when 
                such amount is so properly taken into account), 
                the taxpayer shall pay (or shall be entitled to 
                receive) interest computed under the look-back 
                method of paragraph (2).
        In the case of any long-term contract with respect to 
        which the percentage of completion method is used, 
        except for purposes of applying the look-back method of 
        paragraph (2), any income under the contract (to the 
        extent not previously includible in gross income) shall 
        be included in gross income for the taxable year 
        following the taxable year in which the contract was 
        completed. For purposes of subtitle F (other than 
        sections 6654 and 6655), any interest required to be 
        paid by the taxpayer under subparagraph (B) shall be 
        treated as an increase in the tax imposed by this 
        chapter for the taxable year in which the contract is 
        completed (or, in the case of interest payable with 
        respect to any amount properly taken into account after 
        completion of the contract, for the taxable year in 
        which the amount is so properly taken into account).
          (2) Look-back method.--The interest computed under 
        the look-back method of this paragraph shall be 
        determined by--
                  (A) first allocating income under the 
                contract among taxable years before the year in 
                which the contract is completed on the basis of 
                the actual contract price and costs instead of 
                the estimated contract price and costs,
                  (B) second, determining (solely for purposes 
                of computing such interest) the overpayment or 
                underpayment of tax for each taxable year 
                referred to in subparagraph (A) which would 
                result solely from the application of 
                subparagraph (A), and
                  (C) then using the adjusted overpayment rate 
                (as defined in paragraph (7)), compounded 
                daily, on the overpayment or underpayment 
                determined under subparagraph (B).
        For purposes of the preceding sentence, any amount 
        properly taken into account after completion of the 
        contract shall be taken into account by discounting 
        (using the Federal mid-term rate determined under 
        section 1274(d) as of the time such amount was properly 
        taken into account) such amount to its value as of the 
        completion of the contract. The taxpayer may elect with 
        respect to any contract to have the preceding sentence 
        not apply to such contract.
          (3) Special rules.--
                  (A) Simplified method of cost allocation.--In 
                the case of any long-term contract, the 
                Secretary may prescribe a simplified procedure 
                for allocation of costs to such contract in 
                lieu of the method of allocation under 
                subsection (c).
                  (B) Look-back method not to apply to certain 
                contracts.--Paragraph (1)(B) shall not apply to 
                any contract--
                          (i) the gross price of which (as of 
                        the completion of the contract) does 
                        not exceed the lesser of--
                                  (I) $1,000,000, or
                                  (II) 1 percent of the average 
                                annual gross receipts of the 
                                taxpayer for the 3 taxable 
                                years preceding the taxable 
                                year in which the contract was 
                                completed, and
                          (ii) which is completed within 2 
                        years of the contract commencement 
                        date.
                For purposes of this subparagraph, rules 
                similar to the rules of subsections (e)(2) and 
                (f)(3) shall apply.
          (4) Simplified look-back method for pass-thru 
        entities.--
                  (A) In general.--In the case of a pass-thru 
                entity--
                          (i) the look-back method of paragraph 
                        (2) shall be applied at the entity 
                        level,
                          (ii) in determining overpayments and 
                        underpayments for purposes of applying 
                        paragraph (2)(B)--
                                  (I) any increase in the 
                                income under the contract for 
                                any taxable year by reason of 
                                the allocation under paragraph 
                                (2)(A) shall be treated as 
                                giving rise to an underpayment 
                                determined by applying the 
                                highest rate for such year to 
                                such increase, and
                                  (II) any decrease in such 
                                income for any taxable year by 
                                reason of such allocation shall 
                                be treated as giving rise to an 
                                overpayment determined by 
                                applying the highest rate for 
                                such year to such decrease, and
                          (iii) any interest required to be 
                        paid by the taxpayer under paragraph 
                        (2) shall be paid by such entity (and 
                        any interest entitled to be received by 
                        the taxpayer under paragraph (2) shall 
                        be paid to such entity).
                  (B) Exceptions.--
                          (i) Closely held pass-thru 
                        entities.--This paragraph shall not 
                        apply to any closely held pass-thru 
                        entity.
                          (ii) Foreign contracts.--This 
                        paragraph shall not apply to any 
                        contract unless substantially all of 
                        the income from such contract is from 
                        sources in the United States.
                  (C) Other definitions.--For purposes of this 
                paragraph--
                          (i) Highest rate.--The term ``highest 
                        rate'' means--
                                  (I) the highest rate of tax 
                                specified in section 11, or
                                  (II) if at all times during 
                                the year involved more than 50 
                                percent of the interests in the 
                                entity are held by individuals 
                                directly or through 1 or more 
                                other pass-thru entities, the 
                                highest rate of tax specified 
                                in section 1.
                          (ii) Pass-thru entity.--The term 
                        ``pass-thru entity'' means any--
                                  (I) partnership,
                                  (II) S corporation, or
                                  (III) trust.
                          (iii) Closely held pass-thru 
                        entity.--The term ``closely held pass-
                        thru entity'' means any pass-thru 
                        entity if, at any time during any 
                        taxable year for which there is income 
                        under the contract, 50 percent or more 
                        (by value) of the beneficial interests 
                        in such entity are held (directly or 
                        indirectly) by or for 5 or fewer 
                        persons. For purposes of the preceding 
                        sentence, rules similar to the 
                        constructive ownership rules of section 
                        1563(e) shall apply.
          (5) Election to use 10-percent method.--
                  (A) General rule.--In the case of any long-
                term contract with respect to which an election 
                under this paragraph is in effect, the 10-
                percent method shall apply in determining the 
                taxable income from such contract.
                  (B) 10-percent method.--For purposes of this 
                paragraph--
                          (i) In general.--The 10-percent 
                        method is the percentage of completion 
                        method, modified so that any item which 
                        would otherwise be taken into account 
                        in computing taxable income with 
                        respect to a contract for any taxable 
                        year before the 10-percent year is 
                        taken into account in the 10-percent 
                        year.
                          (ii) 10-percent year.--The term ``10-
                        percent year'' means the 1st taxable 
                        year as of the close of which at least 
                        10 percent of the estimated total 
                        contract costs have been incurred.
                  (C) Election.--An election under this 
                paragraph shall apply to all long-term 
                contracts of the taxpayer which are entered 
                into during the taxable year in which the 
                election is made or any subsequent taxable 
                year.
                  (D) Coordination with other provisions.--
                          (i) Simplified method of cost 
                        allocation.--This paragraph shall not 
                        apply to any taxpayer which uses a 
                        simplified procedure for allocation of 
                        costs under paragraph (3)(A).
                          (ii) Look-back method.--The 10-
                        percent method shall be taken into 
                        account for purposes of applying the 
                        look-back method of paragraph (2) to 
                        any taxpayer making an election under 
                        this paragraph.
          (6) Election to have look-back method not apply in de 
        minimis cases.--
                  (A) Amounts taken into account after 
                completion of contract.--Paragraph (1)(B) shall 
                not apply with respect to any taxable year 
                (beginning after the taxable year in which the 
                contract is completed) if--
                          (i) the cumulative taxable income (or 
                        loss) under the contract as of the 
                        close of such taxable year, is within
                          (ii) 10 percent of the cumulative 
                        look-back taxable income (or loss) 
                        under the contract as of the close of 
                        the most recent taxable year to which 
                        paragraph (1)(B) applied (or would have 
                        applied but for subparagraph (B)).
                  (B) De minimis discrepancies.--Paragraph 
                (1)(B) shall not apply in any case to which it 
                would otherwise apply if--
                          (i) the cumulative taxable income (or 
                        loss) under the contract as of the 
                        close of each prior contract year, is 
                        within
                          (ii) 10 percent of the cumulative 
                        look-back income (or loss) under the 
                        contract as of the close of such prior 
                        contract year.
                  (C) Definitions.--For purposes of this 
                paragraph--
                          (i) Contract year.--The term 
                        ``contract year'' means any taxable 
                        year for which income is taken into 
                        account under the contract.
                          (ii) Look-back income or loss.--The 
                        look-back income (or loss) is the 
                        amount which would be the taxable 
                        income (or loss) under the contract if 
                        the allocation method set forth in 
                        paragraph (2)(A) were used in 
                        determining taxable income.
                          (iii) Discounting not applicable.--
                        The amounts taken into account after 
                        the completion of the contract shall be 
                        determined without regard to any 
                        discounting under the 2nd sentence of 
                        paragraph (2).
                  (D) Contracts to which paragraph applies.--
                This paragraph shall only apply if the taxpayer 
                makes an election under this subparagraph. 
                Unless revoked with the consent of the 
                Secretary, such an election shall apply to all 
                long-term contracts completed during the 
                taxable year for which election is made or 
                during any subsequent taxable year.
          (7) Adjusted overpayment rate.--
                  (A) In general.--The adjusted overpayment 
                rate for any interest accrual period is the 
                overpayment rate in effect under section 6621 
                for the calendar quarter in which such interest 
                accrual period begins.
                  (B) Interest accrual period.--For purposes of 
                subparagraph (A), the term ``interest accrual 
                period'' means the period--
                          (i) beginning on the day after the 
                        return due date for any taxable year of 
                        the taxpayer, and
                          (ii) ending on the return due date 
                        for the following taxable year.
                For purposes of the preceding sentence, the 
                term ``return due date'' means the date 
                prescribed for filing the return of the tax 
                imposed by this chapter (determined without 
                regard to extensions).
  (c) Allocation of Costs to Contract.--
          (1) Direct and certain indirect costs.--In the case 
        of a long-term contract, all costs (including research 
        and experimental costs) which directly benefit, or are 
        incurred by reason of, the long-term contract 
        activities of the taxpayer shall be allocated to such 
        contract in the same manner as costs are allocated to 
        extended period long-term contracts under section 451 
        and the regulations thereunder.
          (2) Costs identified under cost-plus and certain 
        Federal contracts.--In the case of a cost-plus long-
        term contract or a Federal long-term contract, any cost 
        not allocated to such contract under paragraph (1) 
        shall be allocated to such contract if such cost is 
        identified by the taxpayer (or a related person), 
        pursuant to the contract or Federal, State, or local 
        law or regulation, as being attributable to such 
        contract.
          (3) Allocation of production period interest to 
        contract.--
                  (A) In general.--Except as provided in 
                subparagraphs (B) and (C), in the case of a 
                long-term contract, interest costs shall be 
                allocated to the contract in the same manner as 
                interest costs are allocated to property 
                produced by the taxpayer under section 263A(f).
                  (B) Production period.--In applying section 
                263A(f) for purposes of subparagraph (A), the 
                production period shall be the period--
                          (i) beginning on the later of--
                                  (I) the contract commencement 
                                date, or
                                  (II) in the case of a 
                                taxpayer who uses an accrual 
                                method with respect to long-
                                term contracts, the date by 
                                which at least 5 percent of the 
                                total estimated costs 
                                (including design and planning 
                                costs) under the contract have 
                                been incurred, and
                          (ii) ending on the contract 
                        completion date.
                  (C) Application of de minimis rule.--In 
                applying section 263A(f) for purposes of 
                subparagraph (A), paragraph (1)(B)(iii) of such 
                section shall be applied on a contract-by-
                contract basis; except that, in the case of a 
                taxpayer described in subparagraph (B)(i)(II) 
                of this paragraph, paragraph (1)(B)(iii) of 
                section 263A(f) shall be applied on a property-
                by-property basis.
          (4) Certain costs not included.--This subsection 
        shall not apply to any--
                  (A) independent research and development 
                expenses,
                  (B) expenses for unsuccessful bids and 
                proposals, and
                  (C) marketing, selling, and advertising 
                expenses.
          (5) Independent research and development expenses.--
        For purposes of paragraph (4), the term ``independent 
        research and development expenses'' means any expenses 
        incurred in the performance of research or development, 
        except that such term shall not include--
                  (A) any expenses which are directly 
                attributable to a long-term contract in 
                existence when such expenses are incurred, or
                  (B) any expenses under an agreement to 
                perform research or development.
          (6) Special rule for allocation of bonus depreciation 
        with respect to certain property.--
                  (A) In general.--Solely for purposes of 
                determining the percentage of completion under 
                subsection (b)(1)(A), the cost of qualified 
                property shall be taken into account as a cost 
                allocated to the contract as if subsection (k) 
                of section 168 had not been enacted.
                  (B) Qualified property.--For purposes of this 
                paragraph, the term ``qualified property'' 
                means property described in section 168(k)(2) 
                which--
                          (i) has a recovery period of 7 years 
                        or less, and
                          (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, 2015 
                        (January 1, 2016, in the case of 
                        property described in section 
                        168(k)(2)(B)).
  (d) Federal Long-Term Contract.--For purposes of this 
section--
          (1) In general.--The term ``Federal long-term 
        contract'' means any long-term contract--
                  (A) to which the United States (or any agency 
                or instrumentality thereof) is a party, or
                  (B) which is a subcontract under a contract 
                described in subparagraph (A).
          (2) Special rules for certain taxable entities.--For 
        purposes of paragraph (1), the rules of section 
        168(h)(2)(D) (relating to certain taxable entities not 
        treated as instrumentalities) shall apply.
  (e) Exception for Certain Construction Contracts.--
          (1) In general.--Subsections (a), (b), and (c)(1) and 
        (2) shall not apply to--
                  (A) any home construction contract, or
                  (B) any other construction contract entered 
                into by a taxpayer--
                          (i) who estimates (at the time such 
                        contract is entered into) that such 
                        contract will be completed within the 
                        2-year period beginning on the contract 
                        commencement date of such contract, and
                          (ii) whose average annual gross 
                        receipts for the 3 taxable years 
                        preceding the taxable year in which 
                        such contract is entered into do not 
                        exceed $10,000,000.
        In the case of a home construction contract with 
        respect to which the requirements of clauses (i) and 
        (ii) of subparagraph (B) are not met, section 263A 
        shall apply notwithstanding subsection (c)(4) thereof.
          (2) Determination of taxpayer's gross receipts.--For 
        purposes of paragraph (1), the gross receipts of--
                  (A) all trades or businesses (whether or not 
                incorporated) which are under common control 
                with the taxpayer (within the meaning of 
                section 52(b)),
                  (B) all members of any controlled group of 
                corporations of which the taxpayer is a member, 
                and
                  (C) any predecessor of the taxpayer or a 
                person described in subparagraph (A) or (B),
        for the 3 taxable years of such persons preceding the 
        taxable year in which the contract described in 
        paragraph (1) is entered into shall be included in the 
        gross receipts of the taxpayer for the period described 
        in paragraph (1)(B). The Secretary shall prescribe 
        regulations which provide attribution rules that take 
        into account, in addition to the persons and entities 
        described in the preceding sentence, taxpayers who 
        engage in construction contracts through partnerships, 
        joint ventures, and corporations.
          (3) Controlled group of corporations.--For purposes 
        of this subsection, the term ``controlled group of 
        corporations'' has the meaning given to such term by 
        section 1563(a), except that--
                  (A) ``more than 50 percent'' shall be 
                substituted for ``at least 80 percent'' each 
                place it appears in section 1563(a)(1), and
                  (B) the determination shall be made without 
                regard to subsections (a)(4) and (e)(3)(C) of 
                section 1563.
          (4) Construction contract.--For purposes of this 
        subsection, the term ``construction contract'' means 
        any contract for the building, construction, 
        reconstruction, or rehabilitation of, or the 
        installation of any integral component to, or 
        improvements of, real property.
          (5) Special rule for residential construction 
        contracts which are not home construction contracts.--
        In the case of any residential construction contract 
        which is not a home construction contract, subsection 
        (a) (as in effect on the day before the date of the 
        enactment of the Revenue Reconciliation Act of 1989) 
        shall apply except that such subsection shall be 
        applied--
                  (A) by substituting ``70 percent'' for ``90 
                percent'' each place it appears, and
                  (B) by substituting ``30 percent'' for ``10 
                percent''.
          (6) Definitions relating to residential construction 
        contracts.--For purposes of this subsection--
                  (A) Home construction contract.--The term 
                ``home construction contract'' means any 
                construction contract if 80 percent or more of 
                the estimated total contract costs (as of the 
                close of the taxable year in which the contract 
                was entered into) are reasonably expected to be 
                attributable to activities referred to in 
                paragraph (4) with respect to--
                          (i) dwelling units (as defined in 
                        section 168(e)(2)(A)(ii)) contained in 
                        buildings containing 4 or fewer 
                        dwelling units (as so defined), and
                          (ii) improvements to real property 
                        directly related to such dwelling units 
                        and located on the site of such 
                        dwelling units.
                For purposes of clause (i), each townhouse or 
                rowhouse shall be treated as a separate 
                building.
                  (B) Residential construction contract.--The 
                term ``residential construction contract'' 
                means any contract which would be described in 
                subparagraph (A) if clause (i) of such 
                subparagraph reads as follows:
                          (i) dwelling units (as defined in 
                        section 168(e)(2)(A)(ii)), and".
  (f) Long-Term Contract.--For purposes of this section--
          (1) In general.--The term ``long-term contract'' 
        means any contract for the manufacture, building, 
        installation, or construction of property if such 
        contract is not completed within the taxable year in 
        which such contract is entered into.
          (2) Special rule for manufacturing contracts.--A 
        contract for the manufacture of property shall not be 
        treated as a long-term contract unless such contract 
        involves the manufacture of--
                  (A) any unique item of a type which is not 
                normally included in the finished goods 
                inventory of the taxpayer, or
                  (B) any item which normally requires more 
                than 12 calendar months to complete (without 
                regard to the period of the contract).
          (3) Aggregation, etc..--For purposes of this 
        subsection, under regulations prescribed by the 
        Secretary--
                  (A) 2 or more contracts which are 
                interdependent (by reason of pricing or 
                otherwise) may be treated as 1 contract, and
                  (B) a contract which is properly treated as 
                an aggregation of separate contracts may be so 
                treated.
  (g) Contract Commencement Date.--For purposes of this 
section, the term ``contract commencement date'' means, with 
respect to any contract, the first date on which any costs 
(other than bidding expenses or expenses incurred in connection 
with negotiating the contract) allocable to such contract are 
incurred.
  (h) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including regulations to prevent the 
use of related parties, pass-thru entities, intermediaries, 
options, or other similar arrangements to avoid the application 
of this section.

           *       *       *       *       *       *       *


      B. Changes in Existing Law Proposed by the Bill, as Reported

    In compliance with clause 3(e)(1)(B) of rule XIII of the 
Rules of the House of Representatives, changes in existing law 
proposed 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 italics, 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

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *



SEC. 168. ACCELERATED COST RECOVERY SYSTEM.

