26 U.S.C. § 168 : US Code - Section 168: Accelerated cost recovery system

Search 26 U.S.C. § 168 : US Code - Section 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)), or
(C) 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).
(4) Salvage value treated as zero
Salvage value shall be treated as zero.
(5) Election
An election under paragraph (2)(C) 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: 2The applicable
recovery period
is:
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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 bore 50 years.
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(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 (!1) 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:
Property shall be treated If such property has a class
as: life (in years) of:
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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.
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(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 which is more than 2 years old at the
time it is placed in service,
(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, and
(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).
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 (!2)
(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)), and
(ii) any tree or vine bearing fruit or nuts.
(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, 2006,
(v) any qualified restaurant property placed in service
before January 1, 2006,
(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, and
(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.
(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
The term "qualified restaurant property" means any section 1250
property which is an improvement to a building if -
(A) such improvement is placed in service more than 3 years
after the date such building was first placed in service, and
(B) more than 50 percent of the building's square footage is
devoted to preparation of, and seating for on-premises
consumption of, prepared meals.
(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
retirement-replacement-betterment 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: 2The recovery
period
shall be:
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(i) Property not described in clause (ii) The class life.
or (iii)
(ii) Personal property with no class life 12 years.
(iii) Nonresidential real and residential 40 years.
rental property
(iv) Any railroad grading or tunnel bore 50 years.
or water utility property
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(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 2 The
in subparagraph: class
life is:
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(A)(iii) 4
(B)(ii) 5
(B)(iii) 9.5
(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
(F) 25
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(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 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, 2007.
(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.
(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: 2The
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, 2005.
(k) Special allowance for certain property acquired after September
10, 2001, and before January 1, 2005
(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 30 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 September 10, 2001,
(iii) which is -
(I) acquired by the taxpayer after September 10, 2001,
and before January 1, 2005, but only if no written binding
contract for the acquisition was in effect before September
11, 2001, or
(II) acquired by the taxpayer pursuant to a written
binding contract which was entered into after September 10,
2001, and before January 1, 2005, and
(iv) which is placed in service by the taxpayer before
January 1, 2005, or, in the case of property described in
subparagraph (B) or (C), before January 1, 2006.
(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), and
(iii) 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 (ii) or (iii) of
section 263A(f)(1)(B) (determined as if such clauses also
apply to property which has a long useful life (within the
meaning of section 263A(f))).
(ii) Only pre-January 1, 2005, 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,
2005.
(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) and (iii)
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. The preceding
sentence shall be applied separately with respect to property
treated as qualified property by paragraph (4) and other
qualified property.
(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 September 10,
2001, and before January 1, 2005.
(ii) Sale-leasebacks
For purposes of clause (iii) and subparagraph (A)(ii), if
property is -
(I) originally placed in service after September 10,
2001, 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
September 10, 2001, 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 September 10, 2001, 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 September 10, 2001.
(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 $4,600.
(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) 50-percent bonus depreciation for certain property
(A) In general
In the case of 50-percent bonus depreciation property -
(i) paragraph (1)(A) shall be applied by substituting "50
percent" for "30 percent", and
(ii) except as provided in paragraph (2)(D), such property
shall be treated as qualified property for purposes of this
subsection.
(B) 50-percent bonus depreciation property
For purposes of this subsection, the term "50-percent bonus
depreciation property" means property described in paragraph
(2)(A)(i) -
(i) the original use of which commences with the taxpayer
after May 5, 2003,
(ii) which is -
(I) acquired by the taxpayer after May 5, 2003, and
before January 1, 2005, but only if no written binding
contract for the acquisition was in effect before May 6,
2003, or
(II) acquired by the taxpayer pursuant to a written
binding contract which was entered into after May 5, 2003,
and before January 1, 2005, and
(iii) which is placed in service by the taxpayer before
January 1, 2005, or, in the case of property described in
paragraph (2)(B) (as modified by subparagraph (C) of this
paragraph) or paragraph (2)(C) (as so modified), before
January 1, 2006.
(C) Special rules
Rules similar to the rules of subparagraphs (B), (C), and (E)
of paragraph (2) shall apply for purposes of this paragraph;
except that references to September 10, 2001, shall be treated
as references to May 5, 2003.
(D) Automobiles
Paragraph (2)(F) shall be applied by substituting "$7,650"
for "$4,600" in the case of 50-percent bonus depreciation
property.
(E) Election of 30-percent bonus
If a taxpayer makes an election under this subparagraph with
respect to any class of property for any taxable year,
subparagraph (A)(i) shall not apply to all property in such
class placed in service during such taxable year.