PART VI—ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
Editorial Notes
Amendments
2017—
2015—
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2008—
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1997—
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1992—
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1986—
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1958—
1956—Act June 29, 1956, ch. 464, §4(b),
1954—Act Sept. 1, 1954, ch. 1206, title II, §210(b),
1 Section 191 was repealed by
§161. Allowance of deductions
In computing taxable income under section 63, there shall be allowed as deductions the items specified in this part, subject to the exceptions provided in part IX (sec. 261 and following, relating to items not deductible).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1977—
Statutory Notes and Related Subsidiaries
Effective Date of 1977 Amendment
Amendment by
§162. Trade or business expenses
(a) In general
There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including—
(1) a reasonable allowance for salaries or other compensation for personal services actually rendered;
(2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business; and
(3) rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.
For purposes of the preceding sentence, the place of residence of a Member of Congress (including any Delegate and Resident Commissioner) within the State, congressional district, or possession which he represents in Congress shall be considered his home, but amounts expended by such Members within each taxable year for living expenses shall not be deductible for income tax purposes. For purposes of paragraph (2), the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year. The preceding sentence shall not apply to any Federal employee during any period for which such employee is certified by the Attorney General (or the designee thereof) as traveling on behalf of the United States in temporary duty status to investigate or prosecute, or provide support services for the investigation or prosecution of, a Federal crime.
(b) Charitable contributions and gifts excepted
No deduction shall be allowed under subsection (a) for any contribution or gift which would be allowable as a deduction under section 170 were it not for the percentage limitations, the dollar limitations, or the requirements as to the time of payment, set forth in such section.
(c) Illegal bribes, kickbacks, and other payments
(1) Illegal payments to government officials or employees
No deduction shall be allowed under subsection (a) for any payment made, directly or indirectly, to an official or employee of any government, or of any agency or instrumentality of any government, if the payment constitutes an illegal bribe or kickback or, if the payment is to an official or employee of a foreign government, the payment is unlawful under the Foreign Corrupt Practices Act of 1977. The burden of proof in respect of the issue, for the purposes of this paragraph, as to whether a payment constitutes an illegal bribe or kickback (or is unlawful under the Foreign Corrupt Practices Act of 1977) shall be upon the Secretary to the same extent as he bears the burden of proof under section 7454 (concerning the burden of proof when the issue relates to fraud).
(2) Other illegal payments
No deduction shall be allowed under subsection (a) for any payment (other than a payment described in paragraph (1)) made, directly or indirectly, to any person, if the payment constitutes an illegal bribe, illegal kickback, or other illegal payment under any law of the United States, or under any law of a State (but only if such State law is generally enforced), which subjects the payor to a criminal penalty or the loss of license or privilege to engage in a trade or business. For purposes of this paragraph, a kickback includes a payment in consideration of the referral of a client, patient, or customer. The burden of proof in respect of the issue, for purposes of this paragraph, as to whether a payment constitutes an illegal bribe, illegal kickback, or other illegal payment shall be upon the Secretary to the same extent as he bears the burden of proof under section 7454 (concerning the burden of proof when the issue relates to fraud).
(3) Kickbacks, rebates, and bribes under medicare and medicaid
No deduction shall be allowed under subsection (a) for any kickback, rebate, or bribe made by any provider of services, supplier, physician, or other person who furnishes items or services for which payment is or may be made under the Social Security Act, or in whole or in part out of Federal funds under a State plan approved under such Act, if such kickback, rebate, or bribe is made in connection with the furnishing of such items or services or the making or receipt of such payments. For purposes of this paragraph, a kickback includes a payment in consideration of the referral of a client, patient, or customer.
(d) Capital contributions to Federal National Mortgage Association
For purposes of this subtitle, whenever the amount of capital contributions evidenced by a share of stock issued pursuant to section 303(c) of the Federal National Mortgage Association Charter Act (
(e) Denial of deduction for certain lobbying and political expenditures
(1) In general
No deduction shall be allowed under subsection (a) for any amount paid or incurred in connection with—
(A) influencing legislation,
(B) participation in, or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office,
(C) any attempt to influence the general public, or segments thereof, with respect to elections, legislative matters, or referendums, or
(D) any direct communication with a covered executive branch official in an attempt to influence the official actions or positions of such official.
(2) Application to dues of tax-exempt organizations
No deduction shall be allowed under subsection (a) for the portion of dues or other similar amounts paid by the taxpayer to an organization which is exempt from tax under this subtitle which the organization notifies the taxpayer under section 6033(e)(1)(A)(ii) is allocable to expenditures to which paragraph (1) applies.
(3) Influencing legislation
For purposes of this subsection—
(A) In general
The term "influencing legislation" means any attempt to influence any legislation through communication with any member or employee of a legislative body, or with any government official or employee who may participate in the formulation of legislation.
(B) Legislation
The term "legislation" has the meaning given such term by section 4911(e)(2).
(4) Other special rules
(A) Exception for certain taxpayers
In the case of any taxpayer engaged in the trade or business of conducting activities described in paragraph (1), paragraph (1) shall not apply to expenditures of the taxpayer in conducting such activities directly on behalf of another person (but shall apply to payments by such other person to the taxpayer for conducting such activities).
(B) De minimis exception
(i) In general
Paragraph (1) shall not apply to any in-house expenditures for any taxable year if such expenditures do not exceed $2,000. In determining whether a taxpayer exceeds the $2,000 limit under this clause, there shall not be taken into account overhead costs otherwise allocable to activities described in paragraphs (1)(A) and (D).
(ii) In-house expenditures
For purposes of clause (i), the term "in-house expenditures" means expenditures described in paragraphs (1)(A) and (D) other than—
(I) payments by the taxpayer to a person engaged in the trade or business of conducting activities described in paragraph (1) for the conduct of such activities on behalf of the taxpayer, or
(II) dues or other similar amounts paid or incurred by the taxpayer which are allocable to activities described in paragraph (1).
(C) Expenses incurred in connection with lobbying and political activities
Any amount paid or incurred for research for, or preparation, planning, or coordination of, any activity described in paragraph (1) shall be treated as paid or incurred in connection with such activity.
(5) Covered executive branch official
For purposes of this subsection, the term "covered executive branch official" means—
(A) the President,
(B) the Vice President,
(C) any officer or employee of the White House Office of the Executive Office of the President, and the 2 most senior level officers of each of the other agencies in such Executive Office, and
(D)(i) any individual serving in a position in level I of the Executive Schedule under
(6) Cross reference
For reporting requirements and alternative taxes related to this subsection, see section 6033(e).
(f) Fines, penalties, and other amounts
(1) In general
Except as provided in the following paragraphs of this subsection, no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law.
(2) Exception for amounts constituting restitution or paid to come into compliance with law
(A) In general
Paragraph (1) shall not apply to any amount that—
(i) the taxpayer establishes—
(I) constitutes restitution (including remediation of property) for damage or harm which was or may be caused by the violation of any law or the potential violation of any law, or
(II) is paid to come into compliance with any law which was violated or otherwise involved in the investigation or inquiry described in paragraph (1),
(ii) is identified as restitution or as an amount paid to come into compliance with such law, as the case may be, in the court order or settlement agreement, and
(iii) in the case of any amount of restitution for failure to pay any tax imposed under this title in the same manner as if such amount were such tax, would have been allowed as a deduction under this chapter if it had been timely paid.
The identification under clause (ii) alone shall not be sufficient to make the establishment required under clause (i).
(B) Limitation
Subparagraph (A) shall not apply to any amount paid or incurred as reimbursement to the government or entity for the costs of any investigation or litigation.
(3) Exception for amounts paid or incurred as the result of certain court orders
Paragraph (1) shall not apply to any amount paid or incurred by reason of any order of a court in a suit in which no government or governmental entity is a party.
(4) Exception for taxes due
Paragraph (1) shall not apply to any amount paid or incurred as taxes due.
(5) Treatment of certain nongovernmental regulatory entities
For purposes of this subsection, the following nongovernmental entities shall be treated as governmental entities:
(A) Any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) in connection with a qualified board or exchange (as defined in section 1256(g)(7)).
(B) To the extent provided in regulations, any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) as part of performing an essential governmental function.
(g) Treble damage payments under the antitrust laws
If in a criminal proceeding a taxpayer is convicted of a violation of the antitrust laws, or his plea of guilty or nolo contendere to an indictment or information charging such a violation is entered or accepted in such a proceeding, no deduction shall be allowed under subsection (a) for two-thirds of any amount paid or incurred—
(1) on any judgment for damages entered against the taxpayer under section 4 of the Act entitled "An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes", approved October 15, 1914 (commonly known as the Clayton Act), on account of such violation or any related violation of the antitrust laws which occurred prior to the date of the final judgment of such conviction, or
(2) in settlement of any action brought under such section 4 on account of such violation or related violation.
(h) State legislators' travel expenses away from home
(1) In general
For purposes of subsection (a), in the case of any individual who is a State legislator at any time during the taxable year and who makes an election under this subsection for the taxable year—
(A) the place of residence of such individual within the legislative district which he represented shall be considered his home,
(B) he shall be deemed to have expended for living expenses (in connection with his trade or business as a legislator) an amount equal to the sum of the amounts determined by multiplying each legislative day of such individual during the taxable year by the greater of—
(i) the amount generally allowable with respect to such day to employees of the State of which he is a legislator for per diem while away from home, to the extent such amount does not exceed 110 percent of the amount described in clause (ii) with respect to such day, or
(ii) the amount generally allowable with respect to such day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States, and
(C) he shall be deemed to be away from home in the pursuit of a trade or business on each legislative day.
(2) Legislative days
For purposes of paragraph (1), a legislative day during any taxable year for any individual shall be any day during such year on which—
(A) the legislature was in session (including any day in which the legislature was not in session for a period of 4 consecutive days or less), or
(B) the legislature was not in session but the physical presence of the individual was formally recorded at a meeting of a committee of such legislature.
(3) Election
An election under this subsection for any taxable year shall be made at such time and in such manner as the Secretary shall by regulations prescribe.
(4) Section not to apply to legislators who reside near capitol
This subsection shall not apply to any legislator whose place of residence within the legislative district which he represents is 50 or fewer miles from the capitol building of the State.
[(i) Repealed. Pub. L. 101–239, title VI, §6202(b)(3)(A), Dec. 19, 1989, 103 Stat. 2233 ]
(j) Certain foreign advertising expenses
(1) In general
No deduction shall be allowed under subsection (a) for any expenses of an advertisement carried by a foreign broadcast undertaking and directed primarily to a market in the United States. This paragraph shall apply only to foreign broadcast undertakings located in a country which denies a similar deduction for the cost of advertising directed primarily to a market in the foreign country when placed with a United States broadcast undertaking.
(2) Broadcast undertaking
For purposes of paragraph (1), the term "broadcast undertaking" includes (but is not limited to) radio and television stations.
(k) Stock reacquisition expenses
(1) In general
Except as provided in paragraph (2), no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred by a corporation in connection with the reacquisition of its stock or of the stock of any related person (as defined in section 465(b)(3)(C)).
(2) Exceptions
Paragraph (1) shall not apply to—
(A) Certain specific deductions
Any—
(i) deduction allowable under section 163 (relating to interest),
(ii) deduction for amounts which are properly allocable to indebtedness and amortized over the term of such indebtedness, or
(iii) deduction for dividends paid (within the meaning of section 561).
(B) Stock of certain regulated investment companies
Any amount paid or incurred in connection with the redemption of any stock in a regulated investment company which issues only stock which is redeemable upon the demand of the shareholder.
(l) Special rules for health insurance costs of self-employed individuals
(1) Allowance of deduction
In the case of a taxpayer who is an employee within the meaning of section 401(c)(1), there shall be allowed as a deduction under this section an amount equal to the amount paid during the taxable year for insurance which constitutes medical care for—
(A) the taxpayer,
(B) the taxpayer's spouse,
(C) the taxpayer's dependents, and
(D) any child (as defined in section 152(f)(1)) of the taxpayer who as of the end of the taxable year has not attained age 27.
(2) Limitations
(A) Dollar amount
No deduction shall be allowed under paragraph (1) to the extent that the amount of such deduction exceeds the taxpayer's earned income (within the meaning of section 401(c)) derived by the taxpayer from the trade or business with respect to which the plan providing the medical care coverage is established.
(B) Other coverage
Paragraph (1) shall not apply to any taxpayer for any calendar month for which the taxpayer is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or of the spouse of, or any dependent, or individual described in subparagraph (D) of paragraph (1) with respect to, the taxpayer. The preceding sentence shall be applied separately with respect to—
(i) plans which include coverage for qualified long-term care services (as defined in section 7702B(c)) or are qualified long-term care insurance contracts (as defined in section 7702B(b)), and
(ii) plans which do not include such coverage and are not such contracts.
(C) Long-term care premiums
In the case of a qualified long-term care insurance contract (as defined in section 7702B(b)), only eligible long-term care premiums (as defined in section 213(d)(10)) shall be taken into account under paragraph (1).
(3) Coordination with medical deduction
Any amount paid by a taxpayer for insurance to which paragraph (1) applies shall not be taken into account in computing the amount allowable to the taxpayer as a deduction under section 213(a).
(4) Deduction not allowed for self-employment tax purposes
The deduction allowable by reason of this subsection shall not be taken into account in determining an individual's net earnings from self-employment (within the meaning of section 1402(a)) for purposes of
(5) Treatment of certain S corporation shareholders
This subsection shall apply in the case of any individual treated as a partner under section 1372(a), except that—
(A) for purposes of this subsection, such individual's wages (as defined in section 3121) from the S corporation shall be treated as such individual's earned income (within the meaning of section 401(c)(1)), and
(B) there shall be such adjustments in the application of this subsection as the Secretary may by regulations prescribe.
(m) Certain excessive employee remuneration
(1) In general
In the case of any publicly held corporation, no deduction shall be allowed under this chapter for applicable employee remuneration with respect to any covered employee to the extent that the amount of such remuneration for the taxable year with respect to such employee exceeds $1,000,000.
(2) Publicly held corporation
For purposes of this subsection, the term "publicly held corporation" means any corporation which is an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (
(A) the securities of which are required to be registered under section 12 of such Act (
(B) that is required to file reports under section 15(d) of such Act (
(3) Covered employee
For purposes of this subsection, the term "covered employee" means any employee of the taxpayer if—
(A) such employee is the principal executive officer or principal financial officer of the taxpayer at any time during the taxable year, or was an individual acting in such a capacity,
(B) the total compensation of such employee for the taxable year is required to be reported to shareholders under the Securities Exchange Act of 1934 by reason of such employee being among the 3 highest compensated officers for the taxable year (other than any individual described in subparagraph (A)),
(C) in the case of taxable years beginning after December 31, 2026, such employee is among the 5 highest compensated employees for the taxable year other than any individual described in subparagraph (A) or (B), or
(D) was a covered employee described in subparagraph (A) or (B) of the taxpayer (or any predecessor) for any preceding taxable year beginning after December 31, 2016.
Such term shall include any employee who would be described in subparagraph (B) if the reporting described in such subparagraph were required as so described.
(4) Applicable employee remuneration
For purposes of this subsection—
(A) In general
Except as otherwise provided in this paragraph, the term "applicable employee remuneration" means, with respect to any covered employee for any taxable year, the aggregate amount allowable as a deduction under this chapter for such taxable year (determined without regard to this subsection) for remuneration for services performed by such employee (whether or not during the taxable year).
(B) Exception for existing binding contracts
The term "applicable employee remuneration" shall not include any remuneration payable under a written binding contract which was in effect on February 17, 1993, and which was not modified thereafter in any material respect before such remuneration is paid.
(C) Remuneration
For purposes of this paragraph, the term "remuneration" includes any remuneration (including benefits) in any medium other than cash, but shall not include—
(i) any payment referred to in so much of section 3121(a)(5) as precedes subparagraph (E) thereof, and
(ii) any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from gross income under this chapter.
For purposes of clause (i), section 3121(a)(5) shall be applied without regard to section 3121(v)(1).
(D) Coordination with disallowed golden parachute payments
The dollar limitation contained in paragraph (1) shall be reduced (but not below zero) by the amount (if any) which would have been included in the applicable employee remuneration of the covered employee for the taxable year but for being disallowed under section 280G.
(E) Coordination with excise tax on specified stock compensation
The dollar limitation contained in paragraph (1) with respect to any covered employee shall be reduced (but not below zero) by the amount of any payment (with respect to such employee) of the tax imposed by section 4985 directly or indirectly by the expatriated corporation (as defined in such section) or by any member of the expanded affiliated group (as defined in such section) which includes such corporation.
(F) Special rule for remuneration paid to beneficiaries, etc.
Remuneration shall not fail to be applicable employee remuneration merely because it is includible in the income of, or paid to, a person other than the covered employee, including after the death of the covered employee.
(5) Special rule for application to employers participating in the Troubled Assets Relief Program
(A) In general
In the case of an applicable employer, no deduction shall be allowed under this chapter—
(i) in the case of executive remuneration for any applicable taxable year which is attributable to services performed by a covered executive during such applicable taxable year, to the extent that the amount of such remuneration exceeds $500,000, or
(ii) in the case of deferred deduction executive remuneration for any taxable year for services performed during any applicable taxable year by a covered executive, to the extent that the amount of such remuneration exceeds $500,000 reduced (but not below zero) by the sum of—
(I) the executive remuneration for such applicable taxable year, plus
(II) the portion of the deferred deduction executive remuneration for such services which was taken into account under this clause in a preceding taxable year.
(B) Applicable employer
For purposes of this paragraph—
(i) In general
Except as provided in clause (ii), the term "applicable employer" means any employer from whom 1 or more troubled assets are acquired under a program established by the Secretary under section 101(a) of the Emergency Economic Stabilization Act of 2008 if the aggregate amount of the assets so acquired for all taxable years exceeds $300,000,000.
(ii) Disregard of certain assets sold through direct purchase
If the only sales of troubled assets by an employer under the program described in clause (i) are through 1 or more direct purchases (within the meaning of section 113(c) of the Emergency Economic Stabilization Act of 2008), such assets shall not be taken into account under clause (i) in determining whether the employer is an applicable employer for purposes of this paragraph.
(iii) Aggregation rules
Two or more persons who are treated as a single employer under subsection (b) or (c) of section 414 shall be treated as a single employer, except that in applying section 1563(a) for purposes of either such subsection, paragraphs (2) and (3) thereof shall be disregarded.
(C) Applicable taxable year
For purposes of this paragraph, the term "applicable taxable year" means, with respect to any employer—
(i) the first taxable year of the employer—
(I) which includes any portion of the period during which the authorities under section 101(a) of the Emergency Economic Stabilization Act of 2008 are in effect (determined under section 120 thereof), and
(II) in which the aggregate amount of troubled assets acquired from the employer during the taxable year pursuant to such authorities (other than assets to which subparagraph (B)(ii) applies), when added to the aggregate amount so acquired for all preceding taxable years, exceeds $300,000,000, and
(ii) any subsequent taxable year which includes any portion of such period.
(D) Covered executive
For purposes of this paragraph—
(i) In general
The term "covered executive" means, with respect to any applicable taxable year, any employee—
(I) who, at any time during the portion of the taxable year during which the authorities under section 101(a) of the Emergency Economic Stabilization Act of 2008 are in effect (determined under section 120 thereof), is the chief executive officer of the applicable employer or the chief financial officer of the applicable employer, or an individual acting in either such capacity, or
(II) who is described in clause (ii).
(ii) Highest compensated employees
An employee is described in this clause if the employee is 1 of the 3 highest compensated officers of the applicable employer for the taxable year (other than an individual described in clause (i)(I)), determined—
(I) on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (without regard to whether those rules apply to the employer), and
(II) by only taking into account employees employed during the portion of the taxable year described in clause (i)(I).
(iii) Employee remains covered executive
If an employee is a covered executive with respect to an applicable employer for any applicable taxable year, such employee shall be treated as a covered executive with respect to such employer for all subsequent applicable taxable years and for all subsequent taxable years in which deferred deduction executive remuneration with respect to services performed in all such applicable taxable years would (but for this paragraph) be deductible.
(E) Executive remuneration
For purposes of this paragraph, the term "executive remuneration" means the applicable employee remuneration of the covered executive, as determined under paragraph (4) without regard to subparagraph (B) thereof. Such term shall not include any deferred deduction executive remuneration with respect to services performed in a prior applicable taxable year.
(F) Deferred deduction executive remuneration
For purposes of this paragraph, the term "deferred deduction executive remuneration" means remuneration which would be executive remuneration for services performed in an applicable taxable year but for the fact that the deduction under this chapter (determined without regard to this paragraph) for such remuneration is allowable in a subsequent taxable year.