  (a) General Rule.--Except as otherwise provided in this 
section, the depreciation deduction provided by section 167(a) 
for any tangible property shall be determined by using--
          (1) the applicable depreciation method,
          (2) the applicable recovery period, and
          (3) the applicable convention.
  (b) Applicable Depreciation Method.--For purposes of this 
section--
          (1) In general.--Except as provided in paragraphs (2) 
        and (3), the applicable depreciation method is--
                  (A) the 200 percent declining balance method,
                  (B) switching to the straight line method for 
                the 1st taxable year for which using the 
                straight line method with respect to the 
                adjusted basis as of the beginning of such year 
                will yield a larger allowance.
          (2) 150 percent declining balance method in certain 
        cases.--Paragraph (1) shall be applied by substituting 
        ``150 percent'' for ``200 percent'' in the case of--
                  (A) any 15-year or 20-year property not 
                referred to in paragraph (3),
                  (B) any property used in a farming business 
                (within the meaning of section 263A(e)(4)),
                  (C) any property (other than property 
                described in paragraph (3)) which is a 
                qualified smart electric meter or qualified 
                smart electric grid system, or
                  (D) any property (other than property 
                described in paragraph (3)) with respect to 
                which the taxpayer elects under paragraph (5) 
                to have the provisions of this paragraph apply.
          (3) Property to which straight line method applies.--
        The applicable depreciation method shall be the 
        straight line method in the case of the following 
        property:
                  (A) Nonresidential real property.
                  (B) Residential rental property.
                  (C) Any railroad grading or tunnel bore.
                  (D) Property with respect to which the 
                taxpayer elects under paragraph (5) to have the 
                provisions of this paragraph apply.
                  (E) Property described in subsection 
                (e)(3)(D)(ii).
                  (F) Water utility property described in 
                subsection (e)(5).
                  (G) Qualified leasehold improvement property 
                described in subsection (e)(6).
                  (H) Qualified restaurant property described 
                in subsection (e)(7).
                  (I) Qualified retail improvement property 
                described in subsection (e)(8).
          (4) Salvage value treated as zero.--Salvage value 
        shall be treated as zero.
          (5) Election.--An election under paragraph (2)(D) or 
        (3)(D) may be made with respect to 1 or more classes of 
        property for any taxable year and once made with 
        respect to any class shall apply to all property in 
        such class placed in service during such taxable year. 
        Such an election, once made, shall be irrevocable.
  (c) Applicable Recovery Period.--For purposes of this 
section, the applicable recovery period shall be determined in 
accordance with the following table:


 
------------------------------------------------------------------------
         In the case of:            The applicable recovery period is:
------------------------------------------------------------------------
3-year property                   3 years
5-year property                   5 years
7-year property                   7 years
10-year property                  10 years
15-year property                  15 years
20-year property                  20 years
Water utility property            25 years
Residential rental property       27.5 years
Nonresidential real property      39 years.
Any railroad grading or tunnel    50 years.
 bore
------------------------------------------------------------------------

  (d) Applicable Convention.--For purposes of this section--
          (1) In general.--Except as otherwise provided in this 
        subsection, the applicable convention is the half-year 
        convention.
          (2) Real property.--In the case of--
                  (A) nonresidential real property,
                  (B) residential rental property, and
                  (C) any railroad grading or tunnel bore, the 
                applicable convention is the mid-month 
                convention.
          (3) Special rule where substantial property placed in 
        service during last 3 months of taxable year.--
                  (A) In general.--Except as provided in 
                regulations, if during any taxable year--
                          (i) the aggregate bases of property 
                        to which this section applies placed in 
                        service during the last 3 months of the 
                        taxable year, exceed
                          (ii) 40 percent of the aggregate 
                        bases of property to which this section 
                        applies placed in service during such 
                        taxable year,
        the applicable convention for all property to which 
        this section applies placed in service during such 
        taxable year shall be the mid-quarter convention.
                  (B) Certain property not taken into 
                account.--For purposes of subparagraph (A), 
                there shall not be taken into account--
                          (i) any nonresidential real property 
                        residential rental property, and 
                        railroad grading or tunnel bore, and
                          (ii) any other property placed in 
                        service and disposed of during the same 
                        taxable year.
          (4) Definitions.--
                  (A) Half-year convention.--The half-year 
                convention is a convention which treats all 
                property placed in service during any taxable 
                year (or disposed of during any taxable year) 
                as placed in service (or disposed of) on the 
                mid-point of such taxable year.
                  (B) Mid-month convention.--The mid-month 
                convention is a convention which treats all 
                property placed in service during any month (or 
                disposed of during any month) as placed in 
                service (or disposed of) on the mid-point of 
                such month.
                  (C) Mid-quarter convention.--The mid-quarter 
                convention is a convention which treats all 
                property placed in service during any quarter 
                of a taxable year (or disposed of during any 
                quarter of a taxable year) as placed in service 
                (or disposed of) on the mid-point of such 
                quarter.
  (e) Classification of Property.--For purposes of this 
section--
          (1) In general.--Except as otherwise provided in this 
        subsection, property shall be classified under the 
        following table:


 
------------------------------------------------------------------------
                                      If such property has a class life
   Property shall be treated as:                (in years) of:
------------------------------------------------------------------------
3-year property                      4 or less
5-year property                      More than 4 but less than 10
7-year property                      10 or more but less than 16
10-year property                     16 or more but less than 20
15-year property                     20 or more but less than 25
20-year property                     25 or more.
------------------------------------------------------------------------

          (2) Residential rental or nonresidential real 
        property.--
                  (A) Residential rental property.--
                          (i) Residential rental property.--The 
                        term ``residential rental property'' 
                        means any building or structure if 80 
                        percent or more of the gross rental 
                        income from such building or structure 
                        for the taxable year is rental income 
                        from dwelling units.
                          (ii) Definitions.--For purposes of 
                        clause (i)--
                                  (I) the term ``dwelling 
                                unit'' means a house or 
                                apartment used to provide 
                                living accommodations in a 
                                building or structure, but does 
                                not include a unit in a hotel, 
                                motel, or other establishment 
                                more than one-half of the units 
                                in which are used on a 
                                transient basis, and
                                  (II) if any portion of the 
                                building or structure is 
                                occupied by the taxpayer, the 
                                gross rental income from such 
                                building or structure shall 
                                include the rental value of the 
                                portion so occupied.
                  (B) Nonresidential real property.--The term 
                ``nonresidential real property'' means section 
                1250 property which is not--
                          (i) residential rental property, or
                          (ii) property with a class life of 
                        less than 27.5 years.
          (3) Classification of certain property.--
                  (A) 3-year property.--The term ``3-year 
                property'' includes--
                          (i) any race horse--
                                  (I) which is placed in 
                                service before January 1, 2015, 
                                and
                                  (II) which is placed in 
                                service after December 31, 
                                2014, and which is more than 2 
                                years old at the time such 
                                horse is placed in service by 
                                such purchaser,
                          (ii) any horse other than a race 
                        horse which is more than 12 years old 
                        at the time it is placed in service, 
                        and
                          (iii) any qualified rent-to-own 
                        property.
                  (B) 5-year property.--The term ``5-year 
                property'' includes--
                          (i) any automobile or light general 
                        purpose truck,
                          (ii) any semi-conductor manufacturing 
                        equipment,
                          (iii) any computer-based telephone 
                        central office switching equipment,
                          (iv) any qualified technological 
                        equipment,
                          (v) any section 1245 property used in 
                        connection with research and 
                        experimentation,
                          (vi) any property which--
                                  (I) is described in 
                                subparagraph (A) of section 
                                48(a)(3) (or would be so 
                                described if ``solar or wind 
                                energy'' were substituted for 
                                ``solar energy'' in clause (i) 
                                thereof and the last sentence 
                                of such section did not apply 
                                to such subparagraph),
                                  (II) is described in 
                                paragraph (15) of section 48(l) 
                                (as in effect on the day before 
                                the date of the enactment of 
                                the Revenue Reconciliation Act 
                                of 1990) and is a qualifying 
                                small power production facility 
                                within the meaning of section 
                                3(17)(C) of the Federal Power 
                                Act (16 U.S.C. 796(17)(C)), as 
                                in effect on September 1, 1986, 
                                or
                                  (III) is described in section 
                                48(l)(3)(A)(ix) (as in effect 
                                on the day before the date of 
                                the enactment of the Revenue 
                                Reconciliation Act of 1990), 
                                and
                          (vii) any machinery or equipment 
                        (other than any grain bin, cotton 
                        ginning asset, fence, or other land 
                        improvement) which is used in a farming 
                        business (as defined in section 
                        263A(e)(4)), the original use of which 
                        commences with the taxpayer after 
                        December 31, 2008, and which is placed 
                        in service before January 1, 2010.
                Nothing in any provision of law shall be 
                construed to treat property as not being 
                described in clause (vi)(I) (or the 
                corresponding provisions of prior law) by 
                reason of being public utility property (within 
                the meaning of section 48(a)(3)).
                  (C) 7-year property.--The term ``7-year 
                property'' includes--
                          (i) any railroad track, and
                          (ii) any motorsports entertainment 
                        complex,
                          (iii) any Alaska natural gas 
                        pipeline,
                          (iv) any natural gas gathering line 
                        the original use of which commences 
                        with the taxpayer after April 11, 2005, 
                        and
                          (v) any property which--
                                  (I) does not have a class 
                                life, and
                                  (II) is not otherwise 
                                classified under paragraph (2) 
                                or this paragraph.
                  (D) 10-year property.--The term ``10-year 
                property'' includes--
                          (i) any single purpose agricultural 
                        or horticultural structure (within the 
                        meaning of subsection (i)(13)),
                          (ii) any tree or vine bearing fruit 
                        or nuts,
                          (iii) any qualified smart electric 
                        meter, and
                          (iv) any qualified smart electric 
                        grid system.
                  (E) 15-year property.--The term ``15-year 
                property'' includes--
                          (i) any municipal wastewater 
                        treatment plant,
                          (ii) any telephone distribution plant 
                        and comparable equipment used for 2-way 
                        exchange of voice and data 
                        communications,
                          (iii) any section 1250 property which 
                        is a retail motor fuels outlet (whether 
                        or not food or other convenience items 
                        are sold at the outlet),
                          (iv) any qualified leasehold 
                        improvement property placed in service 
                        before January 1, 2015,
                          (v) any qualified restaurant property 
                        placed in service before January 1, 
                        2015,
                          (vi) initial clearing and grading 
                        land improvements with respect to gas 
                        utility property,
                          (vii) any section 1245 property (as 
                        defined in section 1245(a)(3)) used in 
                        the transmission at 69 or more 
                        kilovolts of electricity for sale and 
                        the original use of which commences 
                        with the taxpayer after April 11, 2005,
                          (viii) any natural gas distribution 
                        line the original use of which 
                        commences with the taxpayer after April 
                        11, 2005, and which is placed in 
                        service before January 1, 2011, and
                          (ix) any qualified retail improvement 
                        property placed in service after 
                        December 31, 2008, and before January 
                        1, 2015.
                  (F) 20-year property.--The term ``20-year 
                property'' means initial clearing and grading 
                land improvements with respect to any electric 
                utility transmission and distribution plant.
          (4) Railroad grading or tunnel bore.--The term 
        ``railroad grading or tunnel bore'' means all 
        improvements resulting from excavations (including 
        tunneling), construction of embankments, clearings, 
        diversions of roads and streams, sodding of slopes, and 
        from similar work necessary to provide, construct, 
        reconstruct, alter, protect, improve, replace, or 
        restore a roadbed or right-of-way for railroad track.
          (5) Water utility property.--The term ``water utility 
        property'' means property--
                  (A) which is an integral part of the 
                gathering, treatment, or commercial 
                distribution of water, and which, without 
                regard to this paragraph, would be 20-year 
                property, and
                  (B) any municipal sewer.
          (6) Qualified leasehold improvement property.--[The 
        term ``qualified leasehold improvement property'' has 
        the meaning given such term in section 168(k)(3) except 
        that the following special rules shall apply:] For 
        purposes of this subsection--
                  (A) In general.--The term ``qualified 
                leasehold improvement property'' means any 
                improvement to an interior portion of a 
                building which is nonresidential real property 
                if--
                          (i) such improvement is made under or 
                        pursuant to a lease (as defined in 
                        subsection (h)(7))--
                                  (I) by the lessee (or any 
                                sublessee) of such portion, or
                                  (II) by the lessor of such 
                                portion,
                          (ii) such portion is to be occupied 
                        exclusively by the lessee (or any 
                        sublessee) of such portion, and
                          (iii) such improvement is placed in 
                        service more than 3 years after the 
                        date the building was first placed in 
                        service.
                  (B) Certain improvements not included.--Such 
                term shall not include any improvement for 
                which the expenditure is attributable to--
                          (i) the enlargement of the building,
                          (ii) any elevator or escalator,
                          (iii) any structural component 
                        benefitting a common area, or
                          (iv) the internal structural 
                        framework of the building.
                  (C) Definitions and special rules.--For 
                purposes of this paragraph--
                          (i) Commitment to lease treated as 
                        lease.--A commitment to enter into a 
                        lease shall be treated as a lease, and 
                        the parties to such commitment shall be 
                        treated as lessor and lessee, 
                        respectively.
                          (ii) Related persons.--A lease 
                        between related persons shall not be 
                        considered a lease. For purposes of the 
                        preceding sentence, the term ``related 
                        persons'' means--
                                  (I) members of an affiliated 
                                group (as defined in section 
                                1504), and
                                  (II) persons having a 
                                relationship described in 
                                subsection (b) of section 267; 
                                except that, for purposes of 
                                this clause, the phrase ``80 
                                percent or more'' shall be 
                                substituted for the phrase 
                                ``more than 50 percent'' each 
                                place it appears in such 
                                subsection.
                  [(A)] (D) Improvements made by lessor.--In 
                the case of an improvement made by the person 
                who was the lessor of such improvement when 
                such improvement was placed in service, such 
                improvement shall be qualified leasehold 
                improvement property (if at all) only so long 
                as such improvement is held by such person.
                  [(B)] (E) Exception for changes in form of 
                business.--Property shall not cease to be 
                qualified leasehold improvement property under 
                [subparagraph (A)] subparagraph (D) by reason 
                of--
                          (i) death,
                          (ii) a transaction to which section 
                        381(a) applies,
                          (iii) a mere change in the form of 
                        conducting the trade or business so 
                        long as the property is retained in 
                        such trade or business as qualified 
                        leasehold improvement property and the 
                        taxpayer retains a substantial interest 
                        in such trade or business,
                          (iv) the acquisition of such property 
                        in an exchange described in section 
                        1031, 1033, or 1038 to the extent that 
                        the basis of such property includes an 
                        amount representing the adjusted basis 
                        of other property owned by the taxpayer 
                        or a related person, or
                          (v) the acquisition of such property 
                        by the taxpayer in a transaction 
                        described in section 332, 351, 361, 
                        721, or 731 (or the acquisition of such 
                        property by the taxpayer from the 
                        transferee or acquiring corporation in 
                        a transaction described in such 
                        section), to the extent that the basis 
                        of the property in the hands of the 
                        taxpayer is determined by reference to 
                        its basis in the hands of the 
                        transferor or distributor.
          (7) Qualified restaurant property.--
                  (A) In general.--The term ``qualified 
                restaurant property'' means any section 1250 
                property which is--
                          (i) a building, or
                          (ii) an improvement to a building, if 
                        more than 50 percent of the building's 
                        square footage is devoted to 
                        preparation of, and seating for on-
                        premises consumption of, prepared 
                        meals.
                  (B) Exclusion from bonus depreciation.--
                Property described in this paragraph which is 
                not [qualified leasehold improvement property] 
                qualified improvement property shall not be 
                considered qualified property for purposes of 
                subsection (k).
          (8) Qualified retail improvement property.--
                  (A) In general.--The term ``qualified retail 
                improvement property'' means any improvement to 
                an interior portion of a building which is 
                nonresidential real property if--
                          (i) such portion is open to the 
                        general public and is used in the 
                        retail trade or business of selling 
                        tangible personal property to the 
                        general public, and
                          (ii) such improvement is placed in 
                        service more than 3 years after the 
                        date the building was first placed in 
                        service.
                  (B) Improvements made by owner.--In the case 
                of an improvement made by the owner of such 
                improvement, such improvement shall be 
                qualified retail improvement property (if at 
                all) only so long as such improvement is held 
                by such owner. Rules similar to the rules under 
                paragraph (6)(B) shall apply for purposes of 
                the preceding sentence.
                  (C) Certain improvements not included.--Such 
                term shall not include any improvement for 
                which the expenditure is attributable to--
                          (i) the enlargement of the building,
                          (ii) any elevator or escalator,
                          (iii) any structural component 
                        benefitting a common area, or
                          (iv) the internal structural 
                        framework of the building.
                  [(D) Exclusion from bonus depreciation.--
                Property described in this paragraph which is 
                not qualified leasehold improvement property 
                shall not be considered qualified property for 
                purposes of subsection (k).]
  (f) Property to Which Section Does Not Apply.--This section 
shall not apply to--
          (1) Certain methods of depreciation.--Any property 
        if--
                  (A) the taxpayer elects to exclude such 
                property from the application of this section, 
                and
                  (B) for the 1st taxable year for which a 
                depreciation deduction would be allowable with 
                respect to such property in the hands of the 
                taxpayer, the property is properly depreciated 
                under the unit-of-production method or any 
                method of depreciation not expressed in a term 
                of years (other than the ret method or similar 
                method).
          (2) Certain public utility property.--Any public 
        utility property (within the meaning of subsection 
        (i)(10)) if the taxpayer does not use a normalization 
        method of accounting.
          (3) Films and video tape.--Any motion picture film or 
        video tape.
          (4) Sound recordings.--Any works which result from 
        the fixation of a series of musical, spoken, or other 
        sounds, regardless of the nature of the material (such 
        as discs, tapes, or other phonorecordings) in which 
        such sounds are embodied.
          (5) Certain property placed in service in churning 
        transactions.--
                  (A) In general.--Property--
                          (i) described in paragraph (4) of 
                        section 168(e) (as in effect before the 
                        amendments made by the Tax Reform Act 
                        of 1986), or
                          (ii) which would be described in such 
                        paragraph if such paragraph were 
                        applied by substituting ``1987'' for 
                        ``1981'' and ``1986'' for ``1980'' each 
                        place such terms appear.
                  (B) Subparagraph (A)(ii) not to apply.--
                Clause (ii) of subparagraph (A) shall not apply 
                to--
                          (i) any residential rental property 
                        or nonresidential real property,
                          (ii) any property if, for the 1st 
                        taxable year in which such property is 
                        placed in service--
                                  (I) the amount allowable as a 
                                deduction under this section 
                                (as in effect before the date 
                                of the enactment of this 
                                paragraph) with respect to such 
                                property is greater than,
                                  (II) the amount allowable as 
                                a deduction under this section 
                                (as in effect on or after such 
                                date and using the half-year 
                                convention) for such taxable 
                                year, or
                          (iii) any property to which this 
                        section (as amended by the Tax Reform 
                        Act of 1986) applied in the hands of 
                        the transferor.
                  (C) Special rule.--In the case of any 
                property to which this section would apply but 
                for this paragraph, the depreciation deduction 
                under section 167 shall be determined under the 
                provisions of this section as in effect before 
                the amendments made by section 201 of the Tax 
                Reform Act of 1986.
  (g) Alternative Depreciation System for Certain Property.--
          (1) In general.--In the case of--
                  (A) any tangible property which during the 
                taxable year is used predominantly outside the 
                United States,
                  (B) any tax-exempt use property,
                  (C) any tax-exempt bond financed property,
                  (D) any imported property covered by an 
                Executive order under paragraph (6), and
                  (E) any property to which an election under 
                paragraph (7) applies,
        the depreciation deduction provided by section 167(a) 
        shall be determined under the alternative depreciation 
        system.
          (2) Alternative depreciation system.--For purposes of 
        paragraph (1), the alternative depreciation system is 
        depreciation determined by using--
                  (A) the straight line method (without regard 
                to salvage value),
                  (B) the applicable convention determined 
                under subsection (d), and
                  (C) a recovery period determined under the 
                following table:


 
------------------------------------------------------------------------
         In the case of:               The recovery period shall be:
------------------------------------------------------------------------
(i) Property not described in      The class life.
 clause (ii) or (iii)
(ii) Personal property with no     12 years.
 class life
(iii) Nonresidential real and      40 years.
 residential rental property
(iv) Any railroad grading or       50 years.
 tunnel bore or water utility
 property
------------------------------------------------------------------------

          (3) Special rules for determining class life.--
                  (A) Tax-exempt use property subject to 
                lease.--In the case of any tax-exempt use 
                property subject to a lease, the recovery 
                period used for purposes of paragraph (2) shall 
                (notwithstanding any other subparagraph of this 
                paragraph) in no event be less than 125 percent 
                of the lease term.
                  (B) Special rule for certain property 
                assigned to classes.--For purposes of paragraph 
                (2), in the case of property described in any 
                of the following subparagraphs of subsection 
                (e)(3), the class life shall be determined as 
                follows:


 
------------------------------------------------------------------------
      If property is described in
             subparagraph:                      The class life is:
------------------------------------------------------------------------
(A)(iii)                                 4
(B)(ii)                                  5
(B)(iii)                                 9.5
(B)(vii)                                 10
(C)(i)                                   10
(C)(iii)...........                      22
(C)(iv)                                  14
(D)(i)                                   15
(D)(ii)                                  20
(E)(i)                                   24
(E)(ii)                                  24
(E)(iii)                                 20
(E)(iv)                                  39
(E)(v)                                   39
(E)(vi)                                  20
(E)(vii)                                 30
(E)(viii)                                35
(E)(ix)                                  39
(F)                                      25
------------------------------------------------------------------------

                  (C) Qualified technological equipment.--In 
                the case of any qualified technological 
                equipment, the recovery period used for 
                purposes of paragraph (2) shall be 5 years.
                  (D) Automobiles, etc..--In the case of any 
                automobile or light general purpose truck, the 
                recovery period used for purposes of paragraph 
                (2) shall be 5 years.
                  (E) Certain real property.--In the case of 
                any section 1245 property which is real 
                property with no class life, the recovery 
                period used for purposes of paragraph (2) shall 
                be 40 years.
          (4) Exception for certain property used outside 
        United States.--Subparagraph (A) of paragraph (1) shall 
        not apply to--
                  (A) any aircraft which is registered by the 
                Administrator of the Federal Aviation Agency 
                and which is operated to and from the United 
                States or is operated under contract with the 
                United States;
                  (B) rolling stock which is used within and 
                without the United States and which is--
                          (i) of a rail carrier subject to part 
                        A of subtitle IV of title 49, or
                          (ii) of a United States person (other 
                        than a corporation described in clause 
                        (i)) but only if the rolling stock is 
                        not leased to one or more foreign 
                        persons for periods aggregating more 
                        than 12 months in any 24-month period;
                  (C) any vessel documented under the laws of 
                the United States which is operated in the 
                foreign or domestic commerce of the United 
                States;
                  (D) any motor vehicle of a United States 
                person (as defined in section 7701(a)(30)) 
                which is operated to and from the United 
                States;
                  (E) any container of a United States person 
                which is used in the transportation of property 
                to and from the United States;
                  (F) any property (other than a vessel or an 
                aircraft) of a United States person which is 
                used for the purpose of exploring for, 
                developing, removing, or transporting resources 
                from the outer Continental Shelf (within the 
                meaning of section 2 of the Outer Continental 
                Shelf Lands Act, as amended and supplemented; 
                (43 U.S.C. 1331));
                  (G) any property which is owned by a domestic 
                corporation (other than a corporation which has 
                an election in effect under section 936) or by 
                a United States citizen (other than a citizen 
                entitled to the benefits of section 931 or 933) 
                and which is used predominantly in a possession 
                of the United States by such a corporation or 
                such a citizen, or by a corporation created or 
                organized in, or under the law of, a possession 
                of the United States;
                  (H) any communications satellite (as defined 
                in section 103(3) of the Communications 
                Satellite Act of 1962, 47 U.S.C. 702(3)), or 
                any interest therein, of a United States 
                person;
                  (I) any cable, or any interest therein, of a 
                domestic corporation engaged in furnishing 
                telephone service to which section 
                168(i)(10)(C) applies (or of a wholly owned 
                domestic subsidiary of such a corporation), if 
                such cable is part of a submarine cable system 
                which constitutes part of a communication link 
                exclusively between the United States and one 
                or more foreign countries;
                  (J) any property (other than a vessel or an 
                aircraft) of a United States person which is 
                used in international or territorial waters 
                within the northern portion of the Western 
                Hemisphere for the purpose of exploring for, 
                developing, removing, or transporting resources 
                from ocean waters or deposits under such 
                waters;
                  (K) any property described in section 
                48(l)(3)(A)(ix) (as in effect on the day before 
                the date of the enactment of the Revenue 
                Reconciliation Act of 1990) which is owned by a 
                United States person and which is used in 
                international or territorial waters to generate 
                energy for use in the United States; and
                  (L) any satellite (not described in 
                subparagraph (H)) or other spacecraft (or any 
                interest therein) held by a United States 
                person if such satellite or other spacecraft 
                was launched from within the United States.
        For purposes of subparagraph (J), the term ``northern 
        portion of the Western Hemisphere'' means the area 
        lying west of the 30th meridian west of Greenwich, east 
        of the international dateline, and north of the 
        Equator, but not including any foreign country which is 
        a country of South America.
          (5) Tax-exempt bond financed property.--For purposes 
        of this subsection--
                  (A) In general.--Except as otherwise provided 
                in this paragraph, the term ``tax-exempt bond 
                financed property'' means any property to the 
                extent such property is financed (directly or 
                indirectly) by an obligation the interest on 
                which is exempt from tax under section 103(a).
                  (B) Allocation of bond proceeds.--For 
                purposes of subparagraph (A), the proceeds of 
                any obligation shall be treated as used to 
                finance property acquired in connection with 
                the issuance of such obligation in the order in 
                which such property is placed in service.
                  (C) Qualified residential rental projects.--
                The term ``tax-exempt bond financed property'' 
                shall not include any qualified residential 
                rental project (within the meaning of section 
                142(a)(7)).
          (6) Imported property.--
                  (A) Countries maintaining trade restrictions 
                or engaging in discriminatory acts.--If the 
                President determines that a foreign country--
                          (i) maintains nontariff trade 
                        restrictions, including variable import 
                        fees, which substantially burden United 
                        States commerce in a manner 
                        inconsistent with provisions of trade 
                        agreements, or
                          (ii) engages in discriminatory or 
                        other acts (including tolerance of 
                        international cartels) or policies 
                        unjustifiably restricting United States 
                        commerce,
                the President may by Executive order provide 
                for the application of paragraph (1)(D) to any 
                article or class of articles manufactured or 
                produced in such foreign country for such 
                period as may be provided by such Executive 
                order. Any period specified in the preceding 
                sentence shall not apply to any property 
                ordered before (or the construction, 
                reconstruction, or erection of which began 
                before) the date of the Executive order unless 
                the President determines an earlier date to be 
                in the public interest and specifies such date 
                in the Executive order.
                  (B) Imported property.--For purposes of this 
                subsection, the term ``imported property'' 
                means any property if--
                          (i) such property was completed 
                        outside the United States, or
                          (ii) less than 50 percent of the 
                        basis of such property is attributable 
                        to value added within the United 
                        States.
                For purposes of this subparagraph, the term 
                ``United States'' includes the Commonwealth of 
                Puerto Rico and the possessions of the United 
                States.
          (7) Election to use alternative depreciation 
        system.--
                  (A) In general.--If the taxpayer makes an 
                election under this paragraph with respect to 
                any class of property for any taxable year, the 
                alternative depreciation system under this 
                subsection shall apply to all property in such 
                class placed in service during such taxable 
                year. Notwithstanding the preceding sentence, 
                in the case of nonresidential real property or 
                residential rental property, such election may 
                be made separately with respect to each 
                property.
                  (B) Election irrevocable.--An election under 
                subparagraph (A), once made, shall be 
                irrevocable.
  (h) Tax-Exempt Use Property.--
          (1) In general.--For purposes of this section--
                  (A) Property other than nonresidential real 
                property.--Except as otherwise provided in this 
                subsection, the term ``tax-exempt use 
                property'' means that portion of any tangible 
                property (other than nonresidential real 
                property) leased to a tax-exempt entity.
                  (B) Nonresidential real property.--
                          (i) In general.--In the case of 
                        nonresidential real property, the term 
                        ``tax-exempt use property'' means that 
                        portion of the property leased to a 
                        tax-exempt entity in a disqualified 
                        lease.
                          (ii) Disqualified lease.--For 
                        purposes of this subparagraph, the term 
                        ``disqualified lease'' means any lease 
                        of the property to a tax-exempt entity, 
                        but only if--
                                  (I) part or all of the 
                                property was financed (directly 
                                or indirectly) by an obligation 
                                the interest on which is exempt 
                                from tax under section 103(a) 
                                and such entity (or a related 
                                entity) participated in such 
                                financing,
                                  (II) under such lease there 
                                is a fixed or determinable 
                                price purchase or sale option 
                                which involves such entity (or 
                                a related entity) or there is 
                                the equivalent of such an 
                                option,
                                  (III) such lease has a lease 
                                term in excess of 20 years, or
                                  (IV) such lease occurs after 
                                a sale (or other transfer) of 
                                the property by, or lease of 
                                the property from, such entity 
                                (or a related entity) and such 
                                property has been used by such 
                                entity (or a related entity) 
                                before such sale (or other 
                                transfer) or lease.
                          (iii) 35-percent threshold test.--
                        Clause (i) shall apply to any property 
                        only if the portion of such property 
                        leased to tax-exempt entities in 
                        disqualified leases is more than 35 
                        percent of the property.
                          (iv) Treatment of improvements.--For 
                        purposes of this subparagraph, 
                        improvements to a property (other than 
                        land) shall not be treated as a 
                        separate property.
                          (v) Leasebacks during 1st 3 months of 
                        use not taken into account.--Subclause 
                        (IV) of clause (ii) shall not apply to 
                        any property which is leased within 3 
                        months after the date such property is 
                        first used by the tax-exempt entity (or 
                        a related entity).
                  (C) Exception for short-term leases.--
                          (i) In general.--Property shall not 
                        be treated as tax-exempt use property 
                        merely by reason of a short-term lease.
                          (ii) Short-term lease.--For purposes 
                        of clause (i), the term ``short-term 
                        lease'' means any lease the term of 
                        which is--
                                  (I) less than 3 years, and
                                  (II) less than the greater of 
                                1 year or 30 percent of the 
                                property's present class life.
                  In the case of nonresidential real property 
                and property with no present class life, 
                subclause (II) shall not apply.
                  (D) Exception where property used in 
                unrelated trade or business.--The term ``tax-
                exempt use property'' shall not include any 
                portion of a property if such portion is 
                predominantly used by the tax-exempt entity 
                (directly or through a partnership of which 
                such entity is a partner) in an unrelated trade 
                or business the income of which is subject to 
                tax under section 511. For purposes of 
                subparagraph (B)(iii), any portion of a 
                property so used shall not be treated as leased 
                to a tax-exempt entity in a disqualified lease.
                  (E) Nonresidential real property defined.--
                For purposes of this paragraph, the term 
                ``nonresidential real property'' includes 
                residential rental property.
          (2) Tax-exempt entity.--
                  (A) In general.--For purposes of this 
                subsection, the term ``tax-exempt entity'' 
                means--
                          (i) the United States, any State or 
                        political subdivision thereof, any 
                        possession of the United States, or any 
                        agency or instrumentality of any of the 
                        foregoing,
                          (ii) an organization (other than a 
                        cooperative described in section 521) 
                        which is exempt from tax imposed by 
                        this chapter,
                          (iii) any foreign person or entity, 
                        and
                          (iv) any Indian tribal government 
                        described in section 7701(a)(40).
                For purposes of applying this subsection, any 
                Indian tribal government referred to in clause 
                (iv) shall be treated in the same manner as a 
                State.
                  (B) Exception for certain property subject to 
                United States tax and used by foreign person or 
                entity.--Clause (iii) of subparagraph (A) shall 
                not apply with respect to any property if more 
                than 50 percent of the gross income for the 
                taxable year derived by the foreign person or 
                entity from the use of such property is--
                          (i) subject to tax under this 
                        chapter, or
                          (ii) included under section 951 in 
                        the gross income of a United States 
                        shareholder for the taxable year with 
                        or within which ends the taxable year 
                        of the controlled foreign corporation 
                        in which such income was derived.
                For purposes of the preceding sentence, any 
                exclusion or exemption shall not apply for 
                purposes of determining the amount of the gross 
                income so derived, but shall apply for purposes 
                of determining the portion of such gross income 
                subject to tax under this chapter.
                  (C) Foreign person or entity.--For purposes 
                of this paragraph, the term ``foreign person or 
                entity'' means--
                          (i) any foreign government, any 
                        international organization, or any 
                        agency or instrumentality of any of the 
                        foregoing, and
                          (ii) any person who is not a United 
                        States person.
                Such term does not include any foreign 
                partnership or other foreign pass-thru entity.
                  (D) Treatment of certain taxable 
                instrumentalities.--For purposes of this 
                subsection, a corporation shall not be treated 
                as an instrumentality of the United States or 
                of any State or political subdivision thereof 
                if--
                          (i) all of the activities of such 
                        corporation are subject to tax under 
                        this chapter, and
                          (ii) a majority of the board of 
                        directors of such corporation is not 
                        selected by the United States or any 
                        State or political subdivision thereof.
                  (E) Certain previously tax-exempt 
                organizations.--
                          (i) In general.--For purposes of this 
                        subsection, an organization shall be 
                        treated as an organization described in 
                        subparagraph (A)(ii) with respect to 
                        any property (other than property held 
                        by such organization) if such 
                        organization was an organization (other 
                        than a cooperative described in section 
                        521) exempt from tax imposed by this 
                        chapter at any time during the 5-year 
                        period ending on the date such property 
                        was first used by such organization. 
                        The preceding sentence and subparagraph 
                        (D)(ii) shall not apply to the Federal 
                        Home Loan Mortgage Corporation.
                          (ii) Election not to have clause (i) 
                        apply.--
                                  (I) In general.--In the case 
                                of an organization formerly 
                                exempt from tax under section 
                                501(a) as an organization 
                                described in section 
                                501(c)(12), clause (i) shall 
                                not apply to such organization 
                                with respect to any property if 
                                such organization elects not to 
                                be exempt from tax under 
                                section 501(a) during the tax-
                                exempt use period with respect 
                                to such property.
                                  (II) Tax-exempt use period.--
                                For purposes of subclause (I), 
                                the term ``tax-exempt use 
                                period'' means the period 
                                beginning with the taxable year 
                                in which the property described 
                                in subclause (I) is first used 
                                by the organization and ending 
                                with the close of the 15th 
                                taxable year following the last 
                                taxable year of the applicable 
                                recovery period of such 
                                property.
                                  (III) Election.--Any election 
                                under subclause (I), once made, 
                                shall be irrevocable.
                          (iii) Treatment of successor 
                        organizations.--Any organization which 
                        is engaged in activities substantially 
                        similar to those engaged in by a 
                        predecessor organization shall succeed 
                        to the treatment under this 
                        subparagraph of such predecessor 
                        organization.
                          (iv) First used.--For purposes of 
                        this subparagraph, property shall be 
                        treated as first used by the 
                        organization--
                                  (I) when the property is 
                                first placed in service under a 
                                lease to such organization, or
                                  (II) in the case of property 
                                leased to (or held by) a 
                                partnership (or other pass-thru 
                                entity) in which the 
                                organization is a member, the 
                                later of when such property is 
                                first used by such partnership 
                                or pass-thru entity or when 
                                such organization is first a 
                                member of such partnership or 
                                pass-thru entity.
          (3) Special rules for certain high technology 
        equipment.--
                  (A) Exemption where lease term is 5 years or 
                less.--For purposes of this section, the term 
                ``tax-exempt use property'' shall not include 
                any qualified technological equipment if the 
                lease to the tax-exempt entity has a lease term 
                of 5 years or less. Notwithstanding subsection 
                (i)(3)(A)(i), in determining a lease term for 
                purposes of the preceding sentence, there shall 
                not be taken into account any option of the 
                lessee to renew at the fair market value rent 
                determined at the time of renewal; except that 
                the aggregate period not taken into account by 
                reason of this sentence shall not exceed 24 
                months.
                  (B) Exception for certain property.--
                          (i) In general.--For purposes of 
                        subparagraph (A), the term ``qualified 
                        technological equipment'' shall not 
                        include any property leased to a tax-
                        exempt entity if--
                                  (I) part or all of the 
                                property was financed (directly 
                                or indirectly) by an obligation 
                                the interest on which is exempt 
                                from tax under section 103(a),
                                  (II) such lease occurs after 
                                a sale (or other transfer) of 
                                the property by, or lease of 
                                such property from, such entity 
                                (or related entity) and such 
                                property has been used by such 
                                entity (or a related entity) 
                                before such sale (or other 
                                transfer) or lease, or
                                  (III) such tax-exempt entity 
                                is the United States or any 
                                agency or instrumentality of 
                                the United States.
                          (ii) Leasebacks during 1st 3 months 
                        of use not taken into account.--
                        Subclause (II) of clause (i) shall not 
                        apply to any property which is leased 
                        within 3 months after the date such 
                        property is first used by the tax-
                        exempt entity (or a related entity).
          (4) Related entities.--For purposes of this 
        subsection--
                  (A)(i) Each governmental unit and each agency 
                or instrumentality of a governmental unit is 
                related to each other such unit, agency, or 
                instrumentality which directly or indirectly 
                derives its powers, rights, and duties in whole 
                or in part from the same sovereign authority.
                          (ii) For purposes of clause (i), the 
                        United States, each State, and each 
                        possession of the United States shall 
                        be treated as a separate sovereign 
                        authority.
                  (B) Any entity not described in subparagraph 
                (A)(i) is related to any other entity if the 2 
                entities have--
                          (i) significant common purposes and 
                        substantial common membership, or
                          (ii) directly or indirectly 
                        substantial common direction or 
                        control.
                  (C)(i) An entity is related to another entity 
                if either entity owns (directly or through 1 or 
                more entities) a 50 percent or greater interest 
                in the capital or profits of the other entity.
                          (ii) For purposes of clause (i), 
                        entities treated as related under 
                        subparagraph (A) or (B) shall be 
                        treated as 1 entity.
                  (D) An entity is related to another entity 
                with respect to a transaction if such 
                transaction is part of an attempt by such 
                entities to avoid the application of this 
                subsection.
          (5) Tax-exempt use of property leased to 
        partnerships, etc., determined at partner level.--For 
        purposes of this subsection--
                  (A) In general.--In the case of any property 
                which is leased to a partnership, the 
                determination of whether any portion of such 
                property is tax-exempt use property shall be 
                made by treating each tax-exempt entity 
                partner's proportionate share (determined under 
                paragraph (6)(C)) of such property as being 
                leased to such partner.
                  (B) Other pass-thru entities; tiered 
                entities.--Rules similar to the rules of 
                subparagraph (A) shall also apply in the case 
                of any pass-thru entity other than a 
                partnership and in the case of tiered 
                partnerships and other entities.
                  (C) Presumption with respect to foreign 
                entities.--Unless it is otherwise established 
                to the satisfaction of the Secretary, it shall 
                be presumed that the partners of a foreign 
                partnership (and the beneficiaries of any other 
                foreign pass-thru entity) are persons who are 
                not United States persons.
          (6) Treatment of property owned by partnerships, 
        etc..--
                  (A) In general.--For purposes of this 
                subsection, if--
                          (i) any property which (but for this 
                        subparagraph) is not tax-exempt use 
                        property is owned by a partnership 
                        which has both a tax-exempt entity and 
                        a person who is not a tax-exempt entity 
                        as partners, and
                          (ii) any allocation to the tax-exempt 
                        entity of partnership items is not a 
                        qualified allocation,
                an amount equal to such tax-exempt entity's 
                proportionate share of such property shall 
                (except as provided in paragraph (1)(D)) be 
                treated as tax-exempt use property.
                  (B) Qualified allocation.--For purposes of 
                subparagraph (A), the term ``qualified 
                allocation'' means any allocation to a tax-
                exempt entity which--
                          (i) is consistent with such entity's 
                        being allocated the same distributive 
                        share of each item of income, gain, 
                        loss, deduction, credit, and basis and 
                        such share remains the same during the 
                        entire period the entity is a partner 
                        in the partnership, and
                          (ii) has substantial economic effect 
                        within the meaning of section 
                        704(b)(2).
                For purposes of this subparagraph, items 
                allocated under section 704(c) shall not be 
                taken into account.
                  (C) Determination of proportionate share.--
                          (i) In general.--For purposes of 
                        subparagraph (A), a tax-exempt entity's 
                        proportionate share of any property 
                        owned by a partnership shall be 
                        determined on the basis of such 
                        entity's share of partnership items of 
                        income or gain (excluding gain 
                        allocated under section 704(c)), 
                        whichever results in the largest 
                        proportionate share.
                          (ii) Determination where allocations 
                        vary.--For purposes of clause (i), if a 
                        tax-exempt entity's share of 
                        partnership items of income or gain 
                        (excluding gain allocated under section 
                        704(c)) may vary during the period such 
                        entity is a partner in the partnership, 
                        such share shall be the highest share 
                        such entity may receive.
                  (D) Determination of whether property used in 
                unrelated trade or business.--For purposes of 
                this subsection, in the case of any property 
                which is owned by a partnership which has both 
                a tax-exempt entity and a person who is not a 
                tax-exempt entity as partners, the 
                determination of whether such property is used 
                in an unrelated trade or business of such an 
                entity shall be made without regard to section 
                514.
                  (E) Other pass-thru entities; tiered 
                entities.--Rules similar to the rules of 
                subparagraphs (A), (B), (C), and (D) shall also 
                apply in the case of any pass-thru entity other 
                than a partnership and in the case of tiered 
                partnerships and other entities.
                  (F) Treatment of certain taxable entities.--
                          (i) In general.--For purposes of this 
                        paragraph and paragraph (5), except as 
                        otherwise provided in this 
                        subparagraph, any tax-exempt controlled 
                        entity shall be treated as a tax-exempt 
                        entity.
                          (ii) Election.--If a tax-exempt 
                        controlled entity makes an election 
                        under this clause--
                                  (I) such entity shall not be 
                                treated as a tax-exempt entity 
                                for purposes of this paragraph 
                                and paragraph (5), and
                                  (II) any gain recognized by a 
                                tax-exempt entity on any 
                                disposition of an interest in 
                                such entity (and any dividend 
                                or interest received or accrued 
                                by a tax-exempt entity from 
                                such tax-exempt controlled 
                                entity) shall be treated as 
                                unrelated business taxable 
                                income for purposes of section 
                                511.
                        Any such election shall be irrevocable 
                        and shall bind all tax-exempt entities 
                        holding interests in such tax-exempt 
                        controlled entity. For purposes of 
                        subclause (II), there shall only be 
                        taken into account dividends which are 
                        properly allocable to income of the 
                        tax-exempt controlled entity which was 
                        not subject to tax under this chapter.
                          (iii) Tax-exempt controlled entity.--
                                  (I) In general.--The term 
                                ``tax-exempt controlled 