(G) Coordination
Rules similar to the rules of subparagraphs (D) and (E) of paragraph (4) shall apply for purposes of this paragraph.
(H) Regulatory authority
The Secretary may prescribe such guidance, rules, or regulations as are necessary to carry out the purposes of this paragraph and the Emergency Economic Stabilization Act of 2008, including the extent to which this paragraph applies in the case of any acquisition, merger, or reorganization of an applicable employer.
(6) Special rule for application to certain health insurance providers
(A) In general
No deduction shall be allowed under this chapter—
(i) in the case of applicable individual remuneration which is for any disqualified taxable year beginning after December 31, 2012, and which is attributable to services performed by an applicable individual during such taxable year, to the extent that the amount of such remuneration exceeds $500,000, or
(ii) in the case of deferred deduction remuneration for any taxable year beginning after December 31, 2012, which is attributable to services performed by an applicable individual during any disqualified taxable year beginning after December 31, 2009, to the extent that the amount of such remuneration exceeds $500,000 reduced (but not below zero) by the sum of—
(I) the applicable individual remuneration for such disqualified taxable year, plus
(II) the portion of the deferred deduction remuneration for such services which was taken into account under this clause in a preceding taxable year (or which would have been taken into account under this clause in a preceding taxable year if this clause were applied by substituting "December 31, 2009" for "December 31, 2012" in the matter preceding subclause (I)).
(B) Disqualified taxable year
For purposes of this paragraph, the term "disqualified taxable year" means, with respect to any employer, any taxable year for which such employer is a covered health insurance provider.
(C) Covered health insurance provider
For purposes of this paragraph—
(i) In general
The term "covered health insurance provider" means—
(I) with respect to taxable years beginning after December 31, 2009, and before January 1, 2013, any employer which is a health insurance issuer (as defined in section 9832(b)(2)) and which receives premiums from providing health insurance coverage (as defined in section 9832(b)(1)), and
(II) with respect to taxable years beginning after December 31, 2012, any employer which is a health insurance issuer (as defined in section 9832(b)(2)) and with respect to which not less than 25 percent of the gross premiums received from providing health insurance coverage (as defined in section 9832(b)(1)) is from minimum essential coverage (as defined in section 5000A(f)).
(ii) Aggregation rules
Two or more persons who are treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as a single employer, except that in applying section 1563(a) for purposes of any such subsection, paragraphs (2) and (3) thereof shall be disregarded.
(D) Applicable individual remuneration
For purposes of this paragraph, the term "applicable individual remuneration" means, with respect to any applicable individual for any disqualified taxable year, the aggregate amount allowable as a deduction under this chapter for such taxable year (determined without regard to this subsection) for remuneration (as defined in paragraph (4) without regard to subparagraph (B) thereof) for services performed by such individual (whether or not during the taxable year). Such term shall not include any deferred deduction remuneration with respect to services performed during the disqualified taxable year.
(E) Deferred deduction remuneration
For purposes of this paragraph, the term "deferred deduction remuneration" means remuneration which would be applicable individual remuneration for services performed in a disqualified taxable year but for the fact that the deduction under this chapter (determined without regard to this paragraph) for such remuneration is allowable in a subsequent taxable year.
(F) Applicable individual
For purposes of this paragraph, the term "applicable individual" means, with respect to any covered health insurance provider for any disqualified taxable year, any individual—
(i) who is an officer, director, or employee in such taxable year, or
(ii) who provides services for or on behalf of such covered health insurance provider during such taxable year.
(G) Coordination
Rules similar to the rules of subparagraphs (D) and (E) of paragraph (4) shall apply for purposes of this paragraph.
(H) Regulatory authority
The Secretary may prescribe such guidance, rules, or regulations as are necessary to carry out the purposes of this paragraph.
(n) Special rule for certain group health plans
(1) In general
No deduction shall be allowed under this chapter to an employer for any amount paid or incurred in connection with a group health plan if the plan does not reimburse for inpatient hospital care services provided in the State of New York—
(A) except as provided in subparagraphs (B) and (C), at the same rate as licensed commercial insurers are required to reimburse hospitals for such services when such reimbursement is not through such a plan,
(B) in the case of any reimbursement through a health maintenance organization, at the same rate as health maintenance organizations are required to reimburse hospitals for such services for individuals not covered by such a plan (determined without regard to any government-supported individuals exempt from such rate), or
(C) in the case of any reimbursement through any corporation organized under Article 43 of the New York State Insurance Law, at the same rate as any such corporation is required to reimburse hospitals for such services for individuals not covered by such a plan.
(2) State law exception
Paragraph (1) shall not apply to any group health plan which is not required under the laws of the State of New York (determined without regard to this subsection or other provisions of Federal law) to reimburse at the rates provided in paragraph (1).
(3) Group health plan
For purposes of this subsection, the term "group health plan" means a plan of, or contributed to by, an employer or employee organization (including a self-insured plan) to provide health care (directly or otherwise) to any employee, any former employee, the employer, or any other individual associated or formerly associated with the employer in a business relationship, or any member of their family.
(o) Treatment of certain expenses of rural mail carriers
(1) General rule
In the case of any employee of the United States Postal Service who performs services involving the collection and delivery of mail on a rural route and who receives qualified reimbursements for the expenses incurred by such employee for the use of a vehicle in performing such services—
(A) the amount allowable as a deduction under this chapter for the use of a vehicle in performing such services shall be equal to the amount of such qualified reimbursements; and
(B) such qualified reimbursements shall be treated as paid under a reimbursement or other expense allowance arrangement for purposes of section 62(a)(2)(A) (and section 62(c) shall not apply to such qualified reimbursements).
(2) Special rule where expenses exceed reimbursements
Notwithstanding paragraph (1)(A), if the expenses incurred by an employee for the use of a vehicle in performing services described in paragraph (1) exceed the qualified reimbursements for such expenses, such excess shall be taken into account in computing the miscellaneous itemized deductions of the employee under section 67.
(3) Definition of qualified reimbursements
For purposes of this subsection, the term "qualified reimbursements" means the amounts paid by the United States Postal Service to employees as an equipment maintenance allowance under the 1991 collective bargaining agreement between the United States Postal Service and the National Rural Letter Carriers' Association. Amounts paid as an equipment maintenance allowance by such Postal Service under later collective bargaining agreements that supersede the 1991 agreement shall be considered qualified reimbursements if such amounts do not exceed the amounts that would have been paid under the 1991 agreement, adjusted by increasing any such amount under the 1991 agreement by an amount equal to—
(A) such amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting "calendar year 1990" for "calendar year 2016" in subparagraph (A)(ii) thereof.
(p) Treatment of expenses of members of reserve component of Armed Forces of the United States
For purposes of subsection (a)(2), in the case of an individual who performs services as a member of a reserve component of the Armed Forces of the United States at any time during the taxable year, such individual shall be deemed to be away from home in the pursuit of a trade or business for any period during which such individual is away from home in connection with such service.
(q) Payments related to sexual harassment and sexual abuse
No deduction shall be allowed under this chapter for—
(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or
(2) attorney's fees related to such a settlement or payment.
(r) Disallowance of FDIC premiums paid by certain large financial institutions
(1) In general
No deduction shall be allowed for the applicable percentage of any FDIC premium paid or incurred by the taxpayer.
(2) Exception for small institutions
Paragraph (1) shall not apply to any taxpayer for any taxable year if the total consolidated assets of such taxpayer (determined as of the close of such taxable year) do not exceed $10,000,000,000.
(3) Applicable percentage
For purposes of this subsection, the term "applicable percentage" means, with respect to any taxpayer for any taxable year, the ratio (expressed as a percentage but not greater than 100 percent) which—
(A) the excess of—
(i) the total consolidated assets of such taxpayer (determined as of the close of such taxable year), over
(ii) $10,000,000,000, bears to
(B) $40,000,000,000.
(4) FDIC premiums
For purposes of this subsection, the term "FDIC premium" means any assessment imposed under section 7(b) of the Federal Deposit Insurance Act (
(5) Total consolidated assets
For purposes of this subsection, the term "total consolidated assets" has the meaning given such term under section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (
(6) Aggregation rule
(A) In general
Members of an expanded affiliated group shall be treated as a single taxpayer for purposes of applying this subsection.
(B) Expanded affiliated group
(i) In general
For purposes of this paragraph, the term "expanded affiliated group" means an affiliated group as defined in section 1504(a), determined—
(I) by substituting "more than 50 percent" for "at least 80 percent" each place it appears, and
(II) without regard to paragraphs (2) and (3) of section 1504(b).
(ii) Control of non-corporate entities
A partnership or any other entity (other than a corporation) shall be treated as a member of an expanded affiliated group if such entity is controlled (within the meaning of section 954(d)(3)) by members of such group (including any entity treated as a member of such group by reason of this clause).
(s) Cross reference
(1) For special rule relating to expenses in connection with subdividing real property for sale, see section 1237.
(2) For special rule relating to the treatment of payments by a transferee of a franchise, trademark, or trade name, see section 1253.
(3) For special rules relating to—
(A) funded welfare benefit plans, see section 419, and
(B) deferred compensation and other deferred benefits, see section 404.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The Foreign Corrupt Practices Act of 1977, referred to in subsec. (c)(1), is title I of
The Social Security Act, referred to in subsec. (c)(3), is act Aug. 14, 1935, ch. 531,
Section 4 of the Clayton Act, referred to in subsec. (g)(1), is classified to
The Securities Exchange Act of 1934, referred to in subsec. (m)(3)(B), (5)(D)(ii)(I), is act June 6, 1934, ch. 404,
The Emergency Economic Stabilization Act of 2008, referred to in subsec. (m)(5), is div. A of
Amendments
2021—Subsec. (m)(3)(C), (D).
2017—Subsec. (a).
Subsec. (e)(2) to (8).
Subsec. (f).
Subsec. (m)(2).
Subsec. (m)(3).
Subsec. (m)(3)(A).
Subsec. (m)(3)(B).
Subsec. (m)(3)(C).
Subsec. (m)(4)(B) to (E).
Subsec. (m)(4)(F).
Subsec. (m)(4)(G).
Subsec. (m)(5)(E).
Subsec. (m)(5)(G).
Subsec. (m)(6)(D).
Subsec. (m)(6)(G).
Subsec. (o)(3).
Subsec. (q).
Subsec. (r).
Subsec. (s).
2014—Subsec. (g).
Subsec. (h)(4).
2011—Subsec. (a).
2010—Subsec. (a).
Subsec. (l)(1).
Subsec. (l)(2)(B).
Subsec. (l)(4).
Subsec. (m)(6).
2008—Subsec. (m)(5).
2004—Subsec. (m)(4)(G).
Subsec. (o).
Subsec. (o)(2), (3).
2003—Subsecs. (p), (q).
1998—Subsec. (a).
Subsec. (l)(1)(B).
| "For taxable years beginning in calendar year— | The applicable percentage is— |
|---|---|
| 1997 | 40 |
| 1998 and 1999 | 45 |
| 2000 and 2001 | 50 |
| 2002 | 60 |
| 2003 through 2005 | 80 |
| 2006 | 90 |
| 2007 and thereafter | 100." |
1997—Subsec. (a).
Subsec. (l)(1)(B).
| "For taxable years beginning in calendar year— | The applicable percentage is— |
|---|---|
| 1997 | 40 percent |
| 1998 through 2002 | 45 percent |
| 2003 | 50 percent |
| 2004 | 60 percent |
| 2005 | 70 percent |
| 2006 or thereafter | 80 percent." |
Subsec. (l)(2)(B).
Subsecs. (o), (p).
1996—Subsec. (k).
Subsec. (k)(1).
Subsec. (k)(2)(A).
Subsec. (l)(1).
"(1)
Subsec. (l)(2)(C).
1995—Subsec. (l)(1).
Subsec. (l)(6).
1993—Subsec. (e).
Subsec. (l)(2)(B).
Subsec. (l)(3).
"(A)
"(B)
Subsec. (l)(6).
Subsec. (m).
Subsec. (n).
Subsec. (o).
1992—Subsec. (a).
1991—Subsec. (l)(6).
1990—Subsec. (l)(3).
Subsec. (l)(6).
1989—Subsec. (i).
"(1)
"(2)
Subsec. (k)(2)(B)(iv).
Subsec. (l)(2).
Subsec. (l)(5).
Subsec. (l)(6).
1988—Subsec. (i)(2), (3).
Subsec. (k).
Subsec. (k)(5)(B).
Subsec . (l).
Subsec. (m).
Subsec. (m)(2)(A).
Subsec. (m)(4), (5).
Subsec. (n).
1986—Subsec. (i)(1).
Subsec. (i)(2), (3).
Subsec. (k).
Subsec. (k)(2)(A).
Subsec. (k)(2)(B)(i).
"(I) a qualifying event described in paragraph (3)(B) (relating to terminations and reduced hours), the date which is 18 months after the date of the qualifying event, and
"(II) any qualifying event not described in subclause (I), the date which is 36 months after the date of the qualifying event."
Subsec. (k)(2)(B)(i)(II).
Subsec. (k)(2)(B)(i)(III), (IV).
Subsec. (k)(2)(B)(iii).
Subsec. (k)(2)(B)(iv).
Subsec. (k)(2)(B)(iv)(I).
Subsec. (k)(2)(B)(iv)(II).
Subsec. (k)(2)(B)(v).
Subsec. (k)(3).
Subsec. (k)(5)(B).
Subsec. (k)(6)(B).
Subsec. (k)(6)(C).
Subsec. (k)(6)(D)(i).
Subsec. (k)(7)(B)(iii).
Subsec. (k)(7)(B)(iv).
Subsec. (l).
Subsec. (m).
1984—Subsec. (i)(2).
Subsec. (j).
Subsec. (j)(3).
Subsec. (k).
1982—Subsec. (a).
Subsec. (c)(1).
Subsec. (h).
Subsec. (i).
Subsec. (j).
1981—Subsec. (a).
Subsec. (h).
Subsec. (i).
1976—Subsec. (a).
Subsec. (c).
1971—Subsec. (c).
Subsec. (c)(2).
Subsec. (c)(3).
1969—Subsec. (c).
Subsecs. (f), (g).
Subsec. (h).
1962—Subsec. (a)(2).
Subsecs. (e), (f).
1960—Subsec. (b).
Subsecs. (d), (e).
1958—Subsecs. (c), (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 11002(d)(6) of
"(1)
"(2)
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2011 Amendment
Amendment by
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
Effective Date of 2004 Amendment
Amendment by section 802(b)(2) of
Effective Date of 2003 Amendment
Amendment by
Effective Date of 1998 Amendments
Amendment by
Effective Date of 1997 Amendment
Amendment by section 1602(c) of
Effective Date of 1996 Amendment
Amendment by section 311(a) of
"(A)
"(B)
Effective Date of 1995 Amendment
"(1)
"(2)
Effective Date of 1993 Amendment
Amendment by section 13131(d)(2) of
Effective Date of 1992 Amendment
Effective Date of 1991 Amendment
Effective Date of 1990 Amendment
Amendment by section 11111(d)(2) of
Effective Date of 1989 Amendment
"(i) qualifying events occurring after December 31, 1989, and
"(ii) in the case of qualified beneficiaries who elected continuation coverage after December 31, 1988, the period for which the required premium was paid (or was attempted to be paid but was rejected as such)."
Amendment by
Effective Date of 1988 Amendment
Amendment by sections 1011B(b)(1)–(3) and 1018(t)(7)(B) of
Effective Date of 1986 Amendment
"(1)
"(2)
"(3)
Amendment by section 9307(c)(2)(B) of
"(1)
"(2)
"(A) a qualifying event described in section 162(k)(3)(F) of the Internal Revenue Code of 1986 or section 603(6) of the Employee Retirement Income Security Act of 1974 [
"(B) a qualifying event described in section 162(k)(3)(A) of the Internal Revenue Code of 1986 or section 603(1) of the Employee Retirement Income Security Act of 1974 [
"(3)
"(4)
Amendment by
Effective Date of 1984 Amendment
Amendment by section 512(b) of
Amendment by section 2354(d) of
Effective Date of 1982 Amendment
Amendment by section 128(b) of
Effective Date of 1981 Amendment
Effective Date of 1976 Amendment
Amendment by section 1901(c)(4) of
Effective Date of 1971 Amendment
Effective Date of 1969 Amendment
Amendment by section 516(c)(2)(A) of
Effective Date of 1962 Amendment
Effective Date of 1960 Amendment
Effective Date of 1958 Amendment
Deduction for Special Assessments
Special Rule for Deductions Under Subsection (l) for Certain Taxable Years
Business Use of Automobiles by Rural Mail Carriers
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Living Expenses of Members of Congress While Away From Home; Sense of Congress
State Legislators' Travel Expenses Away From Home
"(a) In
"(1) the place of residence of such individual within the legislative district which he represented shall be considered his home, and
"(2) he shall be deemed to have expended for living expenses (in connection with his trade or business as a legislator) an amount equal to the sum of the amounts determined by multiplying each legislative day of such individual during the taxable year by the amount generally allowable with respect to such day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States.
"(b)
"(c)
"(d)
[Amendment of section 604 of
Denial of Deduction for Amounts Paid or Incurred on Judgments in Suits Brought To Recover Price Increases in Purchase of New Principal Residence
No deductions to be allowed in computing taxable income for two-thirds of any amount paid or incurred on a judgment entered against any person in a suit brought under section 208(b) of
Deductibility of Accrued Vacation Pay
Investigation of, and Reports on, Treatment of Entertainment and Certain Other Expenses
Filing of Claims for Refunds of Overpayments
Extension of time for filing of claims for refunds or credit of overpayments of income tax resulting from application of this section, see section 96 of
§163. Interest
(a) General rule
There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness.
(b) Installment purchases where interest charge is not separately stated
(1) General rule
If personal property or educational services are purchased under a contract—
(A) which provides that payment of part or all of the purchase price is to be made in installments, and
(B) in which carrying charges are separately stated but the interest charge cannot be ascertained,
then the payments made during the taxable year under the contract shall be treated for purposes of this section as if they included interest equal to 6 percent of the average unpaid balance under the contract during the taxable year. For purposes of the preceding sentence, the average unpaid balance is the sum of the unpaid balance outstanding on the first day of each month beginning during the taxable year, divided by 12. For purposes of this paragraph, the term "educational services" means any service (including lodging) which is purchased from an educational organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization.
(2) Limitation
In the case of any contract to which paragraph (1) applies, the amount treated as interest for any taxable year shall not exceed the aggregate carrying charges which are properly attributable to such taxable year.
(c) Redeemable ground rents
For purposes of this subtitle, any annual or periodic rental under a redeemable ground rent (excluding amounts in redemption thereof) shall be treated as interest on an indebtedness secured by a mortgage.
(d) Limitation on investment interest
(1) In general
In the case of a taxpayer other than a corporation, the amount allowed as a deduction under this chapter for investment interest for any taxable year shall not exceed the net investment income of the taxpayer for the taxable year.
(2) Carryforward of disallowed interest
The amount not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as investment interest paid or accrued by the taxpayer in the succeeding taxable year.
(3) Investment interest
For purposes of this subsection—
(A) In general
The term "investment interest" means any interest allowable as a deduction under this chapter (determined without regard to paragraph (1)) which is paid or accrued on indebtedness properly allocable to property held for investment.
(B) Exceptions
The term "investment interest" shall not include—
(i) any qualified residence interest (as defined in subsection (h)(3)), or
(ii) any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer.
(C) Personal property used in short sale
For purposes of this paragraph, the term "interest" includes any amount allowable as a deduction in connection with personal property used in a short sale.
(4) Net investment income
For purposes of this subsection—
(A) In general
The term "net investment income" means the excess of—
(i) investment income, over
(ii) investment expenses.
(B) Investment income
The term "investment income" means the sum of—
(i) gross income from property held for investment (other than any gain taken into account under clause (ii)(I)),
(ii) the excess (if any) of—
(I) the net gain attributable to the disposition of property held for investment, over
(II) the net capital gain determined by only taking into account gains and losses from dispositions of property held for investment, plus
(iii) so much of the net capital gain referred to in clause (ii)(II) (or, if lesser, the net gain referred to in clause (ii)(I)) as the taxpayer elects to take into account under this clause.
Such term shall include qualified dividend income (as defined in section 1(h)(11)(B)) only to the extent the taxpayer elects to treat such income as investment income for purposes of this subsection.
(C) Investment expenses
The term "investment expenses" means the deductions allowed under this chapter (other than for interest) which are directly connected with the production of investment income.