                                entity'' means any corporation 
                                (which is not a tax-exempt 
                                entity determined without 
                                regard to this subparagraph and 
                                paragraph (2)(E)) if 50 percent 
                                or more (in value) of the stock 
                                in such corporation is held by 
                                1 or more tax-exempt entities 
                                (other than a foreign person or 
                                entity).
                                  (II) Only 5-percent 
                                shareholders taken into account 
                                in case of publicly traded 
                                stock.--For purposes of 
                                subclause (I), in the case of a 
                                corporation the stock of which 
                                is publicly traded on an 
                                established securities market, 
                                stock held by a tax-exempt 
                                entity shall not be taken into 
                                account unless such entity 
                                holds at least 5 percent (in 
                                value) of the stock in such 
                                corporation. For purposes of 
                                this subclause, related 
                                entities (within the meaning of 
                                paragraph (4)) shall be treated 
                                as 1 entity.
                                  (III) Section 318 to apply.--
                                For purposes of this clause, a 
                                tax-exempt entity shall be 
                                treated as holding stock which 
                                it holds through application of 
                                section 318 (determined without 
                                regard to the 50-percent 
                                limitation contained in 
                                subsection (a)(2)(C) thereof).
                  (G) Regulations.--For purposes of determining 
                whether there is a qualified allocation under 
                subparagraph (B), the regulations prescribed 
                under paragraph (8) for purposes of this 
                paragraph--
                          (i) shall set forth the proper 
                        treatment for partnership guaranteed 
                        payments, and
                          (ii) may provide for the exclusion or 
                        segregation of items.
          (7) Lease.--For purposes of this subsection, the term 
        ``lease'' includes any grant of a right to use 
        property.
          (8) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry 
        out the purposes of this subsection.
  (i) Definitions and Special Rules.--For purposes of this 
section--
          (1) Class life.--Except as provided in this section, 
        the term ``class life'' means the class life (if any) 
        which would be applicable with respect to any property 
        as of January 1, 1986, under subsection (m) of section 
        167 (determined without regard to paragraph (4) and as 
        if the taxpayer had made an election under such 
        subsection). The Secretary, through an office 
        established in the Treasury, shall monitor and analyze 
        actual experience with respect to all depreciable 
        assets. The reference in this paragraph to subsection 
        (m) of section 167 shall be treated as a reference to 
        such subsection as in effect on the day before the date 
        of the enactment of the Revenue Reconciliation Act of 
        1990.
          (2) Qualified technological equipment.--
                  (A) In general.--The term ``qualified 
                technological equipment'' means--
                          (i) any computer or peripheral 
                        equipment,
                          (ii) any high technology telephone 
                        station equipment installed on the 
                        customer's premises, and
                          (iii) any high technology medical 
                        equipment.
                  (B) Computer or peripheral equipment 
                defined.--For purposes of this paragraph--
                          (i) In general.--The term ``computer 
                        or peripheral equipment'' means--
                                  (I) any computer, and
                                  (II) any related peripheral 
                                equipment.
                          (ii) Computer.--The term ``computer'' 
                        means a programmable electronically 
                        activated device which--
                                  (I) is capable of accepting 
                                information, applying 
                                prescribed processes to the 
                                information, and supplying the 
                                results of these processes with 
                                or without human intervention, 
                                and
                                  (II) consists of a central 
                                processing unit containing 
                                extensive storage, logic, 
                                arithmetic, and control 
                                capabilities.
                          (iii) Related peripheral equipment.--
                        The term ``related peripheral 
                        equipment'' means any auxiliary machine 
                        (whether on-line or off-line) which is 
                        designed to be placed under the control 
                        of the central processing unit of a 
                        computer.
                          (iv) Exceptions.--The term ``computer 
                        or peripheral equipment'' shall not 
                        include--
                                  (I) any equipment which is an 
                                integral part of other property 
                                which is not a computer,
                                  (II) typewriters, 
                                calculators, adding and 
                                accounting machines, copiers, 
                                duplicating equipment, and 
                                similar equipment, and
                                  (III) equipment of a kind 
                                used primarily for amusement or 
                                entertainment of the user.
                  (C) High technology medical equipment.--For 
                purposes of this paragraph, the term ``high 
                technology medical equipment'' means any 
                electronic, electromechanical, or computer-
                based high technology equipment used in the 
                screening, monitoring, observation, diagnosis, 
                or treatment of patients in a laboratory, 
                medical, or hospital environment.
          (3) Lease term.--
                  (A) In general.--In determining a lease 
                term--
                          (i) there shall be taken into account 
                        options to renew,
                          (ii) the term of a lease shall 
                        include the term of any service 
                        contract or similar arrangement 
                        (whether or not treated as a lease 
                        under section 7701(e))--
                                  (I) which is part of the same 
                                transaction (or series of 
                                related transactions) which 
                                includes the lease, and
                                  (II) which is with respect to 
                                the property subject to the 
                                lease or substantially similar 
                                property, and
                          (iii) 2 or more successive leases 
                        which are part of the same transaction 
                        (or a series of related transactions) 
                        with respect to the same or 
                        substantially similar property shall be 
                        treated as 1 lease.
                  (B) Special rule for fair rental options on 
                nonresidential real property or residential 
                rental property.--For purposes of clause (i) of 
                subparagraph (A), in the case of nonresidential 
                real property or residential rental property, 
                there shall not be taken into account any 
                option to renew at fair market value, 
                determined at the time of renewal.
          (4) General asset accounts.--Under regulations, a 
        taxpayer may maintain 1 or more general asset accounts 
        for any property to which this section applies. Except 
        as provided in regulations, all proceeds realized on 
        any disposition of property in a general asset account 
        shall be included in income as ordinary income.
          (5) Changes in use.--The Secretary shall, by 
        regulations, provide for the method of determining the 
        deduction allowable under section 167(a) with respect 
        to any tangible property for any taxable year (and the 
        succeeding taxable years) during which such property 
        changes status under this section but continues to be 
        held by the same person.
          (6) Treatments of additions or improvements to 
        property.--In the case of any addition to (or 
        improvement of) any property--
                  (A) any deduction under subsection (a) for 
                such addition or improvement shall be computed 
                in the same manner as the deduction for such 
                property would be computed if such property had 
                been placed in service at the same time as such 
                addition or improvement, and
                  (B) the applicable recovery period for such 
                addition or improvement shall begin on the 
                later of--
                          (i) the date on which such addition 
                        (or improvement) is placed in service, 
                        or
                          (ii) the date on which the property 
                        with respect to which such addition (or 
                        improvement) was made is placed in 
                        service.
          (7) Treatment of certain transferees.--
                  (A) In general.--In the case of any property 
                transferred in a transaction described in 
                subparagraph (B), the transferee shall be 
                treated as the transferor for purposes of 
                computing the depreciation deduction determined 
                under this section with respect to so much of 
                the basis in the hands of the transferee as 
                does not exceed the adjusted basis in the hands 
                of the transferor. In any case where this 
                section as in effect before the amendments made 
                by section 201 of the Tax Reform Act of 1986 
                applied to the property in the hands of the 
                transferor, the reference in the preceding 
                sentence to this section shall be treated as a 
                reference to this section as so in effect.
                  (B) Transactions covered.--The transactions 
                described in this subparagraph are--
                          (i) any transaction described in 
                        section 332, 351, 361, 721, or 731, and
                          (ii) any transaction between members 
                        of the same affiliated group during any 
                        taxable year for which a consolidated 
                        return is made by such group.
                Subparagraph (A) shall not apply in the case of 
                a termination of a partnership under section 
                708(b)(1)(B).
                  (C) Property reacquired by the taxpayer.--
                Under regulations, property which is disposed 
                of and then reacquired by the taxpayer shall be 
                treated for purposes of computing the deduction 
                allowable under subsection (a) as if such 
                property had not been disposed of.
          (8) Treatment of leasehold improvements.--
                  (A) In general.--In the case of any building 
                erected (or improvements made) on leased 
                property, if such building or improvement is 
                property to which this section applies, the 
                depreciation deduction shall be determined 
                under the provisions of this section.
                  (B) Treatment of lessor improvements which 
                are abandoned at termination of lease.--An 
                improvement--
                          (i) which is made by the lessor of 
                        leased property for the lessee of such 
                        property, and
                          (ii) which is irrevocably disposed of 
                        or abandoned by the lessor at the 
                        termination of the lease by such 
                        lessee,
                shall be treated for purposes of determining 
                gain or loss under this title as disposed of by 
                the lessor when so disposed of or abandoned.
                  (C) Cross reference.--For treatment of 
                qualified long-term real property constructed 
                or improved in connection with cash or rent 
                reduction from lessor to lessee, see section 
                110(b).
          (9) Normalization rules.--
                  (A) In general.--In order to use a 
                normalization method of accounting with respect 
                to any public utility property for purposes of 
                subsection (f)(2)--
                          (i) the taxpayer must, in computing 
                        its tax expense for purposes of 
                        establishing its cost of service for 
                        ratemaking purposes and reflecting 
                        operating results in its regulated 
                        books of account, use a method of 
                        depreciation with respect to such 
                        property that is the same as, and a 
                        depreciation period for such property 
                        that is no shorter than, the method and 
                        period used to compute its depreciation 
                        expense for such purposes; and
                          (ii) if the amount allowable as a 
                        deduction under this section with 
                        respect to such property (respecting 
                        all elections made by the taxpayer 
                        under this section) differs from the 
                        amount that would be allowable as a 
                        deduction under section 167 using the 
                        method (including the period, first and 
                        last year convention, and salvage 
                        value) used to compute regulated tax 
                        expense under clause (i), the taxpayer 
                        must make adjustments to a reserve to 
                        reflect the deferral of taxes resulting 
                        from such difference.
                  (B) Use of inconsistent estimates and 
                projections, etc..--
                          (i) In general.--One way in which the 
                        requirements of subparagraph (A) are 
                        not met is if the taxpayer, for 
                        ratemaking purposes, uses a procedure 
                        or adjustment which is inconsistent 
                        with the requirements of subparagraph 
                        (A).
                          (ii) Use of inconsistent estimates 
                        and projections.--The procedures and 
                        adjustments which are to be treated as 
                        inconsistent for purposes of clause (i) 
                        shall include any procedure or 
                        adjustment for ratemaking purposes 
                        which uses an estimate or projection of 
                        the taxpayer's tax expense, 
                        depreciation expense, or reserve for 
                        deferred taxes under subparagraph 
                        (A)(ii) unless such estimate or 
                        projection is also used, for ratemaking 
                        purposes, with respect to the other 2 
                        such items and with respect to the rate 
                        base.
                          (iii) Regulatory authority.--The 
                        Secretary may by regulations prescribe 
                        procedures and adjustments (in addition 
                        to those specified in clause (ii)) 
                        which are to be treated as inconsistent 
                        for purposes of clause (i).
                  (C) Public utility property which does not 
                meet normalization rules.--In the case of any 
                public utility property to which this section 
                does not apply by reason of subsection (f)(2), 
                the allowance for depreciation under section 
                167(a) shall be an amount computed using the 
                method and period referred to in subparagraph 
                (A)(i).
          (10) Public utility property.--The term ``public 
        utility property'' means property used predominantly in 
        the trade or business of the furnishing or sale of--
                  (A) electrical energy, water, or sewage 
                disposal services,
                  (B) gas or steam through a local distribution 
                system,
                  (C) telephone services, or other 
                communication services if furnished or sold by 
                the Communications Satellite Corporation for 
                purposes authorized by the Communications 
                Satellite Act of 1962 (47 U.S.C. 701), or
                  (D) transportation of gas or steam by 
                pipeline, if the rates for such furnishing or 
                sale, as the case may be, have been established 
                or approved by a State or political subdivision 
                thereof, by any agency or instrumentality of 
                the United States, or by a public service or 
                public utility commission or other similar body 
                of any State or political subdivision thereof.
          (11) Research and experimentation.--The term 
        ``research and experimentation'' has the same meaning 
        as the term research and experimental has under section 
        174.
          (12) Section 1245 and 1250 property.--The terms 
        ``section 1245 property'' and ``section 1250 property'' 
        have the meanings given such terms by sections 
        1245(a)(3) and 1250(c), respectively.
          (13) Single purpose agricultural or horticultural 
        structure.--
                  (A) In general.--The term ``single purpose 
                agricultural or horticultural structure'' 
                means--
                          (i) a single purpose livestock 
                        structure, and
                          (ii) a single purpose horticultural 
                        structure.
                  (B) Definitions.--For purposes of this 
                paragraph--
                          (i) Single purpose livestock 
                        structure.--The term ``single purpose 
                        livestock structure'' means any 
                        enclosure or structure specifically 
                        designed, constructed, and used--
                                  (I) for housing, raising, and 
                                feeding a particular type of 
                                livestock and their produce, 
                                and
                                  (II) for housing the 
                                equipment (including any 
                                replacements) necessary for the 
                                housing, raising, and feeding 
                                referred to in subclause (I).
                          (ii) Single purpose horticultural 
                        structure.--The term ``single purpose 
                        horticultural structure'' means--
                                  (I) a greenhouse specifically 
                                designed, constructed, and used 
                                for the commercial production 
                                of plants, and
                                  (II) a structure specifically 
                                designed, constructed, and used 
                                for the commercial production 
                                of mushrooms.
                          (iii) Structures which include work 
                        space.--An enclosure or structure which 
                        provides work space shall be treated as 
                        a single purpose agricultural or 
                        horticultural structure only if such 
                        work space is solely for--
                                  (I) the stocking, caring for, 
                                or collecting of livestock or 
                                plants (as the case may be) or 
                                their produce,
                                  (II) the maintenance of the 
                                enclosure or structure, and
                                  (III) the maintenance or 
                                replacement of the equipment or 
                                stock enclosed or housed 
                                therein.
                          (iv) Livestock.--The term 
                        ``livestock'' includes poultry.
          (14) Qualified rent-to-own property.--
                  (A) In general.--The term ``qualified rent-
                to-own property'' means property held by a 
                rent-to-own dealer for purposes of being 
                subject to a rent-to-own contract.
                  (B) Rent-to-own dealer.--The term ``rent-to-
                own dealer'' means a person that, in the 
                ordinary course of business, regularly enters 
                into rent-to-own contracts with customers for 
                the use of consumer property, if a substantial 
                portion of those contracts terminate and the 
                property is returned to such person before the 
                receipt of all payments required to transfer 
                ownership of the property from such person to 
                the customer.
                  (C) Consumer property.--The term ``consumer 
                property'' means tangible personal property of 
                a type generally used within the home for 
                personal use.
                  (D) Rent-to-own contract.--The term ``rent-
                to-own contract'' means any lease for the use 
                of consumer property between a rent-to-own 
                dealer and a customer who is an individual 
                which--
                          (i) is titled ``Rent-to-Own 
                        Agreement'' or ``Lease Agreement with 
                        Ownership Option,'' or uses other 
                        similar language,
                          (ii) provides for level (or 
                        decreasing where no payment is less 
                        than 40 percent of the largest 
                        payment), regular periodic payments 
                        (for a payment period which is a week 
                        or month),
                          (iii) provides that legal title to 
                        such property remains with the rent-to- 
                        own dealer until the customer makes all 
                        the payments described in clause (ii) 
                        or early purchase payments required 
                        under the contract to acquire legal 
                        title to the item of property,
                          (iv) provides a beginning date and a 
                        maximum period of time for which the 
                        contract may be in effect that does not 
                        exceed 156 weeks or 36 months from such 
                        beginning date (including renewals or 
                        options to extend),
                          (v) provides for payments within the 
                        156-week or 36-month period that, in 
                        the aggregate, generally exceed the 
                        normal retail price of the consumer 
                        property plus interest,
                          (vi) provides for payments under the 
                        contract that, in the aggregate, do not 
                        exceed $10,000 per item of consumer 
                        property,
                          (vii) provides that the customer does 
                        not have any legal obligation to make 
                        all the payments referred to in clause 
                        (ii) set forth under the contract, and 
                        that at the end of each payment period 
                        the customer may either continue to use 
                        the consumer property by making the 
                        payment for the next payment period or 
                        return such property to the rent-to-own 
                        dealer in good working order, in which 
                        case the customer does not incur any 
                        further obligations under the contract 
                        and is not entitled to a return of any 
                        payments previously made under the 
                        contract, and
                          (viii) provides that the customer has 
                        no right to sell, sublease, mortgage, 
                        pawn, pledge, encumber, or otherwise 
                        dispose of the consumer property until 
                        all the payments stated in the contract 
                        have been made.
          (15) Motorsports entertainment complex.--
                  (A) In general.--The term ``motorsports 
                entertainment complex'' means a racing track 
                facility which--
                          (i) is permanently situated on land, 
                        and
                          (ii) during the 36-month period 
                        following the first day of the month in 
                        which the asset is placed in service, 
                        hosts 1 or more racing events for 
                        automobiles (of any type), trucks, or 
                        motorcycles which are open to the 
                        public for the price of admission.
                  (B) Ancillary and support facilities.--Such 
                term shall include, if owned by the taxpayer 
                who owns the complex and provided for the 
                benefit of patrons of the complex--
                          (i) ancillary facilities and land 
                        improvements in support of the 
                        complex's activities (including parking 
                        lots, sidewalks, waterways, bridges, 
                        fences, and landscaping),
                          (ii) support facilities (including 
                        food and beverage retailing, souvenir 
                        vending, and other nonlodging 
                        accommodations), and
                          (iii) appurtenances associated with 
                        such facilities and related attractions 
                        and amusements (including ticket 
                        booths, race track surfaces, suites and 
                        hospitality facilities, grandstands and 
                        viewing structures, props, walls, 
                        facilities that support the delivery of 
                        entertainment services, other special 
                        purpose structures, facades, shop 
                        interiors, and buildings).
                  (C) Exception.--Such term shall not include 
                any transportation equipment, administrative 
                services assets, warehouses, administrative 
                buildings, hotels, or motels.
                  (D) Termination.--Such term shall not include 
                any property placed in service after December 
                31, 2014.
          (16) Alaska natural gas pipeline.--The term ``Alaska 
        natural gas pipeline'' means the natural gas pipeline 
        system located in the State of Alaska which--
                  (A) has a capacity of more than 
                500,000,000,000 Btu of natural gas per day, and
                  (B) is--
                          (i) placed in service after December 
                        31, 2013, or
                          (ii) treated as placed in service on 
                        January 1, 2014, if the taxpayer who 
                        places such system in service before 
                        January 1, 2014, elects such treatment.
        Such term includes the pipe, trunk lines, related 
        equipment, and appurtenances used to carry natural gas, 
        but does not include any gas processing plant.
          (17) Natural gas gathering line.--The term ``natural 
        gas gathering line'' means--
                  (A) the pipe, equipment, and appurtenances 
                determined to be a gathering line by the 
                Federal Energy Regulatory Commission, and
                  (B) the pipe, equipment, and appurtenances 
                used to deliver natural gas from the wellhead 
                or a commonpoint to the point at which such gas 
                first reaches--
                          (i) a gas processing plant,
                          (ii) an interconnection with a 
                        transmission pipeline for which a 
                        certificate as an interstate 
                        transmission pipeline has been issued 
                        by the Federal Energy Regulatory 
                        Commission,
                          (iii) an interconnection with an 
                        intrastate transmission pipeline, or
                          (iv) a direct interconnection with a 
                        local distribution company, a gas 
                        storage facility, or an industrial 
                        consumer.
          (18) Qualified smart electric meters.--
                  (A) In general.--The term ``qualified smart 
                electric meter'' means any smart electric meter 
                which--
                          (i) is placed in service by a 
                        taxpayer who is a supplier of electric 
                        energy or a provider of electric energy 
                        services, and
                          (ii) does not have a class life 
                        (determined without regard to 
                        subsection (e)) of less than 16 years.
                  (B) Smart electric meter.--For purposes of 
                subparagraph (A), the term ``smart electric 
                meter'' means any time-based meter and related 
                communication equipment which is capable of 
                being used by the taxpayer as part of a system 
                that--
                          (i) measures and records electricity 
                        usage data on a time-differentiated 
                        basis in at least 24 separate time 
                        segments per day,
                          (ii) provides for the exchange of 
                        information between supplier or 
                        provider and the customer's electric 
                        meter in support of time-based rates or 
                        other forms of demand response,
                          (iii) provides data to such supplier 
                        or provider so that the supplier or 
                        provider can provide energy usage 
                        information to customers 
                        electronically, and
                          (iv) provides net metering.
          (19) Qualified smart electric grid systems.--
                  (A) In general.--The term ``qualified smart 
                electric grid system'' means any smart grid 
                property which--
                          (i) is used as part of a system for 
                        electric distribution grid 
                        communications, monitoring, and 
                        management placed in service by a 
                        taxpayer who is a supplier of electric 
                        energy or a provider of electric energy 
                        services, and
                          (ii) does not have a class life 
                        (determined without regard to 
                        subsection (e)) of less than 16 years.
                  (B) Smart grid property.--For the purposes of 
                subparagraph (A), the term ``smart grid 
                property'' means electronics and related 
                equipment that is capable of--
                          (i) sensing, collecting, and 
                        monitoring data of or from all portions 
                        of a utility's electric distribution 
                        grid,
                          (ii) providing real-time, two-way 
                        communications to monitor or manage 
                        such grid, and
                          (iii) providing real time analysis of 
                        and event prediction based upon 
                        collected data that can be used to 
                        improve electric distribution system 
                        reliability, quality, and performance.
  (j) Property on Indian Reservations.--
          (1) In general.--For purposes of subsection (a), the 
        applicable recovery period for qualified Indian 
        reservation property shall be determined in accordance 
        with the table contained in paragraph (2) in lieu of 
        the table contained in subsection (c).
          (2) Applicable recovery period for Indian reservation 
        property.--For purposes of paragraph (1)--


 
------------------------------------------------------------------------
         In the case of:            The applicable recovery period is:
------------------------------------------------------------------------
3-year property                   2 years
5-year property                   3 years
7-year property                   4 years
10-year property                  6 years
15-year property                  9 years
20-year property                  12 years
Nonresidential real property      22 years.
------------------------------------------------------------------------

          (3) Deduction allowed in computing minimum tax.--For 
        purposes of determining alternative minimum taxable 
        income under section 55, the deduction under subsection 
        (a) for property to which paragraph (1) applies shall 
        be determined under this section without regard to any 
        adjustment under section 56.
          (4) Qualified Indian reservation property defined.--
        For purposes of this subsection--
                  (A) In general.--The term ``qualified Indian 
                reservation property'' means property which is 
                property described in the table in paragraph 
                (2) and which is--
                          (i) used by the taxpayer 
                        predominantly in the active conduct of 
                        a trade or business within an Indian 
                        reservation,
                          (ii) not used or located outside the 
                        Indian reservation on a regular basis,
                          (iii) not acquired (directly or 
                        indirectly) by the taxpayer from a 
                        person who is related to the taxpayer 
                        (within the meaning of section 
                        465(b)(3)(C)), and
                          (iv) not property (or any portion 
                        thereof) placed in service for purposes 
                        of conducting or housing class I, II, 
                        or III gaming (as defined in section 4 
                        of the Indian Regulatory Act (25 U.S.C. 
                        2703)).
                  (B) Exception for alternative depreciation 
                property.--The term ``qualified Indian 
                reservation property'' does not include any 
                property to which the alternative depreciation 
                system under subsection (g) applies, 
                determined--
                          (i) without regard to subsection 
                        (g)(7) (relating to election to use 
                        alternative depreciation system), and
                          (ii) after the application of section 
                        280F(b) (relating to listed property 
                        with limited business use).
                  (C) Special rule for reservation 
                infrastructure investment.--
                          (i) In general.--Subparagraph (A)(ii) 
                        shall not apply to qualified 
                        infrastructure property located outside 
                        of the Indian reservation if the 
                        purpose of such property is to connect 
                        with qualified infrastructure property 
                        located within the Indian reservation.
                          (ii) Qualified infrastructure 
                        property.--For purposes of this 
                        subparagraph, the term ``qualified 
                        infrastructure property'' means 
                        qualified Indian reservation property 
                        (determined without regard to 
                        subparagraph (A)(ii)) which--
                                  (I) benefits the tribal 
                                infrastructure,
                                  (II) is available to the 
                                general public, and
                                  (III) is placed in service in 
                                connection with the taxpayer's 
                                active conduct of a trade or 
                                business within an Indian 
                                reservation.
                        Such term includes, but is not limited 
                        to, roads, power lines, water systems, 
                        railroad spurs, and communications 
                        facilities.
          (5) Real estate rentals.--For purposes of this 
        subsection, the rental to others of real property 
        located within an Indian reservation shall be treated 
        as the active conduct of a trade or business within an 
        Indian reservation.
          (6) Indian reservation defined.--For purposes of this 
        subsection, the term ``Indian reservation'' means a 
        reservation, as defined in--
                  (A) section 3(d) of the Indian Financing Act 
                of 1974 (25 U.S.C. 1452(d)), or
                  (B) section 4(10) of the Indian Child Welfare 
                Act of 1978 (25 U.S.C. 1903(10)).
        For purposes of the preceding sentence, such section 
        3(d) shall be applied by treating the term ``former 
        Indian reservations in Oklahoma'' as including only 
        lands which are within the jurisdictional area of an 
        Oklahoma Indian tribe (as determined by the Secretary 
        of the Interior) and are recognized by such Secretary 
        as eligible for trust land status under 25 CFR Part 151 
        (as in effect on the date of the enactment of this 
        sentence).
          (7) Coordination with nonrevenue laws.--Any reference 
        in this subsection to a provision not contained in this 
        title shall be treated for purposes of this subsection 
        as a reference to such provision as in effect on the 
        date of the enactment of this paragraph.
          (8) Termination.--This subsection shall not apply to 
        property placed in service after December 31, 2014.
  (k) Special Allowance for Certain Property [Acquired After 
December 31, 2007, and Before January 1, 2015].--
          (1) Additional allowance.--In the case of any 
        qualified 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 allowance equal to 50 percent of the 
                adjusted basis of the qualified property, and
                  (B) the adjusted basis of the qualified 
                property shall be reduced by the amount of such 
                deduction before computing the amount otherwise 
                allowable as a depreciation deduction under 
                this chapter for such taxable year and any 
                subsequent taxable year.
          [(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, or
                                  [(IV) which is qualified 
                                leasehold improvement property,
                          [(ii) the original use of which 
                        commences with the taxpayer after 
                        December 31, 2007,
                          [(iii) which is--
                                  [(I) acquired by the taxpayer 
                                after December 31, 2007, and 
                                before January 1, 2015, but 
                                only if no written binding 
                                contract for the acquisition 
                                was in effect before January 1, 
                                2008, or
                                  [(II) acquired by the 
                                taxpayer pursuant to a written 
                                binding contract which was 
                                entered into after December 31, 
                                2007, and before January 1, 
                                2015, and
                          [(iv) which is placed in service by 
                        the taxpayer before January 1, 2015, 
                        or, in the case of property described 
                        in subparagraph (B) or (C), before 
                        January 1, 2016.
                  [(B) Certain property having longer 
                production periods treated as qualified 
                property.--
                          [(i) In general.--The term 
                        ``qualified property'' includes any 
                        property if such property--
                                  [(I) meets the requirements 
                                of clauses (i), (ii), (iii), 
                                and (iv) of subparagraph (A),
                                  [(II) has a recovery period 
                                of at least 10 years or is 
                                transportation property,
                                  [(III) is subject to section 
                                263A, and
                                  [(IV) meets the requirements 
                                of clause (iii) of section 
                                263A(f)(1)(B) (determined as if 
                                such clause also applies to 
                                property which has a long 
                                useful life (within the meaning 
                                of section 263A(f))).
                          [(ii) Only pre-January 1, 2015, 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, 2015.
                          [(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.
                          [(iv) Application of subparagraph.--
                        This subparagraph shall not apply to 
                        any property which is described in 
                        subparagraph (C).
                  [(C) Certain aircraft.--The term ``qualified 
                property'' includes property--
                          [(i) which meets the requirements of 
                        clauses (ii), (iii), and (iv) of 
                        subparagraph (A),
                          [(ii) which is an aircraft which is 
                        not a transportation property (as 
                        defined in subparagraph (B)(iii)) other 
                        than for agricultural or firefighting 
                        purposes,
                          [(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--
                                  [(I) 10 percent of the cost, 
                                or
                                  [(II) $100,000, and
                          [(iv) which has--
                                  [(I) an estimated production 
                                period exceeding 4 months, and
                                  [(II) a cost exceeding 
                                $200,000.
                  [(D) Exceptions.--
                          [(i) 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).
                          [(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)).
                          [(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 apply to all property in such 
                        class placed in service during such 
                        taxable year.
                  [(E) Special rules.--
                          [(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, 2015.
                          [(ii) Sale-leasebacks.--For purposes 
                        of clause (iii) and subparagraph 
                        (A)(ii), if property is--
                                  [(I) originally placed in 
                                service after December 31, 
                                2007, 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).
                          [(iii) Syndication.--For purposes of 
                        subparagraph (A)(ii), if--
                                  [(I) property is originally 
                                placed in service after 
                                December 31, 2007, 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.
                          [(iv) Limitations related to users 
                        and related parties.--The term 
                        ``qualified property'' shall not 
                        include any property if--
                                  [(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
                                  [(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.
                  [(F) 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).
                  [(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.
          [(3) Qualified leasehold improvement property.--For 
        purposes of this subsection--
                  [(A) In general.--The term ``qualified 
                leasehold improvement property'' means any 
                improvement to an interior portion of a 
                building which is nonresidential real property 
                if--
                          [(i) such improvement is made under 
                        or pursuant to a lease (as defined in 
                        subsection (h)(7))--
                                  [(I) by the lessee (or any 
                                sublessee) of such portion, or
                                  [(II) by the lessor of such 
                                portion,
                          [(ii) such portion is to be occupied 
                        exclusively by the lessee (or any 
                        sublessee) of such portion, and
                          [(iii) such improvement is placed in 
                        service more than 3 years after the 
                        date the building was first placed in 
                        service.
                  [(B) Certain improvements not included.--Such 
                term shall not include any improvement for 
                which the expenditure is attributable to--
                          [(i) the enlargement of the building,
                          [(ii) any elevator or escalator,
                          [(iii) any structural component 
                        benefiting a common area, and
                          [(iv) the internal structural 
                        framework of the building.
                  [(C) Definitions and special rules.--For 
                purposes of this paragraph--
                          [(i) Commitment to lease treated as 
                        lease.--A commitment to enter into a 
                        lease shall be treated as a lease, and 
                        the parties to such commitment shall be 
                        treated as lessor and lessee, 
                        respectively.
                          [(ii) Related persons.--A lease 
                        between related persons shall not be 
                        considered a lease. For purposes of the 
                        preceding sentence, the term ``related 
                        persons'' means--
                                  [(I) members of an affiliated 
                                group (as defined in section 
                                1504), and
                                  [(II) persons having a 
                                relationship described in 
                                subsection (b) of section 267; 
                                except that, for purposes of 
                                this clause, the phrase ``80 
                                percent or more'' shall be 
                                substituted for the phrase 
                                ``more than 50 percent'' each 
                                place it appears in such 
                                subsection.
          [(4) Election to accelerate the AMT and research 
        credits in lieu of bonus depreciation.--
                  [(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--
                          [(i) paragraph (1) shall not apply to 
                        any eligible qualified property placed 
                        in service by the taxpayer,
                          [(ii) the applicable depreciation 
                        method used under this section with 
                        respect to such property shall be the 
                        straight line method, and
                          [(iii) each of the limitations 
                        described in subparagraph (B) for any 
                        such taxable year shall be increased by 
                        the bonus depreciation amount which 
                        is--
                                  [(I) determined for such 
                                taxable year under subparagraph 
                                (C), and
                                  [(II) allocated to such 
                                limitation under subparagraph 
                                (E).
                  [(B) Limitations to be increased.--The 
                limitations described in this subparagraph 
                are--
                          [(i) the limitation imposed by 
                        section 38(c), and
                          [(ii) the limitation imposed by 
                        section 53(c).
                  [(C) 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 
                                eligible 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 
                                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)(D), (b)(3)(D), or (g)(7) and 
                        without regard to subparagraph (A)(ii).
                          [(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.
                          [(iii) Maximum increase amount.--For 
                        purposes of clause (ii), the term 
                        ``maximum increase amount'' means, with 
                        respect to any corporation, the lesser 
                        of--
                                  [(I) $30,000,000, or
                                  [(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).
                          [(iv) 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.
                  [(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--
                          [(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,
                          [(ii) ``April 1, 2008'' shall be 
                        substituted for ``January 1, 2008'' in 
                        subparagraph (A)(iii)(I) thereof, and
                          [(iii) only adjusted basis 
                        attributable to manufacture, 
                        construction, or production--
                                  [(I) after March 31, 2008, 
                                and before January 1, 2010, and
                                  [(II) after December 31, 
                                2010, and before January 1, 
                                2015, shall be taken into 
                                account under subparagraph 
                                (B)(ii) thereof.
                  [(E) Allocation of bonus depreciation 
                amounts.--
                          [(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.
                          [(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--
                                  [(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
                                  [(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.
                          [(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--
                                  [(I) from taxable years 
                                beginning before January 1, 
                                2006, and
                                  [(II) properly allocable 
                                (determined under the rules of 
                                section 38(d)) to the research 
                                credit determined under section 
                                41(a).
                          [(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 
                        net minimum tax for taxable years 
                        beginning before January 1, 2006. For 
                        purposes of the preceding sentence, 
                        credits shall be treated as allowed on 
                        a first-in, first- out basis.
                  [(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).
                  [(G) Other rules.--
                          [(i) Election.--Any election under 
                        this paragraph (including any 
                        allocation under subparagraph (E)) may 
                        be revoked only with the consent of the 
                        Secretary.
                          [(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--
                                  [(I) paragraph (1) shall not 
                                apply to any eligible qualified 
                                property, and
                                  [(II) the applicable 
                                depreciation method used under 
                                this section with respect to 
                                such property shall be the 
                                straight line method.
                          [(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).
                  [(H) Special rules for extension property.--
                          [(i) 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--
                                  [(I) the taxpayer may elect 
                                not to have this paragraph 
                                apply to extension property, 
                                but
                                  [(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.
                          [(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--
                                  [(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
                                  [(II) if the taxpayer makes 
                                the election under subclause 
                                (I), this paragraph shall only 
                                apply to eligible qualified 
                                property which is extension 
                                property.
                          [(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).
                  [(I) Special rules for round 2 extension 
                property.--
                          [(i) In general.--In the case of 
                        round 2 extension property, this 
                        paragraph shall be applied without 
                        regard to--
                                  [(I) the limitation described 
                                in subparagraph (B)(i) thereof, 
                                and
                                  [(II) the business credit 
                                increase amount under 
                                subparagraph (E)(iii) thereof.
                          [(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--
                                  [(I) the taxpayer may elect 
                                not to have this paragraph 
                                apply to round 2 extension 
                                property, but
                                  [(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.
                          [(iii) Taxpayers not previously 
                        electing acceleration.--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--
                                  [(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
                                  [(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.
                          [(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 application 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).
                  [(J) Special rules for round 3 extension 
                property.--
                          [(i) In general.--In the case of 
                        round 3 extension property, this 
                        paragraph shall be applied without 
                        regard to--
                                  [(I) the limitation described 
                                in subparagraph (B)(i) thereof, 
                                and
                                  [(II) the business credit 
                                increase amount under 
                                subparagraph (E)(iii) thereof.
                          [(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--
                                  [(I) the taxpayer may elect 
                                not to have this paragraph 
                                apply to round 3 extension 
                                property, but
                                  [(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.
                          [(iii) Taxpayers not previously 
                        electing acceleration.--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 its first 
                        taxable year ending after December 31, 
                        2010--
                                  [(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
                                  [(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.
                          [(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 application 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).
                  [(K) Special rules for round 4 extension 
                property.--
                          [(i) In general.--In the case of 
                        round 4 extension property, in applying 
                        this paragraph to any taxpayer--
                                  [(I) the limitation described 
                                in subparagraph (B)(i) and the 
                                business credit increase amount 
                                under subparagraph (E)(iii) 
                                thereof shall not apply, and
                                  [(II) the bonus depreciation 
                                amount, maximum amount, and 
                                maximum increase amount shall 
                                be computed separately from 
                                amounts computed with respect 
                                to eligible qualified property 
                                which is not round 4 extension 
                                property.
                          [(ii) Election.--
                                  [(I) A taxpayer who has an 
                                election in effect under this 
                                paragraph for round 3 extension 
                                property shall be treated as 
                                having an election in effect 
                                for round 4 extension property 
                                unless the taxpayer elects to 
                                not have this paragraph apply 
                                to round 4 extension property.
                                  [(II) A taxpayer who does not 
                                have an election in effect 
                                under this paragraph for round 
                                3 extension property may elect 
                                to have this paragraph apply to 
                                round 4 extension property.
                          [(iii) Round 4 extension property.--
                        For purposes of this subparagraph, the 
                        term `round 4 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 125(a) of the Tax Increase 
                        Prevention Act of 2014 (and the 
                        application of such extension to this 
                        paragraph pursuant to the amendment 
                        made by section 125(c) of such Act).
          [(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''.]
          (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, or
                          (IV) which is qualified 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).
                          (iii) Inflation adjustment.--In the 
                        case of any taxable year beginning in a 
                        calendar year after 2015, 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 ``2014'' 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.
          (3) Qualified improvement property.--For purposes of 
        this subsection--
                  (A) In general.--The term ``qualified 
                improvement property'' means any improvement to 
                an interior portion of a building which is 
                nonresidential real property if such 
                improvement is placed in service after the date 
                such building was first placed in service.
                  (B) Certain improvements not included.--Such 
                term shall not include any improvement for 
                which the expenditure is attributable to--
                          (i) the enlargement of the building,
                          (ii) any elevator or escalator, or
                          (iii) the internal structural 
                        framework of the building.
          (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) and (2)(D) shall 
                        not apply to any qualified property 
                        placed in service during such taxable 
                        year,
                          (ii) the applicable depreciation 
                        method used under this section with 
                        respect to such 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 (and, in the case of 
                                any such property which is a 
                                passenger automobile (as 
                                defined in section 280F(d)(5)), 
                                if paragraph (2)(D) applied to 
                                such automobile), 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 paragraphs 
                                (1) and (2)(D) 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 subparagraph (A) or 
                        subsection (b)(2)(D), (b)(3)(D), or 
                        (g)(7).
                          (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, 2014, 
                                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, 2015 (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) and (2)(D) 
                                shall not apply to any 
                                qualified property placed in 
                                service during such taxable 
                                year, and
                                  (II) the applicable 
                                depreciation method used under 
                                this section with respect to 
                                such 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 certain plants bearing fruits 
        and nuts.--
                  (A) In general.--In the case of any specified 
                plant 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)) during a taxable year for 
                which the taxpayer has elected the application 
                of this paragraph--
                          (i) a depreciation deduction equal to 
                        50 percent of the adjusted basis of 
                        such specified plant shall be allowed 
                        under section 167(a) for the taxable 
                        year in which such specified plant is 
                        so planted or grafted, and
                          (ii) the adjusted basis of such 
                        specified plant shall be reduced by the 
                        amount of such deduction.
                  (B) Specified plant.--For purposes of this 
                paragraph, the term ``specified plant'' means--
                          (i) any tree or vine which bears 
                        fruits or nuts, and
                          (ii) any other plant which will have 
                        more than one yield of fruits or nuts 
                        and which generally has a period of 
                        more than 2 years from the time of 
                        planting or grafting to the time at 
                        which such plant begins bearing fruits 
                        or nuts.
                Such term shall not include any property which 
                is planted or grafted outside of the United 
                States.
                  (C) Election revocable only with consent.--An 
                election under this paragraph may be revoked 
                only with the consent of the Secretary.
                  (D) Additional depreciation may be claimed 
                only once.--If this paragraph applies to any 
                specified plant, such specified plant shall not 
                be treated as qualified property in the taxable 
                year in which placed in service.
                  (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, paragraphs (1) and 
        (2)(D) shall not apply to any qualified property in 
        such class placed in service 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) Additional allowance.--In the case of any 
        qualified second generation biofuel plant 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 allowance equal to 50 percent of the 
                adjusted basis of such property, and
                  (B) the adjusted basis of such property shall 
                be reduced by the amount of such deduction 
                before computing the amount otherwise allowable 
                as a depreciation deduction under this chapter 
                for such taxable year and any subsequent 
                taxable year.
          (2) Qualified second generation biofuel plant 
        property.--The term ``qualified second generation 
        biofuel plant property'' means property of a character 
        subject to the allowance for depreciation--
                  (A) which is used in the United States solely 
                to produce second generation biofuel (as 
                defined in section 40(b)(6)(E)),
                  (B) the original use of which commences with 
                the taxpayer after the date of the enactment of 
                this subsection,
                  (C) which is acquired by the taxpayer by 
                purchase (as defined in section 179(d)) after 
                the date of the enactment of this subsection, 
                but only if no written binding contract for the 
                acquisition was in effect on or before the date 
                of the enactment of this subsection, and
                  (D) which is placed in service by the 
                taxpayer before January 1, 2015.
          (3) Exceptions.--
                  (A) Bonus depreciation property under 
                subsection (k).--Such term shall not include 
                any property to which [section 168(k)] 
                subsection (k) applies.
                  (B) Alternative depreciation property.--Such 
                term shall not include any property described 
                in [section 168(k)(2)(D)(i)] subsection 
                (k)(2)(B).
                  (C) Tax-exempt bond-financed property.--Such 
                term shall not include any property any portion 
                of which is financed with the proceeds of any 
                obligation the interest on which is exempt from 
                tax under section 103.
                  (D) Election out.--If a taxpayer makes an 
                election under this subparagraph 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 during such 
                taxable year.
          (4) Special rules.--For purposes of this subsection, 
        rules similar to the rules of [subparagraph (E) of 
        section 168(k)(2) shall apply, except that such 
        subparagraph shall be applied--] subsection (k)(2)(C) 
        shall apply.
                  [(A) by substituting ``the date of the 
                enactment of subsection (l)'' for ``December 
                31, 2007'' each place it appears therein, and
                  [(B) by substituting ``qualified second 
                generation biofuel plant property'' for 
                ``qualified property'' in clause (iv) thereof.]
          (5) Allowance against alternative minimum tax.--For 
        purposes of this subsection, rules similar to the rules 
        of [section 168(k)(2)(G)] subsection (k)(2)(E) shall 
        apply.
          (6) Recapture.--For purposes of this subsection, 
        rules similar to the rules under section 179(d)(10) 
        shall apply with respect to any qualified second 
        generation biofuel plant property which ceases to be 
        qualified second generation biofuel plant property.
          (7) Denial of double benefit.--Paragraph (1) shall 
        not apply to any qualified second generation biofuel 
        plant property with respect to which an election has 
        been made under section 179C (relating to election to 
        expense certain refineries).
  (m) Special Allowance for Certain Reuse and Recycling 
Property.--
          (1) In general.--In the case of any qualified reuse 
        and recycling 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 allowance equal to 50 percent of the 
                adjusted basis of the qualified reuse and 
                recycling property, and
                  (B) the adjusted basis of the qualified reuse 
                and recycling property shall be reduced by the 
                amount of such deduction before computing the 
                amount otherwise allowable as a depreciation 
                deduction under this chapter for such taxable 
                year and any subsequent taxable year.
          (2) Qualified reuse and recycling property.--For 
        purposes of this subsection--
                  (A) In general.--The term ``qualified reuse 
                and recycling property'' means any reuse and 
                recycling property--
                          (i) to which this section applies,
                          (ii) which has a useful life of at 
                        least 5 years,
                          (iii) the original use of which 
                        commences with the taxpayer after 
                        August 31, 2008, and
                          (iv) which is--
                                  (I) acquired by purchase (as 
                                defined in section 179(d)(2)) 
                                by the taxpayer after August 
                                31, 2008, but only if no 
                                written binding contract for 
                                the acquisition was in effect 
                                before September 1, 2008, or
                                  (II) acquired by the taxpayer 
                                pursuant to a written binding 
                                contract which was entered into 
                                after August 31, 2008.
                  (B) Exceptions.--
                          (i) Bonus depreciation property under 
                        subsection (k).--The term ``qualified 
                        reuse and recycling property'' shall 
                        not include any property to which 
                        subsection (k) (determined without 
                        regard to paragraph (4) thereof) 
                        applies.
                          (ii) Alternative depreciation 
                        property.--The term ``qualified reuse 
                        and recycling property'' shall not 
                        include any property to which the 
                        alternative depreciation system under 
                        subsection (g) applies, determined 
                        without regard to paragraph (7) of 
                        subsection (g) (relating to election to 
                        have system apply).
                          (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 apply to all property in such 
                        class placed in service during such 
                        taxable year.
                  (C) Special rule for self-constructed 
                property.--In the case of a taxpayer 
                manufacturing, constructing, or producing 
                property for the taxpayer's own use, the 
                requirements of clause (iv) of subparagraph (A) 
                shall be treated as met if the taxpayer begins 
                manufacturing, constructing, or producing the 
                property after August 31, 2008.
                  (D) Deduction allowed in computing minimum 
                tax.--For purposes of determining alternative 
                minimum taxable income under section 55, the 
                deduction under subsection (a) for qualified 
                reuse and recycling property shall be 
                determined under this section without regard to 
                any adjustment under section 56.
          (3) Definitions.--For purposes of this subsection--
                  (A) Reuse and recycling property.--
                          (i) In general.--The term ``reuse and 
                        recycling property'' means any 
                        machinery and equipment (not including 
                        buildings or real estate), along with 
                        all appurtenances thereto, including 
                        software necessary to operate such 
                        equipment, which is used exclusively to 
                        collect, distribute, or recycle 
                        qualified reuse and recyclable 
                        materials.
                          (ii) Exclusion.--Such term does not 
                        include rolling stock or other 
                        equipment used to transport reuse and 
                        recyclable materials.
                  (B) Qualified reuse and recyclable 
                materials.--
                          (i) In general.--The term ``qualified 
                        reuse and recyclable materials'' means 
                        scrap plastic, scrap glass, scrap 
                        textiles, scrap rubber, scrap 
                        packaging, recovered fiber, scrap 
                        ferrous and nonferrous metals, or 
                        electronic scrap generated by an 
                        individual or business.
                          (ii) Electronic scrap.--For purposes 
                        of clause (i), the term ``electronic 
                        scrap'' means--
                                  (I) any cathode ray tube, 
                                flat panel screen, or similar 
                                video display device with a 
                                screen size greater than 4 
                                inches measured diagonally, or
                                  (II) any central processing 
                                unit.
                  (C) Recycling or recycle.--The term 
                ``recycling'' or ``recycle'' means that process 
                (including sorting) by which worn or 
                superfluous materials are manufactured or 
                processed into specification grade commodities 
                that are suitable for use as a replacement or 
                substitute for virgin materials in 
                manufacturing tangible consumer and commercial 
                products, including packaging.
  (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 allowance equal to 50 percent of the 
                adjusted basis of the qualified disaster 
                assistance property, and
                  (B) the adjusted basis of the qualified 
                disaster assistance property shall be reduced 
                by the amount of such deduction before 
                computing the amount otherwise allowable as a 
                depreciation deduction under this chapter for 
                such taxable year and any subsequent taxable 
                year.
          (2) Qualified disaster assistance property.--For 
        purposes of this subsection--
                  (A) In general.--The term ``qualified 
                disaster assistance property'' means any 
                property--
                          (i)(I) which is described in 
                        subsection (k)(2)(A)(i), or
                                  (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 
                                respect 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 
                                damaged, or replaces property 
                                destroyed or condemned, as a 
                                result of such federally 
                                declared disaster, except that, 
                                for purposes of this clause, 
                                property shall be treated as 
                                replacing property destroyed or 
                                condemned if, as part of an 
                                integrated plan, such property 
                                replaces property which is 
                                included in a continuous area 
                                which includes real property 
                                destroyed or condemned, and
                                  (II) is similar in nature to, 
                                and located in the same county 
                                as, the property being 
                                rehabilitated or replaced,
                          (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 contract 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 nonresidential real 
                        property and residential rental 
                        property).
                  (B) Exceptions.--
                          (i) Other bonus depreciation 
                        property.--The term ``qualified 
                        disaster assistance property'' shall 
                        not include--
                                  (I) any property to which 
                                subsection (k) (determined 
                                without regard to paragraph 
                                (4)), (l), or (m) applies,
                                  (II) any property to which 
                                section 1400N(d) applies, and
                                  (III) any property described 
                                in section 1400N(p)(3).
                          (ii) Alternative depreciation 
                        property.--The term ``qualified 
                        disaster assistance property'' shall 
                        not include any property to which the 
                        alternative depreciation system under 
                        subsection (g) applies, determined 
                        without regard to paragraph (7) of 
                        subsection (g) (relating to election to 
                        have system apply).
                          (iii) Tax-exempt bond financed 
                        property.--Such term shall not include 
                        any property any portion of which is 
                        financed with the proceeds of any 
                        obligation the interest on which is 
                        exempt from tax under section 103.
                          (iv) Qualified revitalization 
                        buildings.--Such term shall not include 
                        any qualified revitalization building 
                        with respect to which the taxpayer has 
                        elected the application of paragraph 
                        (1) or (2) of section 1400I(a).
                          (v) 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 apply to all property in such 
                        class placed in service during such 
                        taxable year.
                  (C) Special rules.--For purposes of this 
                subsection, rules similar to the rules of 
                subparagraph (E) of subsection (k)(2) shall 
                apply, except that such subparagraph shall be 
                applied--
                          (i) by substituting ``the applicable 
                        disaster date'' for ``December 31, 
                        2007'' each place it appears therein,
                          (ii) without regard to ``and before 
                        January 1, 2015'' in clause (i) 
                        thereof, and
                          (iii) by substituting ``qualified 
                        disaster assistance property'' for 
                        ``qualified property'' in clause (iv) 
                        thereof.
                  (D) Allowance against alternative minimum 
                tax.--For purposes of this subsection, rules 
                similar to the rules of subsection (k)(2)(G) 
                shall apply.
          (3) Other definitions.--For purposes of this 
        subsection--
                  (A) Applicable disaster date.--The term 
                ``applicable disaster date'' means, with 
                respect to any federally declared disaster, the 
                date on which such federally declared disaster 
                occurs.
                  (B) Federally declared disaster.--The term 
                ``federally declared disaster'' has the meaning 
                given such term under section 165(h)(3)(C)(i).
                  (C) Disaster area.--The term ``disaster 
                area'' has the meaning given such term under 
                section 165(h)(3)(C)(ii).
                  (D) Eligible taxpayer.--The term ``eligible 
                taxpayer'' means a taxpayer who has suffered an 
                economic loss attributable to a federally 
                declared disaster.
          (4) Recapture.--For purposes of this subsection, 
        rules similar to the rules under section 179(d)(10) 
        shall apply with respect to any qualified disaster 
        assistance property which ceases to be qualified 
        disaster assistance property.