(D) Income and expenses from passive activities
Investment income and investment expenses shall not include any income or expenses taken into account under section 469 in computing income or loss from a passive activity.
(5) Property held for investment
For purposes of this subsection—
(A) In general
The term "property held for investment" shall include—
(i) any property which produces income of a type described in section 469(e)(1), and
(ii) any interest held by a taxpayer in an activity involving the conduct of a trade or business—
(I) which is not a passive activity, and
(II) with respect to which the taxpayer does not materially participate.
(B) Investment expenses
In the case of property described in subparagraph (A)(i), expenses shall be allocated to such property in the same manner as under section 469.
(C) Terms
For purposes of this paragraph, the terms "activity", "passive activity", and "materially participate" have the meanings given such terms by section 469.
(e) Original issue discount
(1) In general
The portion of the original issue discount with respect to any debt instrument which is allowable as a deduction to the issuer for any taxable year shall be equal to the aggregate daily portions of the original issue discount for days during such taxable year.
(2) Definitions and special rules
For purposes of this subsection—
(A) Debt instrument
The term "debt instrument" has the meaning given such term by section 1275(a)(1).
(B) Daily portions
The daily portion of the original issue discount for any day shall be determined under section 1272(a) (without regard to paragraph (7) thereof and without regard to section 1273(a)(3)).
(C) Short-term obligations
In the case of an obligor of a short-term obligation (as defined in section 1283(a)(1)(A)) who uses the cash receipts and disbursements method of accounting, the original issue discount (and any other interest payable) on such obligation shall be deductible only when paid.
(3) Special rule for original issue discount on obligation held by related foreign person
(A) In general
If any debt instrument having original issue discount is held by a related foreign person, any portion of such original issue discount shall not be allowable as a deduction to the issuer until paid. The preceding sentence shall not apply to the extent that the original issue discount is effectively connected with the conduct by such foreign related person of a trade or business within the United States unless such original issue discount is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States.
(B) Special rule for certain foreign entities
(i) In general
In the case of any debt instrument having original issue discount which is held by a related foreign person which is a controlled foreign corporation (as defined in section 957) or a passive foreign investment company (as defined in section 1297), a deduction shall be allowable to the issuer with respect to such original issue discount for any taxable year before the taxable year in which paid only to the extent such original issue discount is includible (determined without regard to properly allocable deductions and qualified deficits under section 952(c)(1)(B)) during such prior taxable year in the gross income of a United States person who owns (within the meaning of section 958(a)) stock in such corporation.
(ii) Secretarial authority
The Secretary may by regulation exempt transactions from the application of clause (i), including any transaction which is entered into by a payor in the ordinary course of a trade or business in which the payor is predominantly engaged.
(C) Related foreign person
For purposes of subparagraph (A), the term "related foreign person" means any person—
(i) who is not a United States person, and
(ii) who is related (within the meaning of section 267(b)) to the issuer.
(4) Exception
This subsection shall not apply to any debt instrument described in section 1272(a)(2)(D) (relating to loans between natural persons).
(5) Special rules for original issue discount on certain high yield obligations
(A) In general
In the case of an applicable high yield discount obligation issued by a corporation—
(i) no deduction shall be allowed under this chapter for the disqualified portion of the original issue discount on such obligation, and
(ii) the remainder of such original issue discount shall not be allowable as a deduction until paid.
For purposes of this paragraph, rules similar to the rules of subsection (i)(3)(B) shall apply in determining the amount of the original issue discount and when the original issue discount is paid.
(B) Disqualified portion treated as stock distribution for purposes of dividend received deduction
(i) In general
Solely for purposes of sections 243, 245, 246, and 246A, the dividend equivalent portion of any amount includible in gross income of a corporation under section 1272(a) in respect of an applicable high yield discount obligation shall be treated as a dividend received by such corporation from the corporation issuing such obligation.
(ii) Dividend equivalent portion
For purposes of clause (i), the dividend equivalent portion of any amount includible in gross income under section 1272(a) in respect of an applicable high yield discount obligation is the portion of the amount so includible—
(I) which is attributable to the disqualified portion of the original issue discount on such obligation, and
(II) which would have been treated as a dividend if it had been a distribution made by the issuing corporation with respect to stock in such corporation.
(C) Disqualified portion
(i) In general
For purposes of this paragraph, the disqualified portion of the original issue discount on any applicable high yield discount obligation is the lesser of—
(I) the amount of such original issue discount, or
(II) the portion of the total return on such obligation which bears the same ratio to such total return as the disqualified yield on such obligation bears to the yield to maturity on such obligation.
(ii) Definitions
For purposes of clause (i), the term "disqualified yield" means the excess of the yield to maturity on the obligation over the sum referred to in subsection (i)(1)(B) plus 1 percentage point, and the term "total return" is the amount which would have been the original issue discount on the obligation if interest described in the parenthetical in section 1273(a)(2) were included in the stated redemption price at maturity.
(D) Exception for S corporations
This paragraph shall not apply to any obligation issued by any corporation for any period for which such corporation is an S corporation.
(E) Effect on earnings and profits
This paragraph shall not apply for purposes of determining earnings and profits; except that, for purposes of determining the dividend equivalent portion of any amount includible in gross income under section 1272(a) in respect of an applicable high yield discount obligation, no reduction shall be made for any amount attributable to the disqualified portion of any original issue discount on such obligation.
(F) Suspension of application of paragraph
(i) Temporary suspension
This paragraph shall not apply to any applicable high yield discount obligation issued during the period beginning on September 1, 2008, and ending on December 31, 2009, in exchange (including an exchange resulting from a modification of the debt instrument) for an obligation which is not an applicable high yield discount obligation and the issuer (or obligor) of which is the same as the issuer (or obligor) of such applicable high yield discount obligation. The preceding sentence shall not apply to any obligation the interest on which is interest described in section 871(h)(4) (without regard to subparagraph (D) thereof) or to any obligation issued to a related person (within the meaning of section 108(e)(4)).
(ii) Successive application
Any obligation to which clause (i) applies shall not be treated as an applicable high yield discount obligation for purposes of applying this subparagraph to any other obligation issued in exchange for such obligation.
(iii) Secretarial authority to suspend application
The Secretary may apply this paragraph with respect to debt instruments issued in periods following the period described in clause (i) if the Secretary determines that such application is appropriate in light of distressed conditions in the debt capital markets.
(G) Cross reference
For definition of applicable high yield discount obligation, see subsection (i).
(6) Cross references
For provision relating to deduction of original issue discount on tax-exempt obligation, see section 1288.
For special rules in the case of the borrower under certain loans for personal use, see section 1275(b).
(f) Denial of deduction for interest on certain obligations not in registered form
(1) In general
Nothing in subsection (a) or in any other provision of law shall be construed to provide a deduction for interest on any registration-required obligation unless such obligation is in registered form.
(2) Registration-required obligation
For purposes of this section—
(A) In general
The term "registration-required obligation" means any obligation (including any obligation issued by a governmental entity) other than an obligation which—
(i) is issued by a natural person,
(ii) is not of a type offered to the public, or
(iii) has a maturity (at issue) of not more than 1 year.
(B) Authority to include other obligations
Clauses (ii) and (iii) of subparagraph (A) shall not apply to any obligation if—
(i) such obligation is of a type which the Secretary has determined by regulations to be used frequently in avoiding Federal taxes, and
(ii) such obligation is issued after the date on which the regulations referred to in clause (i) take effect.
(3) Book entries permitted, etc.
For purposes of this subsection, rules similar to the rules of section 149(a)(3) shall apply, except that a dematerialized book entry system or other book entry system specified by the Secretary shall be treated as a book entry system described in such section.
(g) Reduction of deduction where section 25 credit taken
The amount of the deduction under this section for interest paid or accrued during any taxable year on indebtedness with respect to which a mortgage credit certificate has been issued under section 25 shall be reduced by the amount of the credit allowable with respect to such interest under section 25 (determined without regard to section 26).
(h) Disallowance of deduction for personal interest
(1) In general
In the case of a taxpayer other than a corporation, no deduction shall be allowed under this chapter for personal interest paid or accrued during the taxable year.
(2) Personal interest
For purposes of this subsection, the term "personal interest" means any interest allowable as a deduction under this chapter other than—
(A) interest paid or accrued on indebtedness properly allocable to a trade or business (other than the trade or business of performing services as an employee),
(B) any investment interest (within the meaning of subsection (d)),
(C) any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer,
(D) any qualified residence interest (within the meaning of paragraph (3)),
(E) any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6163, and
(F) any interest allowable as a deduction under section 221 (relating to interest on educational loans).
(3) Qualified residence interest
For purposes of this subsection—
(A) In general
The term "qualified residence interest" means any interest which is paid or accrued during the taxable year on—
(i) acquisition indebtedness with respect to any qualified residence of the taxpayer, or
(ii) home equity indebtedness with respect to any qualified residence of the taxpayer.
For purposes of the preceding sentence, the determination of whether any property is a qualified residence of the taxpayer shall be made as of the time the interest is accrued.
(B) Acquisition indebtedness
(i) In general
The term "acquisition indebtedness" means any indebtedness which—
(I) is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer, and
(II) is secured by such residence.
Such term also includes any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.
(ii) $1,000,000 limitation
The aggregate amount treated as acquisition indebtedness for any period shall not exceed $1,000,000 ($500,000 in the case of a married individual filing a separate return).
(C) Home equity indebtedness
(i) In general
The term "home equity indebtedness" means any indebtedness (other than acquisition indebtedness) secured by a qualified residence to the extent the aggregate amount of such indebtedness does not exceed—
(I) the fair market value of such qualified residence, reduced by
(II) the amount of acquisition indebtedness with respect to such residence.
(ii) Limitation
The aggregate amount treated as home equity indebtedness for any period shall not exceed $100,000 ($50,000 in the case of a separate return by a married individual).
(D) Treatment of indebtedness incurred on or before October 13, 1987
(i) In general
In the case of any pre-October 13, 1987, indebtedness—
(I) such indebtedness shall be treated as acquisition indebtedness, and
(II) the limitation of subparagraph (B)(ii) shall not apply.
(ii) Reduction in $1,000,000 limitation
The limitation of subparagraph (B)(ii) shall be reduced (but not below zero) by the aggregate amount of outstanding pre-October 13, 1987, indebtedness.
(iii) Pre-October 13, 1987, indebtedness
The term "pre-October 13, 1987, indebtedness" means—
(I) any indebtedness which was incurred on or before October 13, 1987, and which was secured by a qualified residence on October 13, 1987, and at all times thereafter before the interest is paid or accrued, or
(II) any indebtedness which is secured by the qualified residence and was incurred after October 13, 1987, to refinance indebtedness described in subclause (I) (or refinanced indebtedness meeting the requirements of this subclause) to the extent (immediately after the refinancing) the principal amount of the indebtedness resulting from the refinancing does not exceed the principal amount of the refinanced indebtedness (immediately before the refinancing).
(iv) Limitation on period of refinancing
Subclause (II) of clause (iii) shall not apply to any indebtedness after—
(I) the expiration of the term of the indebtedness described in clause (iii)(I), or
(II) if the principal of the indebtedness described in clause (iii)(I) is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing).
(E) Mortgage insurance premiums treated as interest
(i) In general
Premiums paid or accrued for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer shall be treated for purposes of this section as interest which is qualified residence interest.
(ii) Phaseout
The amount otherwise treated as interest under clause (i) shall be reduced (but not below zero) by 10 percent of such amount for each $1,000 ($500 in the case of a married individual filing a separate return) (or fraction thereof) that the taxpayer's adjusted gross income for the taxable year exceeds $100,000 ($50,000 in the case of a married individual filing a separate return).
(iii) Limitation
Clause (i) shall not apply with respect to any mortgage insurance contracts issued before January 1, 2007.
(iv) Termination
Clause (i) shall not apply to amounts—
(I) paid or accrued after December 31, 2021, or
(II) properly allocable to any period after such date.
(F) Special rules for taxable years 2018 through 2025
(i) In general
In the case of taxable years beginning after December 31, 2017, and before January 1, 2026—
(I) Disallowance of home equity indebtedness interest
Subparagraph (A)(ii) shall not apply.
(II) Limitation on acquisition indebtedness
Subparagraph (B)(ii) shall be applied by substituting "$750,000 ($375,000" for "$1,000,000 ($500,000".
(III) Treatment of indebtedness incurred on or before December 15, 2017
Subclause (II) shall not apply to any indebtedness incurred on or before December 15, 2017, and, in applying such subclause to any indebtedness incurred after such date, the limitation under such subclause shall be reduced (but not below zero) by the amount of any indebtedness incurred on or before December 15, 2017, which is treated as acquisition indebtedness for purposes of this subsection for the taxable year.
(IV) Binding contract exception
In the case of a taxpayer who enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, subclause (III) shall be applied by substituting "April 1, 2018" for "December 15, 2017".
(ii) Treatment of limitation in taxable years after December 31, 2025
In the case of taxable years beginning after December 31, 2025, the limitation under subparagraph (B)(ii) shall be applied to the aggregate amount of indebtedness of the taxpayer described in subparagraph (B)(i) without regard to the taxable year in which the indebtedness was incurred.
(iii) Treatment of refinancings of indebtedness
(I) In general
In the case of any indebtedness which is incurred to refinance indebtedness, such refinanced indebtedness shall be treated for purposes of clause (i)(III) as incurred on the date that the original indebtedness was incurred to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.
(II) Limitation on period of refinancing
Subclause (I) shall not apply to any indebtedness after the expiration of the term of the original indebtedness or, if the principal of such original indebtedness is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing).
(iv) Coordination with exclusion of income from discharge of indebtedness
Section 108(h)(2) shall be applied without regard to this subparagraph.
(4) Other definitions and special rules
For purposes of this subsection—
(A) Qualified residence
(i) In general
The term "qualified residence" means—
(I) the principal residence (within the meaning of section 121) of the taxpayer, and
(II) 1 other residence of the taxpayer which is selected by the taxpayer for purposes of this subsection for the taxable year and which is used by the taxpayer as a residence (within the meaning of section 280A(d)(1)).
(ii) Married individuals filing separate returns
If a married couple does not file a joint return for the taxable year—
(I) such couple shall be treated as 1 taxpayer for purposes of clause (i), and
(II) each individual shall be entitled to take into account 1 residence unless both individuals consent in writing to 1 individual taking into account the principal residence and 1 other residence.
(iii) Residence not rented
For purposes of clause (i)(II), notwithstanding section 280A(d)(1), if the taxpayer does not rent a dwelling unit at any time during a taxable year, such unit may be treated as a residence for such taxable year.
(B) Special rule for cooperative housing corporations
Any indebtedness secured by stock held by the taxpayer as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as so defined) shall be treated as secured by the house or apartment which the taxpayer is entitled to occupy as such a tenant-stockholder. If stock described in the preceding sentence may not be used to secure indebtedness, indebtedness shall be treated as so secured if the taxpayer establishes to the satisfaction of the Secretary that such indebtedness was incurred to acquire such stock.
(C) Unenforceable security interests
Indebtedness shall not fail to be treated as secured by any property solely because, under any applicable State or local homestead or other debtor protection law in effect on August 16, 1986, the security interest is ineffective or the enforceability of the security interest is restricted.
(D) Special rules for estates and trusts
For purposes of determining whether any interest paid or accrued by an estate or trust is qualified residence interest, any residence held by such estate or trust shall be treated as a qualified residence of such estate or trust if such estate or trust establishes that such residence is a qualified residence of a beneficiary who has a present interest in such estate or trust or an interest in the residuary of such estate or trust.
(E) Qualified mortgage insurance
The term "qualified mortgage insurance" means—
(i) mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and
(ii) private mortgage insurance (as defined by section 2 of the Homeowners Protection Act of 1998 (
(F) Special rules for prepaid qualified mortgage insurance
Any amount paid by the taxpayer for qualified mortgage insurance that is properly allocable to any mortgage the payment of which extends to periods that are after the close of the taxable year in which such amount is paid shall be chargeable to capital account and shall be treated as paid in such periods to which so allocated. No deduction shall be allowed for the unamortized balance of such account if such mortgage is satisfied before the end of its term. The preceding sentences shall not apply to amounts paid for qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service.
(i) Applicable high yield discount obligation
(1) In general
For purposes of this section, the term "applicable high yield discount obligation" means any debt instrument if—
(A) the maturity date of such instrument is more than 5 years from the date of issue,
(B) the yield to maturity on such instrument equals or exceeds the sum of—
(i) the applicable Federal rate in effect under section 1274(d) for the calendar month in which the obligation is issued, plus
(ii) 5 percentage points, and
(C) such instrument has significant original issue discount.
For purposes of subparagraph (B)(i), the Secretary may by regulation (i) permit a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the taxpayer establishes to the satisfaction of the Secretary that such higher rate is based on the same principles as the applicable Federal rate and is appropriate for the term of the instrument, or (ii) permit, on a temporary basis, a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the Secretary determines that such rate is appropriate in light of distressed conditions in the debt capital markets.
(2) Significant original issue discount
For purposes of paragraph (1)(C), a debt instrument shall be treated as having significant original issue discount if—
(A) the aggregate amount which would be includible in gross income with respect to such instrument for periods before the close of any accrual period (as defined in section 1272(a)(5)) ending after the date 5 years after the date of issue, exceeds—
(B) the sum of—
(i) the aggregate amount of interest to be paid under the instrument before the close of such accrual period, and
(ii) the product of the issue price of such instrument (as defined in sections 1273(b) and 1274(a)) and its yield to maturity.
(3) Special rules
For purposes of determining whether a debt instrument is an applicable high yield discount obligation—
(A) any payment under the instrument shall be assumed to be made on the last day permitted under the instrument, and
(B) any payment to be made in the form of another obligation of the issuer (or a related person within the meaning of section 453(f)(1)) shall be assumed to be made when such obligation is required to be paid in cash or in property other than such obligation.
Except for purposes of paragraph (1)(B), any reference to an obligation in subparagraph (B) of this paragraph shall be treated as including a reference to stock.
(4) Debt instrument
For purposes of this subsection, the term "debt instrument" means any instrument which is a debt instrument as defined in section 1275(a).
(5) Regulations
The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subsection and subsection (e)(5), including—
(A) regulations providing for modifications to the provisions of this subsection and subsection (e)(5) in the case of varying rates of interest, put or call options, indefinite maturities, contingent payments, assumptions of debt instruments, conversion rights, or other circumstances where such modifications are appropriate to carry out the purposes of this subsection and subsection (e)(5), and
(B) regulations to prevent avoidance of the purposes of this subsection and subsection (e)(5) through the use of issuers other than C corporations, agreements to borrow amounts due under the debt instrument, or other arrangements.
(j) Limitation on business interest
(1) In general
The amount allowed as a deduction under this chapter for any taxable year for business interest shall not exceed the sum of—
(A) the business interest income of such taxpayer for such taxable year,
(B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus
(C) the floor plan financing interest of such taxpayer for such taxable year.
The amount determined under subparagraph (B) shall not be less than zero.
(2) Carryforward of disallowed business interest
The amount of any business interest not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as business interest paid or accrued in the succeeding taxable year.
(3) Exemption for certain small businesses
In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, paragraph (1) shall not apply to such taxpayer for such taxable year. In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if such taxpayer were a corporation or partnership.
(4) Application to partnerships, etc.
(A) In general
In the case of any partnership—
(i) this subsection shall be applied at the partnership level and any deduction for business interest shall be taken into account in determining the non-separately stated taxable income or loss of the partnership, and
(ii) the adjusted taxable income of each partner of such partnership—
(I) shall be determined without regard to such partner's distributive share of any items of income, gain, deduction, or loss of such partnership, and
(II) shall be increased by such partner's distributive share of such partnership's excess taxable income.
For purposes of clause (ii)(II), a partner's distributive share of partnership excess taxable income shall be determined in the same manner as the partner's distributive share of nonseparately stated taxable income or loss of the partnership.
(B) Special rules for carryforwards
(i) In general
The amount of any business interest not allowed as a deduction to a partnership for any taxable year by reason of paragraph (1) for any taxable year—
(I) shall not be treated under paragraph (2) as business interest paid or accrued by the partnership in the succeeding taxable year, and
(II) shall, subject to clause (ii), be treated as excess business interest which is allocated to each partner in the same manner as the non-separately stated taxable income or loss of the partnership.
(ii) Treatment of excess business interest allocated to partners
If a partner is allocated any excess business interest from a partnership under clause (i) for any taxable year—
(I) such excess business interest shall be treated as business interest paid or accrued by the partner in the next succeeding taxable year in which the partner is allocated excess taxable income from such partnership, but only to the extent of such excess taxable income, and
(II) any portion of such excess business interest remaining after the application of subclause (I) shall, subject to the limitations of subclause (I), be treated as business interest paid or accrued in succeeding taxable years.