           *       *       *       *       *       *       *


PART IX--ITEMS NOT DEDUCTIBLE

           *       *       *       *       *       *       *



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

  (a) Nondeductibility of Certain Direct and Indirect Costs.--
          (1) In general.--In the case of any property to which 
        this section applies, any costs described in paragraph 
        (2)--
                  (A) in the case of property which is 
                inventory in the hands of the taxpayer, shall 
                be included in inventory costs, and
                  (B) in the case of any other property, shall 
                be capitalized.
          (2) Allocable costs.--The costs described in this 
        paragraph with respect to any property are--
                  (A) the direct costs of such property, and
                  (B) such property's proper share of those 
                indirect costs (including taxes) part or all of 
                which are allocable to such property.
        Any cost which (but for this subsection) could not be 
        taken into account in computing taxable income for any 
        taxable year shall not be treated as a cost described 
        in this paragraph.
  (b) Property to Which Section Applies.--Except as otherwise 
provided in this section, this section shall apply to--
          (1) Property produced by taxpayer.--Real or tangible 
        personal property produced by the taxpayer.
          (2) Property acquired for resale.--
                  (A) In general.--Real or personal property 
                described in section 1221(a)(1) which is 
                acquired by the taxpayer for resale.
                  (B) Exception for taxpayer with gross 
                receipts of $10,000,000 or less.--Subparagraph 
                (A) shall not apply to any personal property 
                acquired during any taxable year by the 
                taxpayer for resale if the average annual gross 
                receipts of the taxpayer (or any predecessor) 
                for the 3-taxable year period ending with the 
                taxable year preceding such taxable year do not 
                exceed $10,000,000.
                  (C) Aggregation rules, etc..--For purposes of 
                subparagraph (B), rules similar to the rules of 
                paragraphs (2) and (3) of section 448(c) shall 
                apply.
        For purposes of paragraph (1), the term ``tangible 
        personal property'' shall include a film, sound 
        recording, video tape, book, or similar property.
  (c) General Exceptions.--
          (1) Personal use property.--This section shall not 
        apply to any property produced by the taxpayer for use 
        by the taxpayer other than in a trade or business or an 
        activity conducted for profit.
          (2) Research and experimental expenditures.--This 
        section shall not apply to any amount allowable as a 
        deduction under section 174.
          (3) Certain development and other costs of oil and 
        gas wells or other mineral property.--This section 
        shall not apply to any cost allowable as a deduction 
        under section 167(h), 179B, 263(c), 263(i), 291(b)(2), 
        616, or 617.
          (4) Coordination with long-term contract rules.--This 
        section shall not apply to any property produced by the 
        taxpayer pursuant to a long-term contract.
          (5) Timber and certain ornamental trees.--This 
        section shall not apply to--
                  (A) trees raised, harvested, or grown by the 
                taxpayer other than trees described in clause 
                (ii) of subsection (e)(4)(B) (after application 
                of the last sentence thereof), and
                  (B) any real property underlying such trees.
          (6) Coordination with section 59(e).--Paragraphs (2) 
        and (3) shall apply to any amount allowable as a 
        deduction under section 59(e) for qualified 
        expenditures described in subparagraphs (B), (C), (D), 
        and (E) of paragraph (2) thereof.
          (7) Coordination with section 168(k)(5).--This 
        section shall not apply to any amount allowed as a 
        deduction by reason of section 168(k)(5) (relating to 
        special rules for certain plants bearing fruits and 
        nuts).
  (d) Exception for Farming Businesses.--
          (1) Section not to apply to certain property.--
                  (A) In general.--This section shall not apply 
                to any of the following which is produced by 
                the taxpayer in a farming business:
                          (i) Any animal.
                          (ii) Any plant which has a 
                        preproductive period of 2 years or 
                        less.
                  (B) Exception for taxpayers required to use 
                accrual method.--Subparagraph (A) shall not 
                apply to any corporation, partnership, or tax 
                shelter required to use an accrual method of 
                accounting under section 447 or 448(a)(3).
          (2) Treatment of certain plants lost by reason of 
        casualty.--
                  (A) In general.--If plants bearing an edible 
                crop for human consumption were lost or damaged 
                (while in the hands of the taxpayer) by reason 
                of freezing temperatures, disease, drought, 
                pests, or casualty, this section shall not 
                apply to any costs of the taxpayer of 
                replanting plants bearing the same type of crop 
                (whether on the same parcel of land on which 
                such lost or damaged plants were located or any 
                other parcel of land of the same acreage in the 
                United States).
                  (B) Special rule for person with minority 
                interest who materially participates.--
                Subparagraph (A) shall apply to amounts paid or 
                incurred by a person (other than the taxpayer 
                described in subparagraph (A)) if--
                          (i) the taxpayer described in 
                        subparagraph (A) has an equity interest 
                        of more than 50 percent in the plants 
                        described in subparagraph (A) at all 
                        times during the taxable year in which 
                        such amounts were paid or incurred, and
                          (ii) such other person holds any part 
                        of the remaining equity interest and 
                        materially participates in the 
                        planting, maintenance, cultivation, or 
                        development of such the plants 
                        described in subparagraph (A) during 
                        the taxable year in which such amounts 
                        were paid or incurred.
                The determination of whether an individual 
                materially participates in any activity shall 
                be made in a manner similar to the manner in 
                which such determination is made under section 
                2032A(e)(6).
          (3) Election to have this section not apply.--
                  (A) In general.--If a taxpayer makes an 
                election under this paragraph, this section 
                shall not apply to any plant produced in any 
                farming business carried on by such taxpayer.
                  (B) Certain persons not eligible.--No 
                election may be made under this paragraph by a 
                corporation, partnership, or tax shelter, if 
                such corporation, partnership, or tax shelter 
                is required to use an accrual method of 
                accounting under section 447 or 448(a)(3).
                  (C) Special rule for citrus and almond 
                growers.--An election under this paragraph 
                shall not apply with respect to any item which 
                is attributable to the planting, cultivation, 
                maintenance, or development of any citrus or 
                almond grove (or part thereof) and which is 
                incurred before the close of the 4th taxable 
                year beginning with the taxable year in which 
                the trees were planted. For purposes of the 
                preceding sentence, the portion of a citrus or 
                almond grove planted in 1 taxable year shall be 
                treated separately from the portion of such 
                grove planted in another taxable year.
                  (D) Election.--Unless the Secretary otherwise 
                consents, an election under this paragraph may 
                be made only for the taxpayer's 1st taxable 
                year which begins after December 31, 1986, and 
                during which the taxpayer engages in a farming 
                business. Any such election, once made, may be 
                revoked only with the consent of the Secretary.
  (e) Definitions and special rules for purposes of subsection 
(d)
          (1) Recapture of expensed amounts on disposition.--
                  (A) In general.--In the case of any plant 
                with respect to which amounts would have been 
                capitalized under subsection (a) but for an 
                election under subsection (d)(3)--
                          (i) such plant (if not otherwise 
                        section 1245 property) shall be treated 
                        as section 1245 property, and
                          (ii) for purposes of section 1245, 
                        the recapture amount shall be treated 
                        as a deduction allowed for depreciation 
                        with respect to such property.
                  (B) Recapture amount.--For purposes of 
                subparagraph (A), the term ``recapture amount'' 
                means any amount allowable as a deduction to 
                the taxpayer which, but for an election under 
                subsection (d)(3), would have been capitalized 
                with respect to the plant.
          (2) Effects of election on depreciation.--
                  (A) In general.--If the taxpayer (or any 
                related person) makes an election under 
                subsection (d)(3), the provisions of section 
                168(g)(2) (relating to alternative 
                depreciation) shall apply to all property of 
                the taxpayer used predominantly in the farming 
                business and placed in service in any taxable 
                year during which any such election is in 
                effect.
                  (B) Related person.--For purposes of 
                subparagraph (A), the term ``related person'' 
                means--
                          (i) the taxpayer and members of the 
                        taxpayer's family,
                          (ii) any corporation (including an S 
                        corporation) if 50 percent or more (in 
                        value) of the stock of such corporation 
                        is owned (directly or through the 
                        application of section 318) by the 
                        taxpayer or members of the taxpayer's 
                        family,
                          (iii) a corporation and any other 
                        corporation which is a member of the 
                        same controlled group described in 
                        section 1563(a)(1), and
                          (iv) any partnership if 50 percent or 
                        more (in value) of the interests in 
                        such partnership is owned directly or 
                        indirectly by the taxpayer or members 
                        of the taxpayer's family.
                  (C) Members of family.--For purposes of this 
                paragraph, the term ``family'' means the 
                taxpayer, the spouse of the taxpayer, and any 
                of their children who have not attained age 18 
                before the close of the taxable year.
          (3) Preproductive period.--
                  (A) In general.--For purposes of this 
                section, the term ``preproductive period'' 
                means--
                          (i) in the case of a plant which will 
                        have more than 1 crop or yield, the 
                        period before the 1st marketable crop 
                        or yield from such plant, or
                          (ii) in the case of any other plant, 
                        the period before such plant is 
                        reasonably expected to be disposed of.
                For purposes of this subparagraph, use by the 
                taxpayer in a farming business of any supply 
                produced in such business shall be treated as a 
                disposition.
                  (B) Rule for determining period.--In the case 
                of a plant grown in commercial quantities in 
                the United States, the preproductive period for 
                such plant if grown in the United States shall 
                be based on the nationwide weighted average 
                preproductive period for such plant.
          (4) Farming business.--For purposes of this section--
                  (A) In general.--The term ``farming 
                business'' means the trade or business of 
                farming.
                  (B) Certain trades and businesses included.--
                The term ``farming business'' shall include the 
                trade or business of--
                          (i) operating a nursery or sod farm, 
                        or
                          (ii) the raising or harvesting of 
                        trees bearing fruit, nuts, or other 
                        crops, or ornamental trees.
                For purposes of clause (ii), an evergreen tree 
                which is more than 6 years old at the time 
                severed from the roots shall not be treated as 
                an ornamental tree.
          (5) Certain inventory valuation methods permitted.--
        The Secretary shall by regulations permit the taxpayer 
        to use reasonable inventory valuation methods to 
        compute the amount required to be capitalized under 
        subsection (a) in the case of any plant.
  (f) Special Rules for Allocation of Interest to Property 
Produced by the Taxpayer.--
          (1) Interest capitalized only in certain cases.--
        Subsection (a) shall only apply to interest costs which 
        are--
                  (A) paid or incurred during the production 
                period, and
                  (B) allocable to property which is described 
                in subsection (b)(1) and which has--
                          (i) a long useful life,
                          (ii) an estimated production period 
                        exceeding 2 years, or
                          (iii) an estimated production period 
                        exceeding 1 year and a cost exceeding 
                        $1,000,000.
          (2) Allocation rules.--
                  (A) In general.--In determining the amount of 
                interest required to be capitalized under 
                subsection (a) with respect to any property--
                          (i) interest on any indebtedness 
                        directly attributable to production 
                        expenditures with respect to such 
                        property shall be assigned to such 
                        property, and
                          (ii) interest on any other 
                        indebtedness shall be assigned to such 
                        property to the extent that the 
                        taxpayer's interest costs could have 
                        been reduced if production expenditures 
                        (not attributable to indebtedness 
                        described in clause (i)) had not been 
                        incurred.
                  (B) Exception for qualified residence 
                interest.--Subparagraph (A) shall not apply to 
                any qualified residence interest (within the 
                meaning of section 163(h)).
                  (C) Special rule for flow-through entities.--
                Except as provided in regulations, in the case 
                of any flow-through entity, this paragraph 
                shall be applied first at the entity level and 
                then at the beneficiary level.
          (3) Interest relating to property used to produce 
        property.--This subsection shall apply to any interest 
        on indebtedness allocable (as determined under 
        paragraph (2)) to property used to produce property to 
        which this subsection applies to the extent such 
        interest is allocable (as so determined) to the 
        produced property.
          (4) Definitions.--For purposes of this subsection--
                  (A) Long useful life.--Property has a long 
                useful life if such property is--
                          (i) real property, or
                          (ii) property with a class life of 20 
                        years or more (as determined under 
                        section 168).
                  (B) Production period.--The term ``production 
                period'' means, when used with respect to any 
                property, the period--
                          (i) beginning on the date on which 
                        production of the property begins, and
                          (ii) ending on the date on which the 
                        property is ready to be placed in 
                        service or is ready to be held for 
                        sale.
                  (C) Production expenditures.--The term 
                ``production expenditures'' means the costs 
                (whether or not incurred during the production 
                period) required to be capitalized under 
                subsection (a) with respect to the property.
  (g) Production.--For purposes of this section--
          (1) In general.--The term ``produce'' includes 
        construct, build, install, manufacture, develop, or 
        improve.
          (2) Treatment of property produced under contract for 
        the taxpayer.--The taxpayer shall be treated as 
        producing any property produced for the taxpayer under 
        a contract with the taxpayer; except that only costs 
        paid or incurred by the taxpayer (whether under such 
        contract or otherwise) shall be taken into account in 
        applying subsection (a) to the taxpayer.
  (h) Exemption for Free Lance Authors, Photographers, and 
Artists.--
          (1) In general.--Nothing in this section shall 
        require the capitalization of any qualified creative 
        expense.
          (2) Qualified creative expense.--For purposes of this 
        subsection, the term ``qualified creative expense'' 
        means any expense--
                  (A) which is paid or incurred by an 
                individual in the trade or business of such 
                individual (other than as an employee) of being 
                a writer, photographer, or artist, and
                  (B) which, without regard to this section, 
                would be allowable as a deduction for the 
                taxable year.
        Such term does not include any expense related to 
        printing, photographic plates, motion picture films, 
        video tapes, or similar items.
          (3) Definitions.--For purposes of this subsection--
                  (A) Writer.--The term ``writer'' means any 
                individual if the personal efforts of such 
                individual create (or may reasonably be 
                expected to create) a literary manuscript, 
                musical composition (including any accompanying 
                words), or dance score.
                  (B) Photographer.--The term ``photographer'' 
                means any individual if the personal efforts of 
                such individual create (or may reasonably be 
                expected to create) a photograph or 
                photographic negative or transparency.
                  (C) Artist.--
                          (i) In general.--The term ``artist'' 
                        means any individual if the personal 
                        efforts of such individual create (or 
                        may reasonably be expected to create) a 
                        picture, painting, sculpture, statue, 
                        etching, drawing, cartoon, graphic 
                        design, or original print edition.
                          (ii) Criteria.--In determining 
                        whether any expense is paid or incurred 
                        in the trade or business of being an 
                        artist, the following criteria shall be 
                        taken into account:
                                  (I) The originality and 
                                uniqueness of the item created 
                                (or to be created).
                                  (II) The predominance of 
                                aesthetic value over 
                                utilitarian value of the item 
                                created (or to be created).
                  (D) Treatment of certain corporations.--
                          (i) In general.--If--
                                  (I) substantially all of the 
                                stock of a corporation is owned 
                                by a qualified employee-owner 
                                and members of his family (as 
                                defined in section 267(c)(4)), 
                                and
                                  (II) the principal activity 
                                of such corporation is 
                                performance of personal 
                                services directly related to 
                                the activities of the qualified 
                                employee-owner and such 
                                services are substantially 
                                performed by the qualified 
                                employee-owner,
                        this subsection shall apply to any 
                        expense of such corporation which 
                        directly relates to the activities of 
                        such employee-owner in the same manner 
                        as if such expense were incurred by 
                        such employee-owner.
                          (ii) Qualified employee-owner.--For 
                        purposes of this subparagraph, the term 
                        ``qualified employee-owner'' means any 
                        individual who is an employee-owner of 
                        the corporation (as defined in section 
                        269A(b)(2)) and who is a writer, 
                        photographer, or artist.
  (i) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including--
          (1) regulations to prevent the use of related 
        parties, pass-thru entities, or intermediaries to avoid 
        the application of this section, and
          (2) regulations providing for simplified procedures 
        for the application of this section in the case of 
        property described in subsection (b)(2).

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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

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

  (a) Requirement That Percentage of Completion Method be 
Used.--In the case of any long-term contract, the taxable 
income from such contract shall be determined under the 
percentage of completion method (as modified by subsection 
(b)).
  (b) Percentage of Completion Method.--
          (1) Requirements of percentage of completion 
        method.--Except as provided in paragraph (3), in the 
        case of any long-term contract with respect to which 
        the percentage of completion method is used--
                  (A) the percentage of completion shall be 
                determined by comparing costs allocated to the 
                contract under subsection (c) and incurred 
                before the close of the taxable year with the 
                estimated total contract costs, and
                  (B) upon completion of the contract (or, with 
                respect to any amount properly taken into 
                account after completion of the contract, when 
                such amount is so properly taken into account), 
                the taxpayer shall pay (or shall be entitled to 
                receive) interest computed under the look-back 
                method of paragraph (2).
        In the case of any long-term contract with respect to 
        which the percentage of completion method is used, 
        except for purposes of applying the look-back method of 
        paragraph (2), any income under the contract (to the 
        extent not previously includible in gross income) shall 
        be included in gross income for the taxable year 
        following the taxable year in which the contract was 
        completed. For purposes of subtitle F (other than 
        sections 6654 and 6655), any interest required to be 
        paid by the taxpayer under subparagraph (B) shall be 
        treated as an increase in the tax imposed by this 
        chapter for the taxable year in which the contract is 
        completed (or, in the case of interest payable with 
        respect to any amount properly taken into account after 
        completion of the contract, for the taxable year in 
        which the amount is so properly taken into account).
          (2) Look-back method.--The interest computed under 
        the look-back method of this paragraph shall be 
        determined by--
                  (A) first allocating income under the 
                contract among taxable years before the year in 
                which the contract is completed on the basis of 
                the actual contract price and costs instead of 
                the estimated contract price and costs,
                  (B) second, determining (solely for purposes 
                of computing such interest) the overpayment or 
                underpayment of tax for each taxable year 
                referred to in subparagraph (A) which would 
                result solely from the application of 
                subparagraph (A), and
                  (C) then using the adjusted overpayment rate 
                (as defined in paragraph (7)), compounded 
                daily, on the overpayment or underpayment 
                determined under subparagraph (B).
        For purposes of the preceding sentence, any amount 
        properly taken into account after completion of the 
        contract shall be taken into account by discounting 
        (using the Federal mid-term rate determined under 
        section 1274(d) as of the time such amount was properly 
        taken into account) such amount to its value as of the 
        completion of the contract. The taxpayer may elect with 
        respect to any contract to have the preceding sentence 
        not apply to such contract.
          (3) Special rules.--
                  (A) Simplified method of cost allocation.--In 
                the case of any long-term contract, the 
                Secretary may prescribe a simplified procedure 
                for allocation of costs to such contract in 
                lieu of the method of allocation under 
                subsection (c).
                  (B) Look-back method not to apply to certain 
                contracts.--Paragraph (1)(B) shall not apply to 
                any contract--
                          (i) the gross price of which (as of 
                        the completion of the contract) does 
                        not exceed the lesser of--
                                  (I) $1,000,000, or
                                  (II) 1 percent of the average 
                                annual gross receipts of the 
                                taxpayer for the 3 taxable 
                                years preceding the taxable 
                                year in which the contract was 
                                completed, and
                          (ii) which is completed within 2 
                        years of the contract commencement 
                        date.
                For purposes of this subparagraph, rules 
                similar to the rules of subsections (e)(2) and 
                (f)(3) shall apply.
          (4) Simplified look-back method for pass-thru 
        entities.--
                  (A) In general.--In the case of a pass-thru 
                entity--
                          (i) the look-back method of paragraph 
                        (2) shall be applied at the entity 
                        level,
                          (ii) in determining overpayments and 
                        underpayments for purposes of applying 
                        paragraph (2)(B)--
                                  (I) any increase in the 
                                income under the contract for 
                                any taxable year by reason of 
                                the allocation under paragraph 
                                (2)(A) shall be treated as 
                                giving rise to an underpayment 
                                determined by applying the 
                                highest rate for such year to 
                                such increase, and
                                  (II) any decrease in such 
                                income for any taxable year by 
                                reason of such allocation shall 
                                be treated as giving rise to an 
                                overpayment determined by 
                                applying the highest rate for 
                                such year to such decrease, and
                          (iii) any interest required to be 
                        paid by the taxpayer under paragraph 
                        (2) shall be paid by such entity (and 
                        any interest entitled to be received by 
                        the taxpayer under paragraph (2) shall 
                        be paid to such entity).
                  (B) Exceptions.--
                          (i) Closely held pass-thru 
                        entities.--This paragraph shall not 
                        apply to any closely held pass-thru 
                        entity.
                          (ii) Foreign contracts.--This 
                        paragraph shall not apply to any 
                        contract unless substantially all of 
                        the income from such contract is from 
                        sources in the United States.
                  (C) Other definitions.--For purposes of this 
                paragraph--
                          (i) Highest rate.--The term ``highest 
                        rate'' means--
                                  (I) the highest rate of tax 
                                specified in section 11, or
                                  (II) if at all times during 
                                the year involved more than 50 
                                percent of the interests in the 
                                entity are held by individuals 
                                directly or through 1 or more 
                                other pass-thru entities, the 
                                highest rate of tax specified 
                                in section 1.
                          (ii) Pass-thru entity.--The term 
                        ``pass-thru entity'' means any--
                                  (I) partnership,
                                  (II) S corporation, or
                                  (III) trust.
                          (iii) Closely held pass-thru 
                        entity.--The term ``closely held pass-
                        thru entity'' means any pass-thru 
                        entity if, at any time during any 
                        taxable year for which there is income 
                        under the contract, 50 percent or more 
                        (by value) of the beneficial interests 
                        in such entity are held (directly or 
                        indirectly) by or for 5 or fewer 
                        persons. For purposes of the preceding 
                        sentence, rules similar to the 
                        constructive ownership rules of section 
                        1563(e) shall apply.
          (5) Election to use 10-percent method.--
                  (A) General rule.--In the case of any long-
                term contract with respect to which an election 
                under this paragraph is in effect, the 10-
                percent method shall apply in determining the 
                taxable income from such contract.
                  (B) 10-percent method.--For purposes of this 
                paragraph--
                          (i) In general.--The 10-percent 
                        method is the percentage of completion 
                        method, modified so that any item which 
                        would otherwise be taken into account 
                        in computing taxable income with 
                        respect to a contract for any taxable 
                        year before the 10-percent year is 
                        taken into account in the 10-percent 
                        year.
                          (ii) 10-percent year.--The term ``10-
                        percent year'' means the 1st taxable 
                        year as of the close of which at least 
                        10 percent of the estimated total 
                        contract costs have been incurred.
                  (C) Election.--An election under this 
                paragraph shall apply to all long-term 
                contracts of the taxpayer which are entered 
                into during the taxable year in which the 
                election is made or any subsequent taxable 
                year.
                  (D) Coordination with other provisions.--
                          (i) Simplified method of cost 
                        allocation.--This paragraph shall not 
                        apply to any taxpayer which uses a 
                        simplified procedure for allocation of 
                        costs under paragraph (3)(A).
                          (ii) Look-back method.--The 10-
                        percent method shall be taken into 
                        account for purposes of applying the 
                        look-back method of paragraph (2) to 
                        any taxpayer making an election under 
                        this paragraph.
          (6) Election to have look-back method not apply in de 
        minimis cases.--
                  (A) Amounts taken into account after 
                completion of contract.--Paragraph (1)(B) shall 
                not apply with respect to any taxable year 
                (beginning after the taxable year in which the 
                contract is completed) if--
                          (i) the cumulative taxable income (or 
                        loss) under the contract as of the 
                        close of such taxable year, is within
                          (ii) 10 percent of the cumulative 
                        look-back taxable income (or loss) 
                        under the contract as of the close of 
                        the most recent taxable year to which 
                        paragraph (1)(B) applied (or would have 
                        applied but for subparagraph (B)).
                  (B) De minimis discrepancies.--Paragraph 
                (1)(B) shall not apply in any case to which it 
                would otherwise apply if--
                          (i) the cumulative taxable income (or 
                        loss) under the contract as of the 
                        close of each prior contract year, is 
                        within
                          (ii) 10 percent of the cumulative 
                        look-back income (or loss) under the 
                        contract as of the close of such prior 
                        contract year.
                  (C) Definitions.--For purposes of this 
                paragraph--
                          (i) Contract year.--The term 
                        ``contract year'' means any taxable 
                        year for which income is taken into 
                        account under the contract.
                          (ii) Look-back income or loss.--The 
                        look-back income (or loss) is the 
                        amount which would be the taxable 
                        income (or loss) under the contract if 
                        the allocation method set forth in 
                        paragraph (2)(A) were used in 
                        determining taxable income.
                          (iii) Discounting not applicable.--
                        The amounts taken into account after 
                        the completion of the contract shall be 
                        determined without regard to any 
                        discounting under the 2nd sentence of 
                        paragraph (2).
                  (D) Contracts to which paragraph applies.--
                This paragraph shall only apply if the taxpayer 
                makes an election under this subparagraph. 
                Unless revoked with the consent of the 
                Secretary, such an election shall apply to all 
                long-term contracts completed during the 
                taxable year for which election is made or 
                during any subsequent taxable year.
          (7) Adjusted overpayment rate.--
                  (A) In general.--The adjusted overpayment 
                rate for any interest accrual period is the 
                overpayment rate in effect under section 6621 
                for the calendar quarter in which such interest 
                accrual period begins.
                  (B) Interest accrual period.--For purposes of 
                subparagraph (A), the term ``interest accrual 
                period'' means the period--
                          (i) beginning on the day after the 
                        return due date for any taxable year of 
                        the taxpayer, and
                          (ii) ending on the return due date 
                        for the following taxable year.
                For purposes of the preceding sentence, the 
                term ``return due date'' means the date 
                prescribed for filing the return of the tax 
                imposed by this chapter (determined without 
                regard to extensions).
  (c) Allocation of Costs to Contract.--
          (1) Direct and certain indirect costs.--In the case 
        of a long-term contract, all costs (including research 
        and experimental costs) which directly benefit, or are 
        incurred by reason of, the long-term contract 
        activities of the taxpayer shall be allocated to such 
        contract in the same manner as costs are allocated to 
        extended period long-term contracts under section 451 
        and the regulations thereunder.
          (2) Costs identified under cost-plus and certain 
        Federal contracts.--In the case of a cost-plus long-
        term contract or a Federal long-term contract, any cost 
        not allocated to such contract under paragraph (1) 
        shall be allocated to such contract if such cost is 
        identified by the taxpayer (or a related person), 
        pursuant to the contract or Federal, State, or local 
        law or regulation, as being attributable to such 
        contract.
          (3) Allocation of production period interest to 
        contract.--
                  (A) In general.--Except as provided in 
                subparagraphs (B) and (C), in the case of a 
                long-term contract, interest costs shall be 
                allocated to the contract in the same manner as 
                interest costs are allocated to property 
                produced by the taxpayer under section 263A(f).
                  (B) Production period.--In applying section 
                263A(f) for purposes of subparagraph (A), the 
                production period shall be the period--
                          (i) beginning on the later of--
                                  (I) the contract commencement 
                                date, or
                                  (II) in the case of a 
                                taxpayer who uses an accrual 
                                method with respect to long-
                                term contracts, the date by 
                                which at least 5 percent of the 
                                total estimated costs 
                                (including design and planning 
                                costs) under the contract have 
                                been incurred, and
                          (ii) ending on the contract 
                        completion date.
                  (C) Application of de minimis rule.--In 
                applying section 263A(f) for purposes of 
                subparagraph (A), paragraph (1)(B)(iii) of such 
                section shall be applied on a contract-by-
                contract basis; except that, in the case of a 
                taxpayer described in subparagraph (B)(i)(II) 
                of this paragraph, paragraph (1)(B)(iii) of 
                section 263A(f) shall be applied on a property-
                by-property basis.
          (4) Certain costs not included.--This subsection 
        shall not apply to any--
                  (A) independent research and development 
                expenses,
                  (B) expenses for unsuccessful bids and 
                proposals, and
                  (C) marketing, selling, and advertising 
                expenses.
          (5) Independent research and development expenses.--
        For purposes of paragraph (4), the term ``independent 
        research and development expenses'' means any expenses 
        incurred in the performance of research or development, 
        except that such term shall not include--
                  (A) any expenses which are directly 
                attributable to a long-term contract in 
                existence when such expenses are incurred, or
                  (B) any expenses under an agreement to 
                perform research or development.
          (6) Special rule for allocation of bonus depreciation 
        with respect to certain property.--
                  (A) In general.--Solely for purposes of 
                determining the percentage of completion under 
                subsection (b)(1)(A), the cost of qualified 
                property shall be taken into account as a cost 
                allocated to the contract as if subsection (k) 
                of section 168 had not been enacted.
                  (B) Qualified property.--For purposes of this 
                paragraph, the term ``qualified property'' 
                means property described in section 168(k)(2) 
                [which--] which has a recovery period of 7 
                years or less.
                          [(i) has a recovery period of 7 years 
                        or less, and
                          [(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, 2015 
                        (January 1, 2016, in the case of 
                        property described in section 
                        168(k)(2)(B)).]
  (d) Federal Long-Term Contract.--For purposes of this 
section--
          (1) In general.--The term ``Federal long-term 
        contract'' means any long-term contract--
                  (A) to which the United States (or any agency 
                or instrumentality thereof) is a party, or
                  (B) which is a subcontract under a contract 
                described in subparagraph (A).
          (2) Special rules for certain taxable entities.--For 
        purposes of paragraph (1), the rules of section 
        168(h)(2)(D) (relating to certain taxable entities not 
        treated as instrumentalities) shall apply.
  (e) Exception for Certain Construction Contracts.--
          (1) In general.--Subsections (a), (b), and (c)(1) and 
        (2) shall not apply to--
                  (A) any home construction contract, or
                  (B) any other construction contract entered 
                into by a taxpayer--
                          (i) who estimates (at the time such 
                        contract is entered into) that such 
                        contract will be completed within the 
                        2-year period beginning on the contract 
                        commencement date of such contract, and
                          (ii) whose average annual gross 
                        receipts for the 3 taxable years 
                        preceding the taxable year in which 
                        such contract is entered into do not 
                        exceed $10,000,000.
        In the case of a home construction contract with 
        respect to which the requirements of clauses (i) and 
        (ii) of subparagraph (B) are not met, section 263A 
        shall apply notwithstanding subsection (c)(4) thereof.
          (2) Determination of taxpayer's gross receipts.--For 
        purposes of paragraph (1), the gross receipts of--
                  (A) all trades or businesses (whether or not 
                incorporated) which are under common control 
                with the taxpayer (within the meaning of 
                section 52(b)),
                  (B) all members of any controlled group of 
                corporations of which the taxpayer is a member, 
                and
                  (C) any predecessor of the taxpayer or a 
                person described in subparagraph (A) or (B),
        for the 3 taxable years of such persons preceding the 
        taxable year in which the contract described in 
        paragraph (1) is entered into shall be included in the 
        gross receipts of the taxpayer for the period described 
        in paragraph (1)(B). The Secretary shall prescribe 
        regulations which provide attribution rules that take 
        into account, in addition to the persons and entities 
        described in the preceding sentence, taxpayers who 
        engage in construction contracts through partnerships, 
        joint ventures, and corporations.
          (3) Controlled group of corporations.--For purposes 
        of this subsection, the term ``controlled group of 
        corporations'' has the meaning given to such term by 
        section 1563(a), except that--
                  (A) ``more than 50 percent'' shall be 
                substituted for ``at least 80 percent'' each 
                place it appears in section 1563(a)(1), and
                  (B) the determination shall be made without 
                regard to subsections (a)(4) and (e)(3)(C) of 
                section 1563.
          (4) Construction contract.--For purposes of this 
        subsection, the term ``construction contract'' means 
        any contract for the building, construction, 
        reconstruction, or rehabilitation of, or the 
        installation of any integral component to, or 
        improvements of, real property.
          (5) Special rule for residential construction 
        contracts which are not home construction contracts.--
        In the case of any residential construction contract 
        which is not a home construction contract, subsection 
        (a) (as in effect on the day before the date of the 
        enactment of the Revenue Reconciliation Act of 1989) 
        shall apply except that such subsection shall be 
        applied--
                  (A) by substituting ``70 percent'' for ``90 
                percent'' each place it appears, and
                  (B) by substituting ``30 percent'' for ``10 
                percent''.
          (6) Definitions relating to residential construction 
        contracts.--For purposes of this subsection--
                  (A) Home construction contract.--The term 
                ``home construction contract'' means any 
                construction contract if 80 percent or more of 
                the estimated total contract costs (as of the 
                close of the taxable year in which the contract 
                was entered into) are reasonably expected to be 
                attributable to activities referred to in 
                paragraph (4) with respect to--
                          (i) dwelling units (as defined in 
                        section 168(e)(2)(A)(ii)) contained in 
                        buildings containing 4 or fewer 
                        dwelling units (as so defined), and
                          (ii) improvements to real property 
                        directly related to such dwelling units 
                        and located on the site of such 
                        dwelling units.
                For purposes of clause (i), each townhouse or 
                rowhouse shall be treated as a separate 
                building.
                  (B) Residential construction contract.--The 
                term ``residential construction contract'' 
                means any contract which would be described in 
                subparagraph (A) if clause (i) of such 
                subparagraph reads as follows:
                          (i) dwelling units (as defined in 
                        section 168(e)(2)(A)(ii)), and".
  (f) Long-Term Contract.--For purposes of this section--
          (1) In general.--The term ``long-term contract'' 
        means any contract for the manufacture, building, 
        installation, or construction of property if such 
        contract is not completed within the taxable year in 
        which such contract is entered into.
          (2) Special rule for manufacturing contracts.--A 
        contract for the manufacture of property shall not be 
        treated as a long-term contract unless such contract 
        involves the manufacture of--
                  (A) any unique item of a type which is not 
                normally included in the finished goods 
                inventory of the taxpayer, or
                  (B) any item which normally requires more 
                than 12 calendar months to complete (without 
                regard to the period of the contract).
          (3) Aggregation, etc..--For purposes of this 
        subsection, under regulations prescribed by the 
        Secretary--
                  (A) 2 or more contracts which are 
                interdependent (by reason of pricing or 
                otherwise) may be treated as 1 contract, and
                  (B) a contract which is properly treated as 
                an aggregation of separate contracts may be so 
                treated.
  (g) Contract Commencement Date.--For purposes of this 
section, the term ``contract commencement date'' means, with 
respect to any contract, the first date on which any costs 
(other than bidding expenses or expenses incurred in connection 
with negotiating the contract) allocable to such contract are 
incurred.
  (h) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including regulations to prevent the 
use of related parties, pass-thru entities, intermediaries, 
options, or other similar arrangements to avoid the application 
of this section.

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                         VII. DISSENTING VIEWS

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                     Dissenting Views on H.R. 2510

    The five permanent, unpaid-for tax extender bills approved 
by the Republicans at the markup would add more than $411 
billion to the deficit. Combined with the eleven tax bills that 
were approved by the Republicans in previous markups this 
Congress, these sixteen tax bills would add more than $1 
trillion to the deficit. In the 113th Congress, Ways and Means 
Committee Republicans selectively approved fourteen of the more 
than fifty expired tax provisions, totaling more than $825 
billion worth of deficit-financed, permanent tax cuts. This 
selective approach failed last Congress, with none of these 
permanent provisions being enacted into law. The bills marked 
up by the Committee set us down a partisan path, when we should 
be working in a responsible, bipartisan manner on tax reform.
    Even though a number of these bills were introduced 
individually with some bipartisan support, our opposition to 
these bills is based on the position that these tax provisions 
should not be made permanent without any revenue offset. The 
fiscally irresponsible approach that the Committee Republicans 
are taking with respect to this and other legislation 
undermines the bipartisan support that some of the provisions 
enjoy. In fact, this provision was repealed in the Republican 
tax reform plan (H.R. 1) introduced by the Ways and Means 
Committee Chairman last Congress. The cost of making this 
provision permanent should be offset, and Republicans should 
stop playing games by passing these provisions outside of 
comprehensive tax reform. The American people expect a tax code 
that maintains and supports our shared priorities, and each 
time the Committee considers these bills in a piecemeal 
approach, it is taking a step in the wrong direction and away 
from comprehensive tax reform.
    We all support provisions that help America's businesses 
grow. However, with respect to bonus depreciation, this bill 
would make permanent a provision that was intended 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 temporary nature of this 
provision is further supported by the history of bonus 
depreciation over the last decade. It was enacted during the 
recession at the beginning 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.
    Expired provisions must be dealt with in a comprehensive 
manner. 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.

                                           Sander M. Levin,
                                                    Ranking Member.