For purposes of applying this paragraph, excess taxable income allocated to a partner from a partnership for any taxable year shall not be taken into account under paragraph (1)(A) with respect to any business interest other than excess business interest from the partnership until all such excess business interest for such taxable year and all preceding taxable years has been treated as paid or accrued under clause (ii).
(iii) Basis adjustments
(I) In general
The adjusted basis of a partner in a partnership interest shall be reduced (but not below zero) by the amount of excess business interest allocated to the partner under clause (i)(II).
(II) Special rule for dispositions
If a partner disposes of a partnership interest, the adjusted basis of the partner in the partnership interest shall be increased immediately before the disposition by the amount of the excess (if any) of the amount of the basis reduction under subclause (I) over the portion of any excess business interest allocated to the partner under clause (i)(II) which has previously been treated under clause (ii) as business interest paid or accrued by the partner. The preceding sentence shall also apply to transfers of the partnership interest (including by reason of death) in a transaction in which gain is not recognized in whole or in part. No deduction shall be allowed to the transferor or transferee under this chapter for any excess business interest resulting in a basis increase under this subclause.
(C) Excess taxable income
The term "excess taxable income" means, with respect to any partnership, the amount which bears the same ratio to the partnership's adjusted taxable income as—
(i) the excess (if any) of—
(I) the amount determined for the partnership under paragraph (1)(B), over
(II) the amount (if any) by which the business interest of the partnership, reduced by the floor plan financing interest, exceeds the business interest income of the partnership, bears to
(ii) the amount determined for the partnership under paragraph (1)(B).
(D) Application to S corporations
Rules similar to the rules of subparagraphs (A) and (C) shall apply with respect to any S corporation and its shareholders.
(5) Business interest
For purposes of this subsection, the term "business interest" means any interest paid or accrued on indebtedness properly allocable to a trade or business. Such term shall not include investment interest (within the meaning of subsection (d)).
(6) Business interest income
For purposes of this subsection, the term "business interest income" means the amount of interest includible in the gross income of the taxpayer for the taxable year which is properly allocable to a trade or business. Such term shall not include investment income (within the meaning of subsection (d)).
(7) Trade or business
For purposes of this subsection—
(A) In general
The term "trade or business" shall not include—
(i) the trade or business of performing services as an employee,
(ii) any electing real property trade or business,
(iii) any electing farming business, or
(iv) the trade or business of the furnishing or sale of—
(I) electrical energy, water, or sewage disposal services,
(II) gas or steam through a local distribution system, or
(III) 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, by a public service or public utility commission or other similar body of any State or political subdivision thereof, or by the governing or ratemaking body of an electric cooperative.
(B) Electing real property trade or business
For purposes of this paragraph, the term "electing real property trade or business" means any trade or business which is described in section 469(c)(7)(C) and which makes an election under this subparagraph. Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable.
(C) Electing farming business
For purposes of this paragraph, the term "electing farming business" means—
(i) a farming business (as defined in section 263A(e)(4)) which makes an election under this subparagraph, or
(ii) any trade or business of a specified agricultural or horticultural cooperative (as defined in section 199A(g)(2)) 1 with respect to which the cooperative makes an election under this subparagraph.
Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable.
(8) Adjusted taxable income
For purposes of this subsection, the term "adjusted taxable income" means the taxable income of the taxpayer—
(A) computed without regard to—
(i) any item of income, gain, deduction, or loss which is not properly allocable to a trade or business,
(ii) any business interest or business interest income,
(iii) the amount of any net operating loss deduction under section 172,
(iv) the amount of any deduction allowed under section 199A, and
(v) in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization, or depletion, and
(B) computed with such other adjustments as provided by the Secretary.
(9) Floor plan financing interest defined
For purposes of this subsection—
(A) In general
The term "floor plan financing interest" means interest paid or accrued on floor plan financing indebtedness.
(B) Floor plan financing indebtedness
The term "floor plan financing indebtedness" means indebtedness—
(i) used to finance the acquisition of motor vehicles held for sale or lease, and
(ii) secured by the inventory so acquired.
(C) Motor vehicle
The term "motor vehicle" means a motor vehicle that is any of the following:
(i) Any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road.
(ii) A boat.
(iii) Farm machinery or equipment.
(10) Special rule for taxable years beginning in 2019 and 2020
(A) In general
(i) In general
Except as provided in clause (ii) or (iii), in the case of any taxable year beginning in 2019 or 2020, paragraph (1)(B) shall be applied by substituting "50 percent" for "30 percent".
(ii) Special rule for partnerships
In the case of a partnership—
(I) clause (i) shall not apply to any taxable year beginning in 2019, but
(II) unless a partner elects not to have this subclause apply, in the case of any excess business interest of the partnership for any taxable year beginning in 2019 which is allocated to the partner under paragraph (4)(B)(i)(II)—
(aa) 50 percent of such excess business interest shall be treated as business interest which, notwithstanding paragraph (4)(B)(ii), is paid or accrued by the partner in the partner's first taxable year beginning in 2020 and which is not subject to the limits of paragraph (1), and
(bb) 50 percent of such excess business interest shall be subject to the limitations of paragraph (4)(B)(ii) in the same manner as any other excess business interest so allocated.
(iii) Election out
A taxpayer may elect, at such time and in such manner as the Secretary may prescribe, not to have clause (i) apply to any taxable year. Such an election, once made, may be revoked only with the consent of the Secretary. In the case of a partnership, any such election shall be made by the partnership and may be made only for taxable years beginning in 2020.
(B) Election to use 2019 adjusted taxable income for taxable years beginning in 2020
(i) In general
Subject to clause (ii), in the case of any taxable year beginning in 2020, the taxpayer may elect to apply this subsection by substituting the adjusted taxable income of the taxpayer for the last taxable year beginning in 2019 for the adjusted taxable income for such taxable year. In the case of a partnership, any such election shall be made by the partnership.
(ii) Special rule for short taxable years
If an election is made under clause (i) for a taxable year which is a short taxable year, the adjusted taxable income for the taxpayer's last taxable year beginning in 2019 which is substituted under clause (i) shall be equal to the amount which bears the same ratio to such adjusted taxable income determined without regard to this clause as the number of months in the short taxable year bears to 12 2
(11) Cross references
(A) For requirement that an electing real property trade or business use the alternative depreciation system, see section 168(g)(1)(F).
(B) For requirement that an electing farming business use the alternative depreciation system, see section 168(g)(1)(G).
(k) Section 6166 interest
No deduction shall be allowed under this section for any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6166.
(l) Disallowance of deduction on certain debt instruments of corporations
(1) In general
No deduction shall be allowed under this chapter for any interest paid or accrued on a disqualified debt instrument.
(2) Disqualified debt instrument
For purposes of this subsection, the term "disqualified debt instrument" means any indebtedness of a corporation which is payable in equity of the issuer or a related party or equity held by the issuer (or any related party) in any other person.
(3) Special rules for amounts payable in equity
For purposes of paragraph (2), indebtedness shall be treated as payable in equity of the issuer or any other person only if—
(A) a substantial amount of the principal or interest is required to be paid or converted, or at the option of the issuer or a related party is payable in, or convertible into, such equity,
(B) a substantial amount of the principal or interest is required to be determined, or at the option of the issuer or a related party is determined, by reference to the value of such equity, or
(C) the indebtedness is part of an arrangement which is reasonably expected to result in a transaction described in subparagraph (A) or (B).
For purposes of this paragraph, principal or interest shall be treated as required to be so paid, converted, or determined if it may be required at the option of the holder or a related party and there is a substantial certainty the option will be exercised.
(4) Capitalization allowed with respect to equity of persons other than issuer and related parties
If the disqualified debt instrument of a corporation is payable in equity held by the issuer (or any related party) in any other person (other than a related party), the basis of such equity shall be increased by the amount not allowed as a deduction by reason of paragraph (1) with respect to the instrument.
(5) Exception for certain instruments issued by dealers in securities
For purposes of this subsection, the term "disqualified debt instrument" does not include indebtedness issued by a dealer in securities (or a related party) which is payable in, or by reference to, equity (other than equity of the issuer or a related party) held by such dealer in its capacity as a dealer in securities. For purposes of this paragraph, the term "dealer in securities" has the meaning given such term by section 475.
(6) Related party
For purposes of this subsection, a person is a related party with respect to another person if such person bears a relationship to such other person described in section 267(b) or 707(b).
(7) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations preventing avoidance of this subsection through the use of an issuer other than a corporation.
(m) Interest on unpaid taxes attributable to nondisclosed reportable transactions
No deduction shall be allowed under this chapter for any interest paid or accrued under section 6601 on any underpayment of tax which is attributable to the portion of any reportable transaction understatement (as defined in section 6662A(b)) with respect to which the requirement of section 6664(d)(2)(A) 1 is not met.
(n) Cross references
(1) For disallowance of certain amounts paid in connection with insurance, endowment, or annuity contracts, see section 264.
(2) For disallowance of deduction for interest relating to tax-exempt income, see section 265(a)(2).
(3) For disallowance of deduction for carrying charges chargeable to capital account, see section 266.
(4) For disallowance of interest with respect to transactions between related taxpayers, see section 267.
(5) For treatment of redeemable ground rents and real property held subject to liabilities under redeemable ground rents, see section 1055.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The date of the enactment of this subparagraph, referred to in subsec. (h)(4)(E)(ii), is the date of enactment of
Section 199A(g)(2), referred to in subsec. (j)(7)(C)(ii), probably should be a reference to section 199A(g)(4), which defines "specified agricultural or horticultural cooperative" after the general amendment of section 199A(g) by
Section 6664(d)(2)(A), referred to in subsec. (m), was redesignated as section 6664(d)(3)(A) by
Amendments
2020—Subsec. (h)(3)(E)(iv)(I).
Subsec. (j)(10), (11).
2019—Subsec. (h)(3)(E)(iv)(I).
2018—Subsec. (d)(4)(E).
Subsec. (e)(1).
Subsec. (e)(4).
"(A) subparagraph (D) of section 1272(a)(2) (relating to obligations issued by natural persons before March 2, 1984), and
"(B) subparagraph (E) of section 1272(a)(2) (relating to loans between natural persons)."
Subsec. (e)(5)(C)(ii).
Subsec. (h)(3)(E)(iv)(I).
2017—Subsec. (h)(3)(F).
Subsec. (j).
2015—Subsec. (h)(3)(E)(iv)(I).
2014—Subsec. (d)(6).
Subsec. (h)(3)(E)(iv)(I).
Subsec. (h)(4)(F).
Subsec. (h)(5).
2013—Subsec. (h)(3)(E)(iv)(I).
Subsec. (h)(4)(E)(i).
2010—Subsec. (f)(2)(A)(ii) to (iv).
Subsec. (f)(2)(B).
Subsec. (f)(2)(B)(i).
"(I) subparagraph (A), such obligation is of a type which the Secretary has determined by regulations to be used frequently in avoiding Federal taxes, or
"(II) subparagraph (B), such obligation is of a type specified by the Secretary in regulations, and".
Subsec. (f)(2)(C).
Subsec. (f)(3).
Subsec. (h)(3)(E)(iv)(I).
2009—Subsec. (e)(5)(F), (G).
Subsec. (i)(1).
2007—Subsec. (h)(3)(E)(iv)(I).
2006—Subsec. (h)(3)(E).
Subsec. (h)(4)(E), (F).
Subsec. (j)(8).
Subsec. (j)(9).
2005—Subsec. (j)(6)(A)(i)(III), (IV).
2004—Subsec. (e)(3)(B), (C).
Subsec. (l)(2).
Subsec. (l)(3).
Subsec. (l)(4) to (7).
Subsecs. (m), (n).
2003—Subsec. (d)(4)(B).
1999—Subsec. (j)(3)(C).
1998—Subsec. (h)(2)(F).
1997—Subsec. (h)(2)(E).
Subsec. (h)(4)(A)(i)(I).
Subsec. (j)(2)(B)(iii).
Subsec. (k).
Subsec. (l).
Subsec. (m).
1996—Subsec. (j)(1)(B).
Subsec. (j)(6)(E)(ii).
Subsec. (j)(7), (8).
1993—Subsec. (d)(4)(B).
"(i) gross income (other than gain taken into account under clause (ii)) from property held for investment, and
"(ii) any net gain attributable to the disposition of property held for investment."
Subsec. (j).
Subsec. (j)(3).
"(A)
"(B)
"(i) which was issued on or before July 10, 1989, or
"(ii) which was issued after such date pursuant to a written binding contract in effect on such date and all times thereafter before such indebtedness was issued."
Subsec. (j)(5)(B).
Subsec. (j)(6)(D), (E).
1990—Subsec. (e)(5)(A).
Subsec. (i)(3).
Subsec. (i)(3)(B).
Subsec. (j)(2)(A)(ii).
Subsec. (j)(2)(C).
1989—Subsec. (e)(5), (6).
Subsec. (i).
Subsec. (j).
Subsec. (k).
1988—Subsec. (d)(3)(A).
Subsec. (d)(4)(B).
"(i) gross income (other than gain described in clause (ii)) from property held for investment, and
"(ii) any net gain attributable to the disposition of property held for investment,
but only to the extent such amounts are not derived from the conduct of a trade or business."
Subsec. (d)(6)(A).
"(i) the applicable percentage of the amount which (without regard to this paragraph) is not allowed as a deduction under this subsection for the taxable year to the extent such amount does not exceed the ceiling amount,
"(ii) the amount which (without regard to this paragraph) is not allowed as a deduction under this subsection in excess of the ceiling amount, plus
"(iii) the amount of any carryforward to such taxable year under paragraph (2) with respect to which a deduction was disallowed under this subsection for a preceding taxable year.
For purposes of this subparagraph, the amount under clause (i) or (ii) shall be computed without regard to the amount described in clause (iii)."
Subsec. (e)(2)(B).
Subsec. (h)(2)(A).
Subsec. (h)(2)(E).
Subsec. (h)(3)(C).
Subsec. (h)(4).
Subsec. (h)(4)(A).
Subsec. (h)(4)(B).
Subsec. (h)(4)(C), (D).
Subsec. (h)(5).
Subsec. (h)(6).
Subsec. (i)(2).
1987—Subsec. (d)(4)(E).
Subsec. (h)(3).
"(A)
"(B)
"(i) the fair market value of such qualified residence, or
"(ii) the sum of—
"(I) the taxpayer's basis in such qualified residence (adjusted only by the cost of any improvements to such residence), plus
"(II) the aggregate amount of qualified indebtedness of the taxpayer with respect to such qualified residence.
"(C)
"(i)
"(I) which was incurred on or before August 16, 1986, and which was secured by the qualified residence on August 16, 1986, or
"(II) which is secured by the qualified residence and was incurred after August 16, 1986, to refinance indebtedness described in subclause (I) (or refinanced indebtedness meeting the requirements of this subclause) to the extent (immediately after the refinancing) the principal amount of the indebtedness resulting from the refinancing does not exceed the principal amount of the refinanced indebtedness (immediately before the refinancing).
"(ii)
"(I) the expiration of the term of the indebtedness described in clause (i)(I), or
"(II) if the principal of the indebtedness described in clause (i)(I) is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such refinancing).
"(D)
Subsec. (h)(4), (5).
1986—Subsec. (d).
Subsec. (e)(2)(C).
Subsec. (e)(3)(A).
Subsec. (e)(5).
Subsec. (f)(3).
Subsec. (h).
Subsec. (i)(2).
1984—Subsec. (d)(3)(D).
Subsec. (e)(1).
Subsec. (e)(2).
Subsec. (e)(3).
Subsec. (e)(4).
Subsec. (f)(2)(C)(i).
Subsecs. (g), (h).
1982—Subsec. (d)(4).
Subsec. (e).
Subsec. (f).
Subsec. (g).
1976—Subsec. (b)(1).
Subsec. (d)(1).
Subsec. (d)(2).
Subsec. (d)(3)(A).
Subsec. (d)(3)(B)(iii).
Subsec. (d)(3)(E).
Subsec. (d)(4)(B), (C).
Subsec. (d)(5).
Subsec. (d)(6).
Subsec. (d)(7).
1971—Subsec. (d)(1)(B).
Subsec. (d)(3)(C).
Subsec. (d)(4)(A)(i).
Subsec. (d)(7).
1969—Subsecs. (d), (e).
1964—Subsec. (b)(1).
1963—Subsecs. (c), (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2018 Amendment
Effective Date of 2017 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Amendment by section 221(a)(25)(A) of
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Amendment by
Effective Date of 2009 Amendment
"(1)
"(2)
Effective Date of 2007 Amendment
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendment
Effective Date of 2003 Amendment
Amendment by
Effective Date of 1999 Amendment
Amendment by
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by section 312(d)(1) of
"(1)
"(2)
"(1)
"(2)
"(A) issued pursuant to a written agreement which was binding on such date and at all times thereafter,
"(B) described in a ruling request submitted to the Internal Revenue Service on or before such date, or
"(C) described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission required solely by reason of the issuance."
Effective Date of 1996 Amendment
Amendment by section 1703(n)(4) of
Effective Date of 1993 Amendment
Amendment by section 13206(d)(1) of
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1989 Amendment
"(1)
"(2)
"(A) The amendments made by this section shall not apply to any instrument if—
"(i) such instrument is issued in connection with an acquisition—
"(I) which is made on or before July 10, 1989,
"(II) for which there was a written binding contract in effect on July 10, 1989, and at all times thereafter before such acquisition, or
"(III) for which a tender offer was filed with the Securities and Exchange Commission on or before July 10, 1989,
"(ii) the term of such instrument is not greater than—
"(I) the term specified in the written documents described in clause (iii), or
"(II) if no term is determined under subclause (I), 10 years, and
"(iii) the use of such instrument in connection with such acquisition (and the maximum amount of proceeds from such instrument) was determined on or before July 10, 1989, and such determination is evidenced by written documents—
"(I) which were transmitted on or before July 10, 1989, between the issuer and any governmental regulatory bodies or prospective parties to the issuance or acquisition, and
"(II) which are customarily used for the type of acquisition or financing involved.
"(B) The amendments made by this section shall not apply to any instrument issued pursuant to the terms of a debt instrument issued on or before July 10, 1989, or described in subparagraph (A) or (D).
"(C) The amendments made by this section shall not apply to any instrument issued to refinance an original issue discount debt instrument to which the amendments made by this section do not apply if—
"(i) the maturity date of the refinancing instrument is not later than the maturity date of the refinanced instrument,
"(ii) the issue price of the refinancing instrument does not exceed the adjusted issue price of the refinanced instrument,
"(iii) the stated redemption price at maturity of the refinancing instrument is not greater than the stated redemption price at maturity of the refinanced instrument, and
"(iv) the interest payments required under the refinancing instrument before maturity are not less than (and are paid not later than) the interest payments required under the refinanced instrument.
"(D) The amendments made by this section shall not apply to instruments issued after July 10, 1989, pursuant to a reorganization plan in a title 11 or similar case (as defined in section 368(a)(3) of the Internal Revenue Code of 1986) if the amount of proceeds of such instruments, and the maturities of such instruments, do not exceed the amount or maturities specified in the last reorganization plan filed in such case on or before July 10, 1989."
"(1)
"(2)
Effective Date of 1988 Amendment
Amendment by sections 1006(u)(1) and 1009(b)(6) of
Amendment by section 2004(b)(1) of
Effective Date of 1987 Amendment
Amendment by section 10212(b) of
Effective Date of 1986 Amendment
Amendment by section 902(e)(1) of
Amendment by section 1301(j)(3) of
Amendment by sections 1803(a)(4) and 1810(e)(1) of
Effective Date of 1984 Amendment
Amendment by section 42(a)(3) of
Amendment by section 127(f) of
Amendment by section 128(c) of
Amendment by section 612(c) of
Effective Date of 1982 Amendment
Amendment by
Amendment by
Effective Date of 1976 Amendment
Amendment by section 205(c)(3) of
"(1)
"(2)
"(A) is for a specified term, and
"(B) was incurred before September 11, 1975, or is incurred after September 10, 1975, pursuant to a written contract or commitment which on September 11, 1975, and at all times thereafter before the incurring of such indebtedness, is binding on the taxpayer,
the amendments made by this section shall not apply, but section 163(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect before the enactment of this Act [Oct. 4, 1976]) shall apply. For purposes of the preceding sentence, so much of the net investment income (as defined in section 163(d)(3)(A) of such Code) for any taxable year as is not taken into account under section 163(d) of such Code, as amended by this Act, by reason of the last sentence of section 163(d)(3)(A) of such Code, shall be taken into account for purposes of applying such section as in effect before the date of enactment of this Act [Oct. 4, 1976] with respect to interest on indebtedness referred to in the preceding sentence."
Amendment by section 1901(b)(8)(C), (3)(K) of
Effective Date of 1971 Amendment
Effective Date of 1969 Amendment
Effective Date of 1964 Amendment
Effective Date of 1963 Amendment
Subsec. (c) effective as of Jan. 1, 1962, and applicable with respect to taxable years ending on or after such date, see section 2 of
Savings Provision
For provisions that nothing in amendment by section 401(b)(12) of
Application of Subsection (h) to Taxable Years Beginning in 1987
"(A) For purposes of applying section 163(h) of the 1986 Code to any taxable year beginning during 1987, if, incident to a divorce or legal separation—
"(i) an individual acquires the interest of a spouse or former spouse in a qualified residence in a transfer to which section 1041 of the 1986 Code applies, and
"(ii) such individual incurs indebtedness which is secured by such qualified residence,
the amount determined under paragraph (3)(B)(ii)(I) of section 163(h) of the 1986 Code (as in effect before the amendments made by the Revenue Act of 1987 [
"(B) The amount determined under this subparagraph shall be equal to the excess (if any) of—
"(i) the lesser of the amount of the indebtedness described in subparagraph (A)(ii), or the fair market value of the spouse's or former spouse's interest in the qualified residence as of the time of the transfer, over
"(ii) the basis of the spouse or former spouse in such interest in such residence (adjusted only by the cost of any improvements to such residence)."
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Transitional Rule for Treatment of Certain Income From S Corporations
"(a)
"(1) a corporation had an election in effect under subchapter S of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] for the taxable years of such corporation beginning in 1982, 1983, and 1984, and
"(2) a shareholder of such corporation makes an election to have this section apply,
then any qualified income which such shareholder takes into account by reason of holding stock in such corporation for any taxable year of such corporation beginning in 1983 or 1984 shall be treated for purposes of section 163(d) of the Internal Revenue Code of 1986 as such income would have been treated but for the enactment of the Subchapter S Revision Act of 1982 [
"(b)
"(c)
Transitional Rule
For provision that, for purposes of amendments by section 231(b) of
1 See References in Text note below.
2 So in original. Probably should be followed by a period.
§164. Taxes
(a) General rule
Except as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued:
(1) State and local, and foreign, real property taxes.
(2) State and local personal property taxes.
(3) State and local, and foreign, income, war profits, and excess profits taxes.
(4) The GST tax imposed on income distributions.
In addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income). Notwithstanding the preceding sentence, any tax (not described in the first sentence of this subsection) which is paid or accrued by the taxpayer in connection with an acquisition or disposition of property shall be treated as part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition.
(b) Definitions and special rules
For purposes of this section—
(1) Personal property taxes
The term "personal property tax" means an ad valorem tax which is imposed on an annual basis in respect of personal property.
(2) State or local taxes
A State or local tax includes only a tax imposed by a State, a possession of the United States, or a political subdivision of any of the foregoing, or by the District of Columbia.
(3) Foreign taxes
A foreign tax includes only a tax imposed by the authority of a foreign country.
(4) Special rules for GST tax
(A) In general
The GST tax imposed on income distributions is—
(i) the tax imposed by section 2601, and
(ii) any State tax described in section 2604 (as in effect before its repeal),
but only to the extent such tax is imposed on a transfer which is included in the gross income of the distributee and to which section 666 does not apply.
(B) Special rule for tax paid before due date
Any tax referred to in subparagraph (A) imposed with respect to a transfer occurring during the taxable year of the distributee (or, in the case of a taxable termination, the trust) which is paid not later than the time prescribed by law (including extensions) for filing the return with respect to such transfer shall be treated as having been paid on the last day of the taxable year in which the transfer was made.
(5) General sales taxes
For purposes of subsection (a)—
(A) Election to deduct State and local sales taxes in lieu of State and local income taxes
At the election of the taxpayer for the taxable year, subsection (a) shall be applied—
(i) without regard to the reference to State and local income taxes, and
(ii) as if State and local general sales taxes were referred to in a paragraph thereof.
(B) Definition of general sales tax
The term "general sales tax" means a tax imposed at one rate with respect to the sale at retail of a broad range of classes of items.
(C) Special rules for food, etc.
In the case of items of food, clothing, medical supplies, and motor vehicles—
(i) the fact that the tax does not apply with respect to some or all of such items shall not be taken into account in determining whether the tax applies with respect to a broad range of classes of items, and
(ii) the fact that the rate of tax applicable with respect to some or all of such items is lower than the general rate of tax shall not be taken into account in determining whether the tax is imposed at one rate.
(D) Items taxed at different rates
Except in the case of a lower rate of tax applicable with respect to an item described in subparagraph (C), no deduction shall be allowed under this paragraph for any general sales tax imposed with respect to an item at a rate other than the general rate of tax.
(E) Compensating use taxes
A compensating use tax with respect to an item shall be treated as a general sales tax. For purposes of the preceding sentence, the term "compensating use tax" means, with respect to any item, a tax which—
(i) is imposed on the use, storage, or consumption of such item, and
(ii) is complementary to a general sales tax, but only if a deduction is allowable under this paragraph with respect to items sold at retail in the taxing jurisdiction which are similar to such item.
(F) Special rule for motor vehicles
In the case of motor vehicles, if the rate of tax exceeds the general rate, such excess shall be disregarded and the general rate shall be treated as the rate of tax.
(G) Separately stated general sales taxes
If the amount of any general sales tax is separately stated, then, to the extent that the amount so stated is paid by the consumer (other than in connection with the consumer's trade or business) to the seller, such amount shall be treated as a tax imposed on, and paid by, such consumer.
(H) Amount of deduction may be determined under tables
(i) In general
At the election of the taxpayer for the taxable year, the amount of the deduction allowed under this paragraph for such year shall be—
(I) the amount determined under this paragraph (without regard to this subparagraph) with respect to motor vehicles, boats, and other items specified by the Secretary, and
(II) the amount determined under tables prescribed by the Secretary with respect to items to which subclause (I) does not apply.
(ii) Requirements for tables
The tables prescribed under clause (i)—
(I) shall reflect the provisions of this paragraph,
(II) shall be based on the average consumption by taxpayers on a State-by-State basis (as determined by the Secretary) of items to which clause (i)(I) does not apply, taking into account filing status, number of dependents, adjusted gross income, and rates of State and local general sales taxation, and
(III) need only be determined with respect to adjusted gross incomes up to the applicable amount (as determined under section 68(b)).
(6) Limitation on individual deductions for taxable years 2018 through 2025
In the case of an individual and a taxable year beginning after December 31, 2017, and before January 1, 2026—
(A) foreign real property taxes shall not be taken into account under subsection (a)(1), and
(B) the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return).
The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212. For purposes of subparagraph (B), an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed.
(c) Deduction denied in case of certain taxes
No deduction shall be allowed for the following taxes:
(1) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed; but this paragraph shall not prevent the deduction of so much of such taxes as is properly allocable to maintenance or interest charges.
(2) Taxes on real property, to the extent that subsection (d) requires such taxes to be treated as imposed on another taxpayer.
(d) Apportionment of taxes on real property between seller and purchaser
(1) General rule
For purposes of subsection (a), if real property is sold during any real property tax year, then—
(A) so much of the real property tax as is properly allocable to that part of such year which ends on the day before the date of the sale shall be treated as a tax imposed on the seller, and
(B) so much of such tax as is properly allocable to that part of such year which begins on the date of the sale shall be treated as a tax imposed on the purchaser.
(2) Special rules
(A) In the case of any sale of real property, if—
(i) a taxpayer may not, by reason of his method of accounting, deduct any amount for taxes unless paid, and
(ii) the other party to the sale is (under the law imposing the real property tax) liable for the real property tax for the real property tax year,
then for purposes of subsection (a) the taxpayer shall be treated as having paid, on the date of the sale, so much of such tax as, under paragraph (1) of this subsection, is treated as imposed on the taxpayer. For purposes of the preceding sentence, if neither party is liable for the tax, then the party holding the property at the time the tax becomes a lien on the property shall be considered liable for the real property tax for the real property tax year.
(B) In the case of any sale of real property, if the taxpayer's taxable income for the taxable year during which the sale occurs is computed under an accrual method of accounting, and if no election under section 461(c) (relating to the accrual of real property taxes) applies, then, for purposes of subsection (a), that portion of such tax which—
(i) is treated, under paragraph (1) of this subsection, as imposed on the taxpayer, and
(ii) may not, by reason of the taxpayer's method of accounting, be deducted by the taxpayer for any taxable year,
shall be treated as having accrued on the date of the sale.
(e) Taxes of shareholder paid by corporation
Where a corporation pays a tax imposed on a shareholder on his interest as a shareholder, and where the shareholder does not reimburse the corporation, then—
(1) the deduction allowed by subsection (a) shall be allowed to the corporation; and
(2) no deduction shall be allowed the shareholder for such tax.
(f) Deduction for one-half of self-employment taxes
(1) In general
In the case of an individual, in addition to the taxes described in subsection (a), there shall be allowed as a deduction for the taxable year an amount equal to one-half of the taxes imposed by section 1401 (other than the taxes imposed by section 1401(b)(2)) for such taxable year.
(2) Deduction treated as attributable to trade or business
For purposes of this chapter, the deduction allowed by paragraph (1) shall be treated as attributable to a trade or business carried on by the taxpayer which does not consist of the performance of services by the taxpayer as an employee.
(g) Cross references
(1) For provisions disallowing any deduction for certain taxes, see section 275.
(2) For treatment of taxes imposed by Indian tribal governments (or their subdivisions), see section 7871.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 2604, referred to in subsec. (b)(4)(A)(ii), was repealed by
Amendments
2022—Subsec. (b)(6).
2017—Subsec. (b)(6).
2015—Subsec. (b)(5)(I).
2014—Subsec. (a)(5).
Subsec. (a)(6).
Subsec. (b)(4)(A)(ii).
Subsec. (b)(5)(I).
Subsec. (b)(6).
Subsec. (b)(6)(E) to (G).
2013—Subsec. (b)(5)(I).
2010—Subsec. (b)(5)(I).
Subsec. (f)(1).
2009—Subsec. (a)(6).
Subsec. (b)(6).
2008—Subsec. (b)(5)(I).
2006—Subsec. (b)(5)(I).
2005—Subsec. (b)(5)(A).
"(i)
"(I) without regard to the reference to State and local income taxes, and
"(II) as if State and local general sales taxes were referred to in a paragraph thereof."
2004—Subsec. (b)(5).
1996—Subsec. (a)(4), (5).
"(4) The environmental tax imposed by section 59A.
"(5) The GST tax imposed on income distributions."
1988—Subsec. (a)(4).
Subsec. (a)(5).
1986—Subsec. (a).
Subsec. (a)(4).
Subsec. (a)(5).
Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (b)(4).
Subsec. (b)(5).
1984—Subsec. (f).
1983—Subsec. (f).
Subsec. (f)(3).
Subsec. (g).
1980—Subsec. (a)(5).
1978—Subsec. (a)(5).
Subsec. (b)(5).
1976—Subsec. (d)(2).
Subsecs. (f), (g).
1972—Subsec. (b)(2)(E).
1964—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (f).
Subsec. (g).
1958—Subsecs. (f), (g).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Effective Date of 2017 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Amendment by section 209(c) of
Amendment by section 221(a)(12)(D), (26), (95)(B)(ii) of
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date of 2009 Amendment
Amendment by
Effective Date of 2008 Amendment
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 134 of
Amendment by section 1432(a)(1), (2) of
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
For effective date of amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1972 Amendment
Effective Date of 1964 Amendment
"(1)
"(2)
Effective Date of 1958 Amendment
Savings Provision
§165. Losses
(a) General rule
There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.
(b) Amount of deduction
For purposes of subsection (a), the basis for determining the amount of the deduction for any loss shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
(c) Limitation on losses of individuals
In the case of an individual, the deduction under subsection (a) shall be limited to—
(1) losses incurred in a trade or business;
(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and
(3) except as provided in subsection (h), losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft.
(d) Wagering losses
Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions. For purposes of the preceding sentence, in the case of taxable years beginning after December 31, 2017, and before January 1, 2026, the term "losses from wagering transactions" includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction.
(e) Theft losses
For purposes of subsection (a), any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss.
(f) Capital losses
Losses from sales or exchanges of capital assets shall be allowed only to the extent allowed in sections 1211 and 1212.
(g) Worthless securities
(1) General rule
If any security which is a capital asset becomes worthless during the taxable year, the loss resulting therefrom shall, for purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset.
(2) Security defined
For purposes of this subsection, the term "security" means—
(A) a share of stock in a corporation;
(B) a right to subscribe for, or to receive, a share of stock in a corporation; or
(C) a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or by a government or political subdivision thereof, with interest coupons or in registered form.
(3) Securities in affiliated corporation
For purposes of paragraph (1), any security in a corporation affiliated with a taxpayer which is a domestic corporation shall not be treated as a capital asset. For purposes of the preceding sentence, a corporation shall be treated as affiliated with the taxpayer only if—
(A) the taxpayer owns directly stock in such corporation meeting the requirements of section 1504(a)(2), and
(B) more than 90 percent of the aggregate of its gross receipts for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the corporation in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, and gains from sales or exchanges of stocks and securities.
In computing gross receipts for purposes of the preceding sentence, gross receipts from sales or exchanges of stocks and securities shall be taken into account only to the extent of gains therefrom.
(h) Treatment of casualty gains and losses
(1) Dollar limitation per casualty
Any loss of an individual described in subsection (c)(3) shall be allowed only to the extent that the amount of the loss to such individual arising from each casualty, or from each theft, exceeds $500 ($100 for taxable years beginning after December 31, 2009).
(2) Net casualty loss allowed only to the extent it exceeds 10 percent of adjusted gross income
(A) In general
If the personal casualty losses for any taxable year exceed the personal casualty gains for such taxable year, such losses shall be allowed for the taxable year only to the extent of the sum of—
(i) the amount of the personal casualty gains for the taxable year, plus
(ii) so much of such excess as exceeds 10 percent of the adjusted gross income of the individual.
(B) Special rule where personal casualty gains exceed personal casualty losses
If the personal casualty gains for any taxable year exceed the personal casualty losses for such taxable year—
(i) all such gains shall be treated as gains from sales or exchanges of capital assets, and
(ii) all such losses shall be treated as losses from sales or exchanges of capital assets.
(3) Definitions of personal casualty gain and personal casualty loss
For purposes of this subsection—
(A) Personal casualty gain
The term "personal casualty gain" means the recognized gain from any involuntary conversion of property which is described in subsection (c)(3) arising from fire, storm, shipwreck, or other casualty, or from theft.
(B) Personal casualty loss
The term "personal casualty loss" means any loss described in subsection (c)(3). For purposes of paragraph (2), the amount of any personal casualty loss shall be determined after the application of paragraph (1).
(4) Special rules
(A) Personal casualty losses allowable in computing adjusted gross income to the extent of personal casualty gains
In any case to which paragraph (2)(A) applies, the deduction for personal casualty losses for any taxable year shall be treated as a deduction allowable in computing adjusted gross income to the extent such losses do not exceed the personal casualty gains for the taxable year.
(B) Joint returns
For purposes of this subsection, a husband and wife making a joint return for the taxable year shall be treated as 1 individual.
(C) Determination of adjusted gross income in case of estates and trusts
For purposes of paragraph (2), the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that the deductions for costs paid or incurred in connection with the administration of the estate or trust shall be treated as allowable in arriving at adjusted gross income.
(D) Coordination with estate tax
No loss described in subsection (c)(3) shall be allowed if, at the time of filing the return, such loss has been claimed for estate tax purposes in the estate tax return.
(E) Claim required to be filed in certain cases
Any loss of an individual described in subsection (c)(3) to the extent covered by insurance shall be taken into account under this section only if the individual files a timely insurance claim with respect to such loss.
(5) Limitation for taxable years 2018 through 2025
(A) In general
In the case of an individual, except as provided in subparagraph (B), any personal casualty loss which (but for this paragraph) would be deductible in a taxable year beginning after December 31, 2017, and before January 1, 2026, shall be allowed as a deduction under subsection (a) only to the extent it is attributable to a Federally declared disaster (as defined in subsection (i)(5)).
(B) Exception related to personal casualty gains
If a taxpayer has personal casualty gains for any taxable year to which subparagraph (A) applies—
(i) subparagraph (A) shall not apply to the portion of the personal casualty loss not attributable to a Federally declared disaster (as so defined) to the extent such loss does not exceed such gains, and
(ii) in applying paragraph (2) for purposes of subparagraph (A) to the portion of personal casualty loss which is so attributable to such a disaster, the amount of personal casualty gains taken into account under paragraph (2)(A) shall be reduced by the portion of such gains taken into account under clause (i).
(i) Disaster losses
(1) Election to take deduction for preceding year
Notwithstanding the provisions of subsection (a), any loss occurring in a disaster area and attributable to a federally declared disaster may, at the election of the taxpayer, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred.
(2) Year of loss
If an election is made under this subsection, the casualty resulting in the loss shall be treated for purposes of this title as having occurred in the taxable year for which the deduction is claimed.
(3) Amount of loss
The amount of the loss taken into account in the preceding taxable year by reason of paragraph (1) shall not exceed the uncompensated amount determined on the basis of the facts existing at the date the taxpayer claims the loss.
(4) Use of disaster loan appraisals to establish amount of loss
Nothing in this title shall be construed to prohibit the Secretary from prescribing regulations or other guidance under which an appraisal for the purpose of obtaining a loan of Federal funds or a loan guarantee from the Federal Government as a result of a federally declared disaster may be used to establish the amount of any loss described in paragraph (1) or (2).
(5) Federally declared disasters
For purposes of this subsection—
(A) In general
The term "Federally 1 declared disaster" means any disaster subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.
(B) Disaster area
The term "disaster area" means the area so determined to warrant such assistance.
(j) Denial of deduction for losses on certain obligations not in registered form
(1) In general
Nothing in subsection (a) or in any other provision of law shall be construed to provide a deduction for any loss sustained on any registration-required obligation unless such obligation is in registered form (or the issuance of such obligation was subject to tax under section 4701).
(2) Definitions
For purposes of this subsection—
(A) Registration-required obligation
The term "registration-required obligation" has the meaning given to such term by section 163(f)(2).
(B) Registered form
The term "registered form" has the same meaning as when used in section 163(f).
(3) Exceptions
The Secretary may, by regulations, provide that this subsection and section 1287 shall not apply with respect to obligations held by any person if—
(A) such person holds such obligations in connection with a trade or business outside the United States,
(B) such person holds such obligations as a broker dealer (registered under Federal or State law) for sale to customers in the ordinary course of his trade or business,
(C) such person complies with reporting requirements with respect to ownership, transfers, and payments as the Secretary may require, or
(D) such person promptly surrenders the obligation to the issuer for the issuance of a new obligation in registered form,
but only if such obligations are held under arrangements provided in regulations or otherwise which are designed to assure that such obligations are not delivered to any United States person other than a person described in subparagraph (A), (B), or (C).
(k) Treatment as disaster loss where taxpayer ordered to demolish or relocate residence in disaster area because of disaster
In the case of a taxpayer whose residence is located in an area which has been determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, if—
(1) not later than the 120th day after the date of such determination, the taxpayer is ordered, by the government of the State or any political subdivision thereof in which such residence is located, to demolish or relocate such residence, and
(2) the residence has been rendered unsafe for use as a residence by reason of the disaster,
any loss attributable to such disaster shall be treated as a loss which arises from a casualty and which is described in subsection (i).
(l) Treatment of certain losses in insolvent financial institutions
(1) In general
If—
(A) as of the close of the taxable year, it can reasonably be estimated that there is a loss on a qualified individual's deposit in a qualified financial institution, and
(B) such loss is on account of the bankruptcy or insolvency of such institution,
then the taxpayer may elect to treat the amount so estimated as a loss described in subsection (c)(3) incurred during the taxable year.
(2) Qualified individual defined
For purposes of this subsection, the term "qualified individual" means any individual, except an individual—
(A) who owns at least 1 percent in value of the outstanding stock of the qualified financial institution,
(B) who is an officer of the qualified financial institution,
(C) who is a sibling (whether by the whole or half blood), spouse, aunt, uncle, nephew, niece, ancestor, or lineal descendant of an individual described in subparagraph (A) or (B), or
(D) who otherwise is a related person (as defined in section 267(b)) with respect to an individual described in subparagraph (A) or (B).
(3) Qualified financial institution
For purposes of this subsection, the term "qualified financial institution" means—
(A) any bank (as defined in section 581),
(B) any institution described in section 591,
(C) any credit union the deposits or accounts in which are insured under Federal or State law or are protected or guaranteed under State law, or
(D) any similar institution chartered and supervised under Federal or State law.
(4) Deposit
For purposes of this subsection, the term "deposit" means any deposit, withdrawable account, or withdrawable or repurchasable share.
(5) Election to treat as ordinary loss
(A) In general
In lieu of any election under paragraph (1), the taxpayer may elect to treat the amount referred to in paragraph (1) for the taxable year as an ordinary loss described in subsection (c)(2) incurred during the taxable year.
(B) Limitations
(i) Deposit may not be federally insured
No election may be made under subparagraph (A) with respect to any loss on a deposit in a qualified financial institution if part or all of such deposit is insured under Federal law.
(ii) Dollar limitation
With respect to each financial institution, the aggregate amount of losses attributable to deposits in such financial institution to which an election under subparagraph (A) may be made by the taxpayer for any taxable year shall not exceed $20,000 ($10,000 in the case of a separate return by a married individual). The limitation of the preceding sentence shall be reduced by the amount of any insurance proceeds under any State law which can reasonably be expected to be received with respect to losses on deposits in such institution.
(6) Election
Any election by the taxpayer under this subsection for any taxable year—
(A) shall apply to all losses for such taxable year of the taxpayer on deposits in the institution with respect to which such election was made, and
(B) may be revoked only with the consent of the Secretary.
(7) Coordination with section 166
Section 166 shall not apply to any loss to which an election under this subsection applies.
(m) Cross references
(1) For special rule for banks with respect to worthless securities, see section 582.
(2) For disallowance of deduction for worthlessness of securities to which subsection (g)(2)(C) applies, if issued by a political party or similar organization, see section 271.
(3) For special rule for losses on stock in a small business investment company, see section 1242.
(4) For special rule for losses of a small business investment company, see section 1243.
(5) For special rule for losses on small business stock, see section 1244.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The Robert T. Stafford Disaster Relief and Emergency Assistance Act, referred to in subsecs. (i)(5)(A) and (k), is
Amendments
2017—Subsec. (d).
Subsec. (h)(5).
2014—Subsec. (h)(1).
Subsec. (h)(3).
Subsec. (h)(3)(B).
Subsec. (h)(4), (5).
Subsec. (i)(1).
Subsec. (i)(4).
Subsec. (i)(5).
2010—Subsec. (j)(2)(A).
2008—Subsec. (h)(1).
Subsec. (h)(3).
Subsec. (h)(4).
Subsec. (h)(4)(B).
Subsec. (h)(5).
Subsec. (i)(1).
Subsec. (i)(4).
2004—Subsecs. (i)(1), (k).
2000—Subsec. (g)(3).
Subsec. (g)(3)(A).
1997—Subsec. (i)(4).
1988—Subsecs. (i)(1), (k).
Subsec. (l)(5) to (7).
1986—Subsec. (h)(4)(E).
Subsecs. (l), (m).
1984—Subsec. (c)(3).
Subsec. (h).
"(A) the amount of loss to such individual arising from each casualty, or from each theft, exceeds $100, and
"(B) the aggregate amount of all such losses sustained by such individual during the taxable year (determined after application of subparagraph (A) exceeds 10 percent of the adjusted gross income of the individual.";
added par. (2) "Net casualty loss allowed only to the extent it exceeds 10 percent of adjusted gross income" provision and par. (3) "Definitions of personal casualty gain and personal casualty loss" provisions; redesignated as par. (4) former par. (2) catchline; added par. (4)(A) "Personal casualty losses allowable in computing adjusted gross income to the extent of personal casualty gains" provision; redesignated as par. (4)(B) former par. (2)(A) joint returns provision, substituting "For purposes of this section" for "For purposes of the $100 and 10 percent limitations described in paragraph (1)" and "individual" for "one individual"; redesignated as par. (4)(C) former par. (2)(B), substituting therein paragraph "(2)" for "(1)"; and redesignated as par. (4)(D) former par. (2)(C).
Subsec. (j)(3).
Subsecs. (k), (l).
1982—Subsec. (c)(3).
Subsec. (h).
Subsec. (i).
Subsec. (j).
Subsec. (k).
1976—Subsecs. (i), (j).
1974—Subsec. (h).
1972—Subsec. (h).
Subsec. (h)(1).
1971—Subsec. (g)(3).
Subsec. (i)(1).
Subsec. (i)(2)(B).
Subsec. (i)(3).
1970—Subsec. (h)(2).
1964—Subsec. (c)(3).
Subsec. (i).
Subsec. (j).
1962—Subsecs. (h), (i).
1958—Subsec. (g)(3)(B).
Subsec. (h)(3), (4).
Subsec. (h)(5).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Effective Date of 2014 Amendment
Amendment by section 211(c)(1)(C) of
Amendment by section 221(a)(27)(A)–(C) of
Effective Date of 2010 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment by section 706(a)(1), (2)(A)–(C) of
Amendment by section 706(c) of
Effective Date of 2000 Amendment
Effective Date of 1997 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 905(a) of
Effective Date of 1984 Amendment
Amendment by section 42(a)(4) of
Amendment by section 711(c)(1) of
Effective Date of 1982 Amendment
Amendment by section 310(b)(5) of
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1974 Amendment
Amendment by
Effective Date of 1972 Amendment
Effective Date of 1971 Amendment
Effective Date of 1970 Amendment
Effective Date of 1964 Amendment
Effective Date of 1962 Amendment
Effective Date of 1958 Amendment
"(1) amendments made by this title to subtitle A of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to income taxes) [enacting
"(2) amendments made by this title to subtitle F of such Code (relating to procedure and administration) [enacting
Amendment by section 57(c)(1) of
Transitional Rule for 1984 Amendment
"(i) For purposes of paragraph (1)(B) of section 165(h) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], adjusted gross income shall be determined without regard to the application of section 1231 of such Code to any gain or loss from an involuntary conversion of property described in subsection (c)(3) of section 165 of such Code arising from fire, storm, shipwreck, or other casualty or from theft.
"(ii) Section 1231 of such Code shall be applied after the application of paragraph (1) of section 165(h) of such Code."
Clarification of Treatment of Certain FSLIC Financial Assistance
"(a)
"(1) any FSLIC assistance with respect to any loss of principal, capital, or similar amount upon the disposition of any asset shall be taken into account as compensation for such loss for purposes of section 165 of such Code, and
"(2) any FSLIC assistance with respect to any debt shall be taken into account for purposes of section 166, 585, or 593 of such Code in determining whether such debt is worthless (or the extent to which such debt is worthless) and in determining the amount of any addition to a reserve for bad debts arising from the worthlessness or partial worthlessness of such debts.
"(b)
"(c)
"(1)
"(A) The provisions of this section shall apply to taxable years ending on or after March 4, 1991, but only with respect to FSLIC assistance not credited before March 4, 1991.
"(B) If any FSLIC assistance not credited before March 4, 1991, is with respect to a loss sustained or charge-off in a taxable year ending before March 4, 1991, for purposes of determining the amount of any net operating loss carryover to a taxable year ending on or after March 4, 1991, the provisions of this section shall apply to such assistance for purposes of determining the amount of the net operating loss for the taxable year in which such loss was sustained or debt written off. Except as provided in the preceding sentence, this section shall not apply to any FSLIC assistance with respect to a loss sustained or charge-off in a taxable year ending before March 4, 1991.
"(2)
Overpayments or Underpayments of Tax Attributable to Certain Amendments by Pub. L. 99–514 or Pub. L. 100–647
"(A) credit or refund of any such overpayment may nevertheless be made if claim therefore [sic] is filed before the date 1 year after such date of enactment, and
"(B) assessment of any such underpayment may nevertheless be made if made before the date 1 year after such date of enactment."
Deduction for Bus and Freight Forwarder Operating Authority
"(a)
"(1)
"(2)
"(A) by substituting 'November 19, 1982' for 'July 1, 1980' each place it appears, and
"(B) by substituting 'November 1982' for 'July 1980' in subsection (a) thereof.
"(3)
"(A) a certificate or permit held by a motor common or contract carrier of passengers which was issued pursuant to subchapter II of
"(B) a certificate or permit held by a motor carrier authorizing the transportation of passengers, as a common carrier, over regular routes in intrastate commerce which was issued by the appropriate State agency.
"(b)
"(1)
"(2)
"(A) 60-
"(i) the deregulation month, or
"(ii) at the election of the taxpayer, the 1st month of the taxpayer's 1st taxable year beginning after the deregulation month.
"(B)
"(C)
"(3)
"(c)
"(d)
"(e)
"(1)
"(A)
"(B)
"(2)
Deduction for Motor Carrier Operating Authority
"(a)
"(b)
"(c)
"(1)
"(2)
"(A)
"(i) on or before July 1, 1980 (or after such date pursuant to a binding contract in effect on such date), acquired stock in a corporation which held, directly or indirectly, any motor carrier operating authority at the time of such acquisition, and
"(ii) would have been able to allocate to the basis of such authority that portion of the acquiring corporation's cost basis in such stock attributable to such authority if the acquiring corporation had received such authority in the liquidation of the acquired corporation immediately following such acquisition and such allocation would have been proper under section 334(b)(2) of such Code,
the holder of the authority may, for purposes of this section, allocate a portion of the basis of the acquiring corporation in the stock of the acquired corporation to the basis of such authority in such manner as the Secretary may prescribe in such regulations.
"(B)
"(i) a noncorporate taxpayer or group of noncorporate taxpayers on or before July 1, 1980, acquired in one purchase stock in a corporation which held, directly or indirectly, any motor carrier operating authority at the time of such acquisition, and
"(ii) the acquisition referred to in clause (i) would have satisfied the requirements of subparagraph (A) if the stock had been acquired by a corporation,
then, for purposes of subparagraphs (A) and (C), the noncorporate taxpayer or group of noncorporate taxpayers referred to in clause (i) shall be treated as a corporation. The preceding sentence shall apply only if such noncorporate taxpayer (or group of noncorporate taxpayers) on July 1, 1980, held stock constituting control (within the meaning of section 368(c) of the Internal Revenue Code of 1986) of the corporation holding (directly or indirectly) the motor carrier operating authority.
"(C)
"(3)
"(d)
[
Tax Treatment of Certain 1972 Disaster Loans
"(a)
"(1) who was allowed a deduction under section 165 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to losses) for a loss attributable to a disaster occurring during calendar year 1972 which was determined by the President, under section 102 of the Disaster Relief Act of 1970, to warrant disaster assistance by the Federal Government.
"(2) who in connection with such disaster—
"(A) received income in the form of cancellation of a disaster loan under section 7 of the Small Business Act [
"(B) received income in the form of compensation (not taken into account in computing the amount of the deduction) for such loss in settlement of any claim of the taxpayer against a person for that person's liability in tort for the damage or destruction of that taxpayer's property in connection with the disaster, and
"(3) who elects (at such time and in such manner as the Secretary of the Treasury or his delegate may by regulations prescribe) to take the benefits of this section.
"(b)
"(1) the tax imposed by
"(2) any amount of tax imposed by
"(3) no interest on any deficiency shall be payable for any period before April 16, 1977, to the extent such deficiency is attributable to the receipt of such compensation, and no interest on any installment referred to in paragraph (2) shall be payable for any period before the due date of such installment.
"(c)
"(1) in the case of an individual described in subsection (a)(2)(A), the amount of income (not in excess of $5,000) attributable to the cancellation of a disaster loan under section 7 of the Small Business Act or an emergency loan under subtitle C of the Consolidated Farm and Rural Development Act received by reason of the disaster described in subsection (a)(1), or
"(2) in the case of an individual described in subsection (a)(2)(B), the amount of compensation (not in excess of $5,000) for the loss in settlement of any claim of the taxpayer against a person for that person's liability in tort for the damage or destruction of that taxpayer's property in connection with the disaster described in subsection (a)(1).
"(d)
"(e)
Refund or Credit of Overpayment; Time for Filing Claim; Interest
1 So in original. Probably should not be capitalized.
§166. Bad debts
(a) General rule
(1) Wholly worthless debts
There shall be allowed as a deduction any debt which becomes worthless within the taxable year.
(2) Partially worthless debts
When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction.
(b) Amount of deduction
For purposes of subsection (a), the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
[(c) Repealed. Pub. L. 99–514, title VIII, §805(a), Oct. 22, 1986, 100 Stat. 2361 ]
(d) Nonbusiness debts
(1) General rule
In the case of a taxpayer other than a corporation—
(A) subsection (a) shall not apply to any nonbusiness debt; and
(B) where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 1 year.
(2) Nonbusiness debt defined
For purposes of paragraph (1), the term "nonbusiness debt" means a debt other than—
(A) a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or
(B) a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business.
(e) Worthless securities
This section shall not apply to a debt which is evidenced by a security as defined in section 165(g)(2)(C).
(f) Cross references
(1) For disallowance of deduction for worthlessness of debts owed by political parties and similar organizations, see section 271.
(2) For special rule for banks with respect to worthless securities, see section 582.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1988—Subsec. (d)(1)(A).
Subsecs. (f), (g).
1986—Subsec. (c).
Subsec. (f).
Subsec. (g).
"(3) For special rule for bad debt reserves of certain mutual savings banks, domestic building and loan associations, and cooperative banks, see section 593.
"(4) For special rule for bad debt reserves of banks, small business investment-companies, etc., see sections 585 and 586."
1984—Subsec. (d)(1)(B).
1976—Subsecs. (a)(2), (c).
Subsec. (d)(1)(B).
Subsec. (f).
Subsecs. (g), (h).
1969—Subsec. (h)(4).
1966—Subsecs. (g), (h).
1958—Subsec. (d)(2)(A).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
"(1)
"(2)
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as made with the consent of the Secretary, and
"(C) the net amount of adjustments required by section 481 of the Internal Revenue Code of 1986 to be taken into account by the taxpayer shall—
"(i) in the case of a taxpayer maintaining a reserve under section 166(f), be reduced by the balance in the suspense account under section 166(f)(4) of such Code as of the close of such last taxable year, and
"(ii) be taken into account ratably in each of the first 4 taxable years beginning after December 31, 1986."
Effective Date of 1984 Amendment
Effective Date of 1976 Amendment
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1966 Amendment
"(a) Except as provided in subsections (b) and (c), the amendments made by the first section of this Act [amending this section and
"(b) If—
"(1) the taxpayer before October 22, 1965, claimed a deduction, for a taxable year ending before such date, under section 166(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] for an addition to a reserve for bad debts on account of debt obligations described in section 166(g)(1)(A) of such Code (as amended by the first section of this Act), and
"(2) the assessment of a deficiency of the tax imposed by
then such deduction on account of such debt obligations shall be allowed for each such taxable year under such section 166(c) to the extent that the deduction would have been allowable under the provisions of such section 166(g)(1)(A) if such provisions applied to such taxable years.
"(c) Section 166(g)(2) of the Internal Revenue Code of 1986 (as amended by the first section of this Act) shall apply to taxable years beginning after December 31, 1953, and ending after August 16, 1954."
Effective Date of 1958 Amendment
Amendment by
Establishment of Reserve for Taxable Year Ending After Oct. 21, 1965, and Beginning Before Aug. 2, 1966
§167. Depreciation
(a) General rule
There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence)—
(1) of property used in the trade or business, or
(2) of property held for the production of income.
(b) Cross reference
For determination of depreciation deduction in case of property to which section 168 applies, see section 168.
(c) Basis for depreciation
(1) In general
The basis on which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the adjusted basis provided in section 1011, for the purpose of determining the gain on the sale or other disposition of such property.
(2) Special rule for property subject to lease
If any property is acquired subject to a lease—
(A) no portion of the adjusted basis shall be allocated to the leasehold interest, and
(B) the entire adjusted basis shall be taken into account in determining the depreciation deduction (if any) with respect to the property subject to the lease.
(d) Life tenants and beneficiaries of trusts and estates
In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each. In the case of an estate, the allowable deduction shall be apportioned between the estate and the heirs, legatees, and devisees on the basis of the income of the estate allocable to each.
(e) Certain term interests not depreciable
(1) In general
No depreciation deduction shall be allowed under this section (and no depreciation or amortization deduction shall be allowed under any other provision of this subtitle) to the taxpayer for any term interest in property for any period during which the remainder interest in such property is held (directly or indirectly) by a related person.
(2) Coordination with other provisions
(A) Section 273
This subsection shall not apply to any term interest to which section 273 applies.
(B) Section 305(e)
This subsection shall not apply to the holder of the dividend rights which were separated from any stripped preferred stock to which section 305(e)(1) applies.
(3) Basis adjustments
If, but for this subsection, a depreciation or amortization deduction would be allowable to the taxpayer with respect to any term interest in property—
(A) the taxpayer's basis in such property shall be reduced by any depreciation or amortization deductions disallowed under this subsection, and
(B) the basis of the remainder interest in such property shall be increased by the amount of such disallowed deductions (properly adjusted for any depreciation deductions allowable under subsection (d) to the taxpayer).
(4) Special rules
(A) Denial of increase in basis of remainderman
No increase in the basis of the remainder interest shall be made under paragraph (3)(B) for any disallowed deductions attributable to periods during which the term interest was held—
(i) by an organization exempt from tax under this subtitle, or
(ii) by a nonresident alien individual or foreign corporation but only if income from the term interest is not effectively connected with the conduct of a trade or business in the United States.
(B) Coordination with subsection (d)
If, but for this subsection, a depreciation or amortization deduction would be allowable to any person with respect to any term interest in property, the principles of subsection (d) shall apply to such person with respect to such term interest.
(5) Definitions
For purposes of this subsection—
(A) Term interest in property
The term "term interest in property" has the meaning given such term by section 1001(e)(2).
(B) Related person
The term "related person" means any person bearing a relationship to the taxpayer described in subsection (b) or (e) of section 267.
(6) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations preventing avoidance of this subsection through cross-ownership arrangements or otherwise.
(f) Treatment of certain property excluded from section 197
(1) Computer software
(A) In general
If a depreciation deduction is allowable under subsection (a) with respect to any computer software, such deduction shall be computed by using the straight line method and a useful life of 36 months.
(B) Computer software
For purposes of this section, the term "computer software" has the meaning given to such term by section 197(e)(3)(B); except that such term shall not include any such software which is an amortizable section 197 intangible.
(C) Tax-exempt use property subject to lease
In the case of computer software which would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to computer software, the useful life under subparagraph (A) shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3)).
(2) Certain interests or rights acquired separately
If a depreciation deduction is allowable under subsection (a) with respect to any property described in subparagraph (B), (C), or (D) of section 197(e)(4), such deduction shall be computed in accordance with regulations prescribed by the Secretary. If such property would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to such property, the useful life under such regulations shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3)).
(3) Mortgage servicing rights
If a depreciation deduction is allowable under subsection (a) with respect to any right described in section 197(e)(6), such deduction shall be computed by using the straight line method and a useful life of 108 months.
(g) Depreciation under income forecast method
(1) In general
If the depreciation deduction allowable under this section to any taxpayer with respect to any property is determined under the income forecast method or any similar method—
(A) the income from the property to be taken into account in determining the depreciation deduction under such method shall be equal to the amount of income earned in connection with the property before the close of the 10th taxable year following the taxable year in which the property was placed in service,
(B) the adjusted basis of the property shall only include amounts with respect to which the requirements of section 461(h) are satisfied,
(C) the depreciation deduction under such method for the 10th taxable year beginning after the taxable year in which the property was placed in service shall be equal to the adjusted basis of such property as of the beginning of such 10th taxable year, and
(D) such taxpayer shall pay (or be entitled to receive) interest computed under the look-back method of paragraph (2) for any recomputation year.
(2) Look-back method
The interest computed under the look-back method of this paragraph for any recomputation year shall be determined by—
(A) first determining the depreciation deductions under this section with respect to such property which would have been allowable for prior taxable years if the determination of the amounts so allowable had been made on the basis of the sum of the following (instead of the estimated income from such property)—
(i) the actual income earned in connection with such property for periods before the close of the recomputation year, and
(ii) an estimate of the future income to be earned in connection with such property for periods after the recomputation year and before the close of the 10th taxable year following the taxable year in which the property was placed in service,
(B) second, determining (solely for purposes of computing such interest) the overpayment or underpayment of tax for each such prior taxable year which would result solely from the application of subparagraph (A), and
(C) then using the adjusted overpayment rate (as defined in section 460(b)(7)), compounded daily, on the overpayment or underpayment determined under subparagraph (B).
For purposes of the preceding sentence, any cost incurred after the property is placed in service (which is not treated as a separate property under paragraph (5)) shall be taken into account by discounting (using the Federal mid-term rate determined under section 1274(d) as of the time such cost is incurred) such cost to its value as of the date the property is placed in service. The taxpayer may elect with respect to any property to have the preceding sentence not apply to such property.
(3) Exception from look-back method
Paragraph (1)(D) shall not apply with respect to any property which had a cost basis of $100,000 or less.
(4) Recomputation year
For purposes of this subsection, except as provided in regulations, the term "recomputation year" means, with respect to any property, the 3d and the 10th taxable years beginning after the taxable year in which the property was placed in service, unless the actual income earned in connection with the property for the period before the close of such 3d or 10th taxable year is within 10 percent of the income earned in connection with the property for such period which was taken into account under paragraph (1)(A).
(5) Special rules
(A) Certain costs treated as separate property
For purposes of this subsection, the following costs shall be treated as separate properties:
(i) Any costs incurred with respect to any property after the 10th taxable year beginning after the taxable year in which the property was placed in service.
(ii) Any costs incurred after the property is placed in service and before the close of such 10th taxable year if such costs are significant and give rise to a significant increase in the income from the property which was not included in the estimated income from the property.
(B) Syndication income from television series
In the case of property which is 1 or more episodes in a television series, income from syndicating such series shall not be required to be taken into account under this subsection before the earlier of—
(i) the 4th taxable year beginning after the date the first episode in such series is placed in service, or
(ii) the earliest taxable year in which the taxpayer has an arrangement relating to the future syndication of such series.
(C) Special rules for financial exploitation of characters, etc.
For purposes of this subsection, in the case of television and motion picture films, the income from the property shall include income from the exploitation of characters, designs, scripts, scores, and other incidental income associated with such films, but only to the extent that such income is earned in connection with the ultimate use of such items by, or the ultimate sale of merchandise to, persons who are not related persons (within the meaning of section 267(b)) to the taxpayer.
(D) Collection of interest
For purposes of subtitle F (other than sections 6654 and 6655), any interest required to be paid by the taxpayer under paragraph (1) for any recomputation year shall be treated as an increase in the tax imposed by this chapter for such year.
(E) Treatment of distribution costs
For purposes of this subsection, the income with respect to any property shall be the taxpayer's gross income from such property.
(F) Determinations
For purposes of paragraph (2), determinations of the amount of income earned in connection with any property shall be made in the same manner as for purposes of applying the income forecast method; except that any income from the disposition of such property shall be taken into account.
(G) Treatment of pass-thru entities
Rules similar to the rules of section 460(b)(4) shall apply for purposes of this subsection.
(6) Limitation on property for which income forecast method may be used
The depreciation deduction allowable under this section may be determined under the income forecast method or any similar method only with respect to—
(A) property described in paragraph (3) or (4) of section 168(f),
(B) copyrights,
(C) books,
(D) patents, and
(E) other property specified in regulations.
Such methods may not be used with respect to any amortizable section 197 intangible (as defined in section 197(c)).
(7) Treatment of participations and residuals
(A) In general
For purposes of determining the depreciation deduction allowable with respect to a property under this subsection, the taxpayer may include participations and residuals with respect to such property in the adjusted basis of such property for the taxable year in which the property is placed in service, but only to the extent that such participations and residuals relate to income estimated (for purposes of this subsection) to be earned in connection with the property before the close of the 10th taxable year referred to in paragraph (1)(A).
(B) Participations and residuals
For purposes of this paragraph, the term "participations and residuals" means, with respect to any property, costs the amount of which by contract varies with the amount of income earned in connection with such property.
(C) Special rules relating to recomputation years
If the adjusted basis of any property is determined under this paragraph, paragraph (4) shall be applied by substituting "for each taxable year in such period" for "for such period".
(D) Other special rules
(i) Participations and residuals
Notwithstanding subparagraph (A), the taxpayer may exclude participations and residuals from the adjusted basis of such property and deduct such participations and residuals in the taxable year that such participations and residuals are paid.
(ii) Coordination with other rules
Deductions computed in accordance with this paragraph shall be allowable notwithstanding paragraph (1)(B), section 263, 263A, 404, 419, or 461(h).
(E) Authority to make adjustments
The Secretary shall prescribe appropriate adjustments to the basis of property and to the look-back method for the additional amounts allowable as a deduction solely by reason of this paragraph.
(8) Special rules for certain musical works and copyrights
(A) In general
If an election is in effect under this paragraph for any taxable year, then, notwithstanding paragraph (1), any expense which—
(i) is paid or incurred by the taxpayer in creating or acquiring any applicable musical property placed in service during the taxable year, and
(ii) is otherwise properly chargeable to capital account,
shall be amortized ratably over the 5-year period beginning with the month in which the property was placed in service. The preceding sentence shall not apply to any expense which, without regard to this paragraph, would not be allowable as a deduction.
(B) Exclusive method
Except as provided in this paragraph, no depreciation or amortization deduction shall be allowed with respect to any expense to which subparagraph (A) applies.
(C) Applicable musical property
For purposes of this paragraph—
(i) In general
The term "applicable musical property" means any musical composition (including any accompanying words), or any copyright with respect to a musical composition, which is property to which this subsection applies without regard to this paragraph.
(ii) Exceptions
Such term shall not include any property—
(I) with respect to which expenses are treated as qualified creative expenses to which section 263A(h) applies,
(II) to which a simplified procedure established under section 263A(i)(2) 1 applies, or
(III) which is an amortizable section 197 intangible (as defined in section 197(c)).
(D) Election
An election under this paragraph shall be made at such time and in such form as the Secretary may prescribe and shall apply to all applicable musical property placed in service during the taxable year for which the election applies.
(E) Termination
An election may not be made under this paragraph for any taxable year beginning after December 31, 2010.
(h) Amortization of geological and geophysical expenditures
(1) In general
Any geological and geophysical expenses paid or incurred in connection with the exploration for, or development of, oil or gas within the United States (as defined in section 638) shall be allowed as a deduction ratably over the 24-month period beginning on the date that such expense was paid or incurred.
(2) Half-year convention
For purposes of paragraph (1), any payment paid or incurred during the taxable year shall be treated as paid or incurred on the mid-point of such taxable year.
(3) Exclusive method
Except as provided in this subsection, no depreciation or amortization deduction shall be allowed with respect to such payments.
(4) Treatment upon abandonment
If any property with respect to which geological and geophysical expenses are paid or incurred is retired or abandoned during the 24-month period described in paragraph (1), no deduction shall be allowed on account of such retirement or abandonment and the amortization deduction under this subsection shall continue with respect to such payment.
(5) Special rule for major integrated oil companies
(A) In general
In the case of a major integrated oil company, paragraphs (1) and (4) shall be applied by substituting "7-year" for "24 month".
(B) Major integrated oil company
For purposes of this paragraph, the term "major integrated oil company" means, with respect to any taxable year, a producer of crude oil—
(i) which has an average daily worldwide production of crude oil of at least 500,000 barrels for the taxable year,
(ii) which had gross receipts in excess of $1,000,000,000 for its last taxable year ending during calendar year 2005, and
(iii) to which subsection (c) of section 613A does not apply by reason of paragraph (4) of section 613A(d), determined—
(I) by substituting "15 percent" for "5 percent" each place it occurs in paragraph (3) of section 613A(d), and
(II) without regard to whether subsection (c) of section 613A does not apply by reason of paragraph (2) of section 613A(d).
For purposes of clauses (i) and (ii), all persons treated as a single employer under subsections (a) and (b) of section 52 shall be treated as 1 person and, in case of a short taxable year, the rule under section 448(c)(3)(B) shall apply.
(i) Cross references
(1) For additional rule applicable to depreciation of improvements in the case of mines, oil and gas wells, other natural deposits, and timber, see section 611.
(2) For amortization of goodwill and certain other intangibles, see section 197.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 263A(i)(2), referred to in subsec. (g)(8)(C)(ii)(II), was redesignated section 263A(j)(2) by
Amendments
2007—Subsec. (g)(8)(C)(ii)(II).
Subsec. (h)(5)(A).
2006—Subsec. (g)(8).
Subsec. (h)(5).
2005—Subsec. (f)(3).
Subsecs. (h), (i).
2004—Subsec. (f)(1)(C).
Subsec. (f)(2).
Subsec. (g)(5)(E) to (G).
Subsec. (g)(7).
1997—Subsec. (g)(6).
1996—Subsecs. (g), (h).
1993—Subsec. (c).
Subsec. (e)(2).
Subsec. (f).
Subsec. (g).
1990—Subsec. (b).
"(1) the straight line method,
"(2) the declining balance method, using a rate not exceeding twice the rate which would have been used had the annual allowance been computed under the method described in paragraph (1),
"(3) the sum of the years-digits method, and
"(4) any other consistent method productive of an annual allowance which, when added to all allowances for the period commencing with the taxpayer's use of the property and including the taxable year, does not, during the first two-thirds of the useful life of the property, exceed the total of such allowances which would have been used had such allowances been computed under the method described in paragraph (2).
Nothing in this subsection shall be construed to limit or reduce an allowance otherwise allowable under subsection (a)."
Subsec. (c).
"(1) the construction, reconstruction, or erection of which is completed after December 31, 1953, and then only to that portion of the basis which is properly attributable to such construction, reconstruction, or erection after December 31, 1953, or
"(2) acquired after December 31, 1953, if the original use of such property commences with the taxpayer and commences after such date.
Paragraphs (2), (3), and (4) of subsection (b) shall not apply to any motion picture film, video tape, or sound recording."
Subsec. (d).
Subsec. (e).
Subsec. (e)(3)(B).
Subsec. (e)(4)(B).
Subsec. (f).
"(1)
"(2)
Subsecs. (g), (h).
Subsec. (j).
Subsec. (k).
Subsec. (l).
Subsec. (m).
Subsec. (p).
Subsec. (q).
Subsecs. (r), (s).
1989—Subsec. (r).
1988—Subsec. (a).
Subsec. (d).
Subsec. (l)(3)(G).
Subsecs. (r), (s).
1986—Subsec. (c).
Subsec. (m)(4).
Subsec. (q)(2)(B).
1984—Subsec. (k)(1), (3)(D).
1983—Subsec. (l)(3)(G).
1981—Subsec. (a).
Subsec. (d).
Subsec. (k)(2).
Subsec. (l)(3)(C).
Subsec. (m)(4).
Subsecs. (n), (o).
Subsec. (r).
Subsec. (s).
1980—Subsec. (k).
Subsec. (n)(4).
Subsec. (o)(3).
Subsecs. (r), (s).
1978—Subsec. (i).
Subsec. (k)(1), (3)(D).
Subsec. (n).
Subsec. (o).
Subsec. (p).
Subsec. (q).
Subsec. (r).
1977—Subsec. (k).
1976—Subsec. (b).
Subsec. (d).
Subsec. (e).
Subsec. (f)(1).
Subsec. (f)(2).
Subsec. (i).
Subsec. (j).
Subsec. (k)(1).
Subsec. (k)(2)(A).
Subsec. (k)(3)(B).
Subsec. (k)(3)(D).
Subsec. (l)(3)(F).
Subsec. (l)(4)(A).
Subsec. (l)(5).
Subsec. (m).
Subsec. (n).
Subsec. (o).
Subsec. (p).
1975—Subsec. (k)(1).
1971—Subsecs. (m), (n).
1969—Subsec. (e)(3).
Subsecs. (j), (k).
Subsec. (l).
Subsec. (m).
1967—Subsec. (i)(1).
Subsec. (i)(3).
1966—Subsecs. (i), (j).
1962—Subsec. (e).
Subsecs. (f) to (i).
1958—Subsec. (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2007 Amendment
Amendment by
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Effective Date of 2004 Amendment
Amendment by section 847(b)(1) of
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
"(1)
"(2)
"(3)
Effective Date of 1993 Amendment
Amendment by section 13261(b) and (f)(1) of
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1989 Amendment
"(1)
"(2)
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 201(d)(1) of
Amendment by section 201(d)(1) of
Amendment by section 1511(c)(4) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by sections 203 and 209 of
Amendment by section 212(d)(1) of
Effective Date of 1980 Amendment
Effective and Termination Dates of 1978 Amendment
Amendment by section 312(c)(4) of
Amendment by
Amendment by section 301(d)(3) of
Effective Date of 1976 Amendment
Amendment by section 1901(a)(27)(A) of
Amendment by section 202(c)(3) of
[Section 7(b) of
Effective Date of 1975 Amendment
Effective Date of 1971 Amendment
Effective Date of 1969 Amendment
Effective Date of 1967 Amendment
Amendment by
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by section 13(b) of
Effective Date of 1958 Amendment
Amendment by
Savings Provision
For provisions that nothing in amendment by
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Discontinuation of Retirement-Replacement-Betterment Method of Depreciation; Transitional Rule
"(2)
"(3)
Internal Revenue Code Provisions Relating to Depreciation as Not Applicable to Calculations of Secretary of Health and Human Services in Determining Costs of Programs
Class Life System; Application to Real Property; General Rule
"(1) under Revenue Procedure 62–21 (as amended and supplemented) as in effect on December 31, 1970, or
"(2) on the facts and circumstances."
Transitional Rules for Reasonable Allowance for Depreciation
"(1) [Repealed.
"(2)
Rehabilitation Expenditures for Low Income Rental Housing Incurred After December 31, 1974, and Before January 1, 1978, Pursuant to Contract Entered Before December 31, 1974
1 See References in Text note below.
§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 (other than property described in paragraph (3)) which is a qualified smart electric meter or qualified smart electric grid system, 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 improvement property described in subsection (e)(6).
(4) Salvage value treated as zero
Salvage value shall be treated as zero.
(5) Election
An election under paragraph (2)(D) 1 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 bore | 50 years. |
(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:
| Property shall be treated as: | If such property has a class life (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, 2022, and
(II) which is placed in service after December 31, 2021, 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 has a power production capacity of not greater than 80 megawatts, 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, 2017.
Nothing in any provision of law shall be construed to treat property as not being described in subclause (I) or (II) of clause (vi) by reason of being public utility property.
(C) 7-year property
The term "7-year property" includes—
(i) any railroad track,
(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) initial clearing and grading land improvements with respect to gas utility property,
(v) 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,
(vi) 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
(vii) any qualified improvement property.
(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 improvement property
(A) In general
The term "qualified improvement property" means any improvement made by the taxpayer 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.
(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),
(E) any property to which an election under paragraph (7) applies,
(F) any property described in paragraph (8), and
(G) any property with a recovery period of 10 years or more which is held by an electing farming business (as defined in section 163(j)(7)(C)),
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 clause (ii) or (iii) | The class life. |
| (ii) Personal property with no class life | 12 years. |
| (iii) Residential rental property | 30 years |
| (iv) Nonresidential real property | 40 years |
| (v) Any railroad grading or tunnel bore or water utility property | 50 years |
(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) | 20 |
| (E)(v) | 30 |
| (E)(vi) | 35 |
| (E)(vii) | 20 |
| (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; (
(G) any property which is owned by a domestic corporation 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,
(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.
(8) Electing real property trade or business
The property described in this paragraph shall consist of any nonresidential real property, residential rental property, and qualified improvement property held by an electing real property trade or business (as defined in 163(j)(7)(B)).
(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.
(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 (
(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, 2025.
(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 qualified Indian reservation property 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 (
(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 (
(B) section 4(10) of the Indian Child Welfare Act of 1978 (
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) Election out
If a taxpayer makes an election under this paragraph with respect to any class of property for any taxable year, paragraph (1) shall not apply to all property in such class placed in service during such taxable year. Such election, once made, shall be irrevocable.
(9) Termination
This subsection shall not apply to property placed in service after December 31, 2021.
(k) Special allowance for certain property
(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 the applicable percentage 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 2
(IV) which is a qualified film or television production (as defined in subsection (d) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection, or
(V) which is a qualified live theatrical production (as defined in subsection (e) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection,
(ii) the original use of which begins with the taxpayer or the acquisition of which by the taxpayer meets the requirements of clause (ii) of subparagraph (E), and
(iii) which is placed in service by the taxpayer before January 1, 2027.
(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) and (ii) of subparagraph (A),
(II) is placed in service by the taxpayer before January 1, 2028,
(III) is acquired by the taxpayer (or acquired pursuant to a written binding contract entered into) before January 1, 2027,
(IV) has a recovery period of at least 10 years or is transportation property,
(V) is subject to section 263A, and
(VI) 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, 2027 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, 2027.
(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 subparagraph (A)(ii) and subclauses (II) and (III) of subparagraph (B)(i),
(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) 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).
(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 subclause (III) of subparagraph (B)(i) shall be treated as met if the taxpayer begins manufacturing, constructing, or producing the property before January 1, 2027.
(ii) Acquisition requirements
An acquisition of property meets the requirements of this clause if—
(I) such property was not used by the taxpayer at any time prior to such acquisition, and
(II) the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of section 179(d).
(iii) Syndication
For purposes of subparagraph (A)(ii), if—
(I) property is used by a lessor of such property and such use is the lessor's first use 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.
(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).
(iii) Phase down
In the case of a passenger automobile acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017, clause (i) shall be applied by substituting for "$8,000"—
(I) in the case of an automobile placed in service during 2018, $6,400, and
(II) in the case of an automobile placed in service during 2019, $4,800.
(G) 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.
(H) Production placed in service
For purposes of subparagraph (A)—
(i) a qualified film or television production shall be considered to be placed in service at the time of initial release or broadcast, and
(ii) a qualified live theatrical production shall be considered to be placed in service at the time of the initial live staged performance.
[(3) Repealed. Pub. L. 115–97, title I, §13204(a)(4)(B)(ii), Dec. 22, 2017, 131 Stat. 2111 ]
[(4) Repealed. Pub. L. 115–97, title I, §12001(b)(13), Dec. 22, 2017, 131 Stat. 2094 ]
(5) Special rules for certain plants bearing fruits and nuts
(A) In general
In the case of any specified plant which is planted before January 1, 2027, or is grafted before such date 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 the applicable percentage 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 crop or yield of fruits or nuts and which generally has a pre-productive period of more than 2 years from the time of planting or grafting to the time at which such plant begins bearing a marketable crop or yield of 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)(G) shall apply for purposes of this paragraph.
(6) Applicable percentage
For purposes of this subsection—
(A) In general
Except as otherwise provided in this paragraph, the term "applicable percentage" means—
(i) in the case of property placed in service after September 27, 2017, and before January 1, 2023, 100 percent,
(ii) in the case of property placed in service after December 31, 2022, and before January 1, 2024, 80 percent,
(iii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 60 percent,
(iv) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 40 percent, and
(v) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 20 percent.
(B) Rule for property with longer production periods
In the case of property described in subparagraph (B) or (C) of paragraph (2), the term "applicable percentage" means—
(i) in the case of property placed in service after September 27, 2017, and before January 1, 2024, 100 percent,
(ii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 80 percent,
(iii) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 60 percent,
(iv) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 40 percent, and
(v) in the case of property placed in service after December 31, 2026, and before January 1, 2028, 20 percent.
(C) Rule for plants bearing fruits and nuts
In the case of a specified plant described in paragraph (5), the term "applicable percentage" means—
(i) in the case of a plant which is planted or grafted after September 27, 2017, and before January 1, 2023, 100 percent,
(ii) in the case of a plant which is planted or grafted after December 31, 2022, and before January 1, 2024, 80 percent,
(iii) in the case of a plant which is planted or grafted after December 31, 2023, and before January 1, 2025, 60 percent,
(iv) in the case of a plant which is planted or grafted after December 31, 2024, and before January 1, 2026, 40 percent, and
(v) in the case of a plant which is planted or grafted after December 31, 2025, and before January 1, 2027, 20 percent.
(7) 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)(F) 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.
(8) Phase down
In the case of qualified property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017, paragraph (6) shall be applied by substituting for each percentage therein—
(A) "50 percent" in the case of—
(i) property placed in service before January 1, 2018, and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2018,
(B) "40 percent" in the case of—
(i) property placed in service in 2018 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2019,
(C) "30 percent" in the case of—
(i) property placed in service in 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2020, and
(D) "0 percent" in the case of—
(i) property placed in service after 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service after 2020.
(9) Exception for certain property
The term "qualified property" shall not include—
(A) any property which is primarily used in a trade or business described in clause (iv) of section 163(j)(7)(A), or
(B) any property used in a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section.
(10) Special rule for property placed in service during certain periods
(A) In general
In the case of qualified property placed in service by the taxpayer during the first taxable year ending after September 27, 2017, if the taxpayer elects to have this paragraph apply for such taxable year, paragraphs (1)(A) and (5)(A)(i) shall be applied by substituting "50 percent" for "the applicable percentage".
(B) Form of election
Any election under this paragraph shall be made at such time and in such form and manner as the Secretary may prescribe.
(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, 2021.
(3) Exceptions
(A) Bonus depreciation property under subsection (k)
Such term shall not include any property to which subsection (k) applies.
(B) Alternative depreciation property
Such term shall not include any property described in subsection (k)(2)(D).
(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 subsection (k)(2)(E) shall apply.
(5) Allowance against alternative minimum tax
For purposes of this subsection, rules similar to the rules of subsection (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.
(Added
Amendment of Subsection (e)(3)(B)
(1) in clause (vi)(III), by striking "and" at the end,
(2) in clause (vii), by striking the period at the end and inserting ", and", and
(3) by inserting after clause (vii) the following:
(viii) any qualified facility (as defined in section 45Y(b)(1)(A)), any qualified property (as defined in subsection (b)(2) of section 48E) which is a qualified investment (as defined in subsection (b)(1) of such section), or any energy storage technology (as defined in subsection (c)(2) of such section).
See 2022 Amendment note below.
Editorial Notes
References in Text
Paragraph (2)(D), referred to in subsec. (b)(5), means par. (2)(D) of subsec. (b) of this section, which was redesignated par. (2)(C) of subsec. (b) by
The date of the enactment of the Revenue Reconciliation Act of 1990, referred to in subsecs. (e)(3)(B)(vi)(II), (III), (g)(4)(K), and (i)(1), is the date of enactment of
Section 168(e) as in effect before the amendments made by the Tax Reform Act of 1986, referred to in subsec. (f)(5)(A)(i), is subsec. (e) of this section prior to the general amendment of this section by
The date of the enactment of this paragraph, referred to in subsec. (f)(5)(B)(ii)(I), probably means the date of enactment of
The Tax Reform Act of 1986, referred to in subsecs. (f)(5)(B)(iii), (C) and (i)(7)(A), is
The Communications Satellite Act of 1962, referred to in subsec. (i)(10)(C), is
The date of the enactment of this sentence, referred to in subsec. (j)(6), is the date of enactment of
The date of the enactment of this paragraph, referred to in subsec. (j)(7), is the date of enactment of
The date of the enactment of this subsection, referred to in subsec. (l)(2)(B), (C), is the date of enactment of
Par. (3) of section 165(h), referred to in subsec. (n)(3)(B), (C), was repealed by
Codification
Prior Provisions
A prior section 168, acts Aug. 16, 1954, ch. 746,
Amendments
2022—Subsec. (e)(3)(B)(viii).
2020—Subsec. (e)(3)(A)(i)(I).
Subsec. (e)(3)(A)(i)(II).
Subsec. (e)(3)(E)(vii).
Subsec. (e)(6)(A).
Subsec. (g)(3)(B).
Subsec. (i)(15)(D).
Subsec. (j)(9).
2019—Subsec. (e)(3)(A)(i)(I).
Subsec. (e)(3)(A)(i)(II).
Subsec. (i)(15)(D).
Subsec. (j)(9).
Subsec. (l)(2)(D).
2018—Subsec. (d)(3)(B)(i).
Subsec. (e)(3)(A)(i)(I).
Subsec. (e)(3)(A)(i)(II).
Subsec. (e)(3)(B).
Subsec. (e)(3)(B)(vi)(II).
Subsec. (e)(3)(C)(i).
Subsec. (g)(4)(G).
Subsec. (i)(15)(D).
Subsec. (j)(3).
Subsec. (j)(8).
Subsec. (j)(9).
Subsec. (k)(2)(B)(i)(III).
Subsec. (k)(5)(B)(ii).
Subsec. (l)(2)(D).
Subsec. (n).
2017—Subsec. (b)(2)(B) to (D).
Subsec. (b)(3)(G) to (I).
"(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)."
Subsec. (e)(3)(B)(vii).
Subsec. (e)(3)(E)(iv) to (ix).
"(iv) any qualified leasehold improvement property,
"(v) any qualified restaurant property,
"(ix) any qualified retail improvement property."
Subsec. (e)(6).
Subsec. (e)(7), (8).
Subsec. (g)(1)(F).
Subsec. (g)(1)(G).
Subsec. (g)(2)(C)(iii) to (v).
Subsec. (g)(3)(B).
Subsec. (g)(8).
Subsec. (i)(7)(B).
Subsec. (k).
Subsec. (k)(1)(A).
Subsec. (k)(2)(A)(i)(IV).
Subsec. (k)(2)(A)(i)(V).
Subsec. (k)(2)(A)(ii).
Subsec. (k)(2)(A)(iii).
Subsec. (k)(2)(B)(i)(II).
Subsec. (k)(2)(B)(i)(III).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(2)(E)(i).
Subsec. (k)(2)(E)(ii).
"(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)."
Subsec. (k)(2)(E)(iii)(I).
Subsec. (k)(2)(F)(iii).
Subsec. (k)(2)(H).
Subsec. (k)(3).
Subsec. (k)(4).
Subsec. (k)(5)(A).
Subsec. (k)(5)(A)(i).
Subsec. (k)(5)(F).
"(i) in the case of a plant which is planted (or so grafted) in 2018, '40 percent', and
"(ii) in the case of a plant which is planted (or so grafted) during 2019, '30 percent'."
Subsec. (k)(6).
"(A) in the case of property placed in service in 2018 (or in the case of property placed in service in 2019 and described in paragraph (2)(B) or (C) (determined by substituting '2019' for '2020' in paragraphs (2)(B)(i)(III) and (ii) and paragraph (2)(E)(i)), '40 percent',
"(B) in the case of property placed in service in 2019 (or in the case of property placed in service in 2020 and described in paragraph (2)(B) or (C), '30 percent'."
Subsec. (k)(8).
Subsec. (k)(9).
Subsec. (k)(10).
2015—Subsec. (e)(3)(A)(i)(I).
Subsec. (e)(3)(A)(i)(II).
Subsec. (e)(3)(E)(iv), (v).
Subsec. (e)(3)(E)(ix).
Subsec. (e)(6).
Subsec. (e)(7)(B).
Subsec. (e)(8)(D).
Subsec. (i)(15)(D).
Subsec. (j)(8).
Subsec. (j)(9).
Subsec. (k).
Subsec. (k)(2).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(3).
Subsec. (k)(4).
Subsec. (k)(4)(D)(iii)(II).
Subsec. (k)(4)(L).
Subsec. (k)(5).
Subsec. (k)(6).
Subsec. (k)(7).
Subsec. (l)(2)(D).
Subsec. (l)(3)(A).
Subsec. (l)(3)(B).
Subsec. (l)(4).
"(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."
Subsec. (l)(5).
2014—Subsec. (b)(5).
Subsec. (e)(3)(A)(i)(I).
Subsec. (e)(3)(A)(i)(II).
Subsec. (e)(3)(E)(iv), (v), (ix).
Subsec. (e)(7)(B), (8)(D).
Subsec. (i)(15)(D).
Subsec. (i)(18)(A)(ii), (19)(A)(ii).
Subsec. (j)(8).
Subsec. (k).
Subsec. (k)(2).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(i)(IV).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(4)(C)(i).
Subsec. (k)(4)(D)(iii)(II).
Subsec. (k)(4)(E)(iv).
Subsec. (k)(4)(J)(iii).
Subsec. (k)(4)(K).
Subsec. (l)(2)(D).
Subsec. (m)(2)(B)(i).
Subsec. (n)(2)(C)(ii).
2013—Subsec. (e)(3)(E)(iv), (v), (ix).
Subsec. (i)(9)(A)(ii).
Subsec. (i)(15)(D).
Subsec. (j)(8).
Subsec. (k).
Subsec. (k)(2).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(4)(D)(iii)(II).
Subsec. (k)(4)(J).
Subsec. (l).
Subsec. (l)(2).
Subsec. (l)(2)(A).
Subsec. (l)(2)(D).
Subsec. (l)(3) to (8).
Subsec. (n)(2)(C)(ii).
2010—Subsec. (e)(3)(E)(iv), (v), (ix).
Subsec. (e)(7)(A)(i).
Subsec. (e)(8)(E).
Subsec. (i)(15)(D).
Subsec. (j)(8).
Subsec. (k).
Subsec. (k)(2)(A)(iii).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(2)(E)(i).
Subsec. (k)(4)(D)(ii).
Subsec. (k)(4)(D)(iii).
Subsec. (k)(4)(D)(iv), (v).
"(iv) 'January 1, 2011' shall be substituted for 'January 1, 2012' in subparagraph (A)(iv) thereof, and
"(v) 'January 1, 2010' shall be substituted for 'January 1, 2011' each place it appears in subparagraph (A) thereof."
Subsec. (k)(4)(I).
Subsec. (k)(5).
Subsec. (l)(5)(A).
Subsec. (l)(5)(B).
Subsec. (l)(5)(C).
Subsec. (n)(2)(C)(ii).
2009—Subsec. (k).
Subsec. (k)(2)(A)(iii)(I), (II).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(2)(E)(i).
Subsec. (k)(4)(D)(ii).
Subsec. (k)(4)(D)(iii).
Subsec. (k)(4)(H).
Subsec. (l)(5)(B).
Subsec. (n)(2)(C)(ii).
2008—Subsec. (b)(2)(C), (D).
Subsec. (b)(3)(I).
Subsec. (e)(3)(A)(i).
Subsec. (e)(3)(B)(vii).
Subsec. (e)(3)(D)(iii), (iv).
Subsec. (e)(3)(E)(iv), (v).
Subsec. (e)(3)(E)(ix).
Subsec. (e)(7).
"(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."
Subsec. (e)(8).
Subsec. (g)(3)(B).
Subsec. (i)(15)(D).
Subsec. (i)(18), (19).
Subsec. (j)(8).
Subsec. (k).
Subsec. (k)(1)(A).
Subsec. (k)(2)(A)(iii)(I).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(i)(I).
Subsec. (k)(2)(B)(i)(IV).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(2)(C)(i).
Subsec. (k)(2)(D)(iii).
Subsec. (k)(2)(F)(i).
Subsec. (k)(4).
Subsec. (k)(4)(B)(iii).
Subsec. (l).
Subsec. (l)(2).
Subsec. (l)(3).
Subsec. (l)(4).
Subsec. (l)(5)(A).
Subsec. (l)(5)(B).
Subsec. (m).
Subsec. (n).
2007—Subsec. (l)(3).
2006—Subsec. (e)(3)(E)(iv), (v).
Subsec. (j)(8).
Subsec. (l).
2005—Subsec. (e)(3)(B)(vi)(I).
Subsec. (e)(3)(C)(iv), (v).
Subsec. (e)(3)(E)(vii).
Subsec. (e)(3)(E)(viii).
Subsec. (g)(3)(B).
Subsec. (i)(15)(D).
Subsec. (i)(17).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(4)(B)(ii).
Subsec. (k)(4)(B)(iii).
2004—Subsec. (b)(2)(A).
Subsec. (b)(3)(G), (H).
Subsec. (e)(3)(C)(ii).
Subsec. (e)(3)(C)(iii).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(3)(E)(iv), (v).
Subsec. (e)(3)(E)(vi).
Subsec. (e)(3)(F).
Subsec. (e)(6), (7).
Subsec. (g)(3)(A).
Subsec. (g)(3)(B).
Subsec. (h)(2)(A).
Subsec. (h)(3)(A).
Subsec. (i)(3)(A)(ii), (iii).
Subsec. (i)(15).
Subsec. (i)(16).
Subsec. (j)(8).
Subsec. (k)(2)(A)(iv).
Subsec. (k)(2)(B)(i).
"(I) which meets the requirements of clauses (i), (ii), and (iii) of subparagraph (A),
"(II) which has a recovery period of at least 10 years or is transportation property, and
"(III) which is subject to section 263A by reason of clause (ii) or (iii) of subsection (f)(1)(B) thereof."
Subsec. (k)(2)(B)(iv).
Subsec. (k)(2)(C).
Subsec. (k)(2)(D).
Subsec. (k)(2)(D)(ii).
Subsec. (k)(2)(D)(ii)(I).
Subsec. (k)(2)(D)(iii), (iv).
Subsec. (k)(2)(E).
Subsec. (k)(2)(E)(iii)(II).
Subsec. (k)(2)(F).
Subsec. (k)(2)(G).
Subsec. (k)(4)(A)(ii).
Subsec. (k)(4)(B)(iii).
Subsec. (k)(4)(C).
Subsec. (k)(4)(D).
2003—Subsec. (k).
Subsec. (k)(2)(A)(iii).
Subsec. (k)(2)(B)(ii).
Subsec. (k)(2)(C)(iii).
Subsec. (k)(2)(D)(i).
Subsec. (k)(4).
2002—Subsec. (j)(8).
Subsec. (k).
1998—Subsec. (c).
"(1)
Subsec. (c)(2).
1997—Subsec. (e)(3)(A)(iii).
Subsec. (g)(3)(B).
Subsec. (i)(8)(C).
Subsec. (i)(14).
Subsec. (j)(6).
1996—Subsec. (b)(3)(F).
Subsec. (c)(1).
Subsec. (e)(3)(B).
Subsec. (e)(3)(B)(vi)(I).
Subsec. (e)(3)(B)(vi)(III).
Subsec. (e)(3)(E)(iii).
Subsec. (e)(3)(F).
Subsec. (e)(5).
Subsec. (g)(2)(C)(iv).
Subsec. (g)(3)(B).
Subsec. (g)(4)(K).
Subsec. (i)(8).
1995—Subsec. (g)(4)(B)(i).
1993—Subsec. (c)(1).
Subsec. (j).
1990—Subsec. (e)(2)(A).
Subsec. (e)(3)(B)(vi)(I).
Subsec. (e)(3)(B)(vi)(II).
Subsec. (e)(3)(D)(i).
Subsec. (f)(2).
Subsec. (g)(4).
Subsec. (i)(1).
Subsec. (i)(7)(B)(i).
Subsec. (i)(9)(A)(ii).
Subsec. (i)(10).
Subsec. (i)(13).
1989—Subsec. (b)(3)(D), (E).
Subsec. (b)(5).
Subsec. (c)(2).
Subsec. (i)(1).
1988—Subsec. (b)(2).
Subsec. (b)(2)(B), (C).
Subsec. (b)(3)(C).
Subsec. (b)(3)(D).
Subsec. (b)(5).
Subsec. (c).
Subsec. (c)(1).
Subsec. (d)(2)(C).
Subsec. (d)(3)(A)(i).
Subsec. (d)(3)(B).
Subsec. (d)(3)(B)(i).
Subsec. (e)(3)(B)(v).
Subsec. (e)(3)(C).
Subsec. (e)(3)(D).
Subsec. (e)(3)(E), (F).
Subsec. (e)(4).
Subsec. (f)(4).
Subsec. (f)(5)(B)(ii).
Subsec. (f)(5)(B)(iii).
Subsec. (f)(5)(C).
Subsec. (g)(2)(C).
Subsec. (g)(3)(B).
Subsec. (h)(2)(B).
"(i)
"(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.
"(ii)
Subsec. (i)(1).
Subsec. (i)(1)(E)(iii).
"(I) such property shall be treated as an assigned property,
"(II) the recovery period applicable to such property shall be treated as an assigned item, and
"(III) clause (ii) of subparagraph (D) shall not apply."
Subsec. (i)(7)(A).
Subsec. (i)(7)(B).
Subsec. (i)(7)(D).
Subsec. (j)(9)(E).
"(I)
"(II)
"(III)
1986—
Subsec. (b)(2)(A).
Subsec. (b)(2)(B).
Subsec. (b)(3)(A).
Subsec. (b)(4)(B).
Subsec. (f)(2)(B).
Subsec. (f)(10)(A).
"(i) if the transaction is described in subparagraph (B)(i), the transferee shall be treated in the same manner as the transferor, or
"(ii) if the transaction is described in clause (ii) or (iii) of subparagraph (B) and the transferor made an election with respect to such property under subsection (b)(3) or (f)(2)(C), the transferee shall be treated as having made the same election (or its equivalent)."
for prior provisions.
Subsec. (f)(10)(B).
Subsec. (f)(12)(B)(ii).
Subsec. (f)(12)(C).
"(i) any low-income housing, and
"(ii) any other recovery property which is placed in service in connection with projects for residential rental property financed by the proceeds of obligations described in section 103(b)(4)(A)."
for prior provisions.
Subsec. (f)(14), (15).
Subsec. (j)(2)(B)(ii).
Subsec. (j)(3)(D).
Subsec. (j)(4)(E)(i).
Subsec. (j)(4)(E)(ii).
Subsec. (j)(4)(E)(iv).
"(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."
Subsec. (j)(5)(C)(iv).
Subsec. (j)(8), (9)(A).
Subsec. (j)(9)(B)(i).
Subsec. (j)(9)(D).
Subsec. (j)(9)(E).
"(I) such entity shall not be treated as a tax-exempt entity for purposes of this paragraph, 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.", and cl. (iii), tax-exempt controlled entity, which read "The term 'tax-exempt controlled entity' means any corporation (which is not a tax-exempt entity determined without regard to this subparagraph and paragraph (4)(E)) if 50 percent or more (by value) of the stock in such corporation is held (directly or through the application of section 318 determined without regard to the 50-percent limitation contained in subsection (a)(2)(C) thereof) by 1 or more tax-exempt entities." Former subpar. (E) was redesignated (F).
Subsec. (j)(9)(F).
Subsec. (j)(9)(G).
1985—Subsec. (b)(2).
Subsec. (b)(2)(A)(i).
Subsec.(b)(3)(A).
Subsec. (b)(3)(B)(ii), (iii).
Subsec. (c)(2)(D).
Subsec. (d)(2)(B).
Subsec. (f)(1)(B)(ii).
Subsec. (f)(1)(B)(iii), (iv).
Subsec. (f)(2), (5).
Subsec. (f)(12)(B)(ii).
Subsec. (j).
1984—Subsec. (b)(2).
Subsec. (b)(2)(A).
Subsec. (b)(2)(A)(i).
Subsec. (b)(2)(A)(ii).
Subsec. (b)(2)(B).
Subsec. (b)(3)(A).
Subsec. (b)(3)(B)(ii).
Subsec. (b)(3)(B)(iii).
Subsec. (b)(4).
Subsec. (c)(2)(D).
Subsec. (c)(2)(F), (G).
Subsec. (d)(2)(B).
Subsec. (e).
Subsec. (e)(5).
Subsec. (f)(1)(B).
Subsec. (f)(2)(B).
Subsec. (f)(2)(C)(i).
Subsec. (f)(2)(C)(ii)(II), (E), (5).
Subsec. (f)(8)(B)(ii)(I).
Subsec. (f)(12)(C).
Subsec. (f)(12)(D), (E).
Subsec. (f)(13).
Subsec. (f)(14).
Subsec. (g)(2).
Subsec. (i)(1)(D)(i).
Subsec. (i)(1)(D)(iii).
Subsec. (i)(4)(A).
Subsecs. (j), (k).
1983—Subsec. (b)(2)(A).
Subsec. (c)(2)(F).
Subsec. (d)(2)(B).
Subsec. (e)(3)(C), (D).
Subsec. (e)(4)(D).
Subsec. (e)(4)(H), (I).
Subsec. (f)(4)(B).
Subsec. (f)(5).
Subsec. (f)(8)(D).
Subsec. (f)(13).
Subsec. (g)(8)(A).
Subsec. (g)(8)(B).
Subsec. (h)(4).
1982—Subsec. (b)(1).
Subsec. (e)(4).
Subsec. (f)(8).
Subsec. (f)(8)(A).
Subsec. (f)(8)(B)(i)(I).
Subsec. (f)(8)(B)(iii).
Subsec. (f)(8)(C)(i).
Subsec. (f)(8)(D).
"(i) new section 38 property (as defined in section 48(b)) of the lessor which is leased within 3 months after such property was placed in service and which, if acquired by the lessee, would have been new section 38 property of the lessee,
"(ii) property—
"(I) which was new section 38 property of the lessee,
"(II) which was leased within 3 months after such property was placed in service by the lessee, and
"(III) with respect to which the adjusted basis of the lessor does not exceed the adjusted basis of the lessee at the time of the lease, or
"(iii) property which is a qualified mass commuting vehicle (as defined in section 103(b)(9)) and which is financed in whole or in part by obligations the interest on which is excludable from income under section 103(a).
For purposes of this title (other than this subparagraph), any property described in clause (i) or (ii) to which subparagraph (A) applies shall be deemed originally placed in service not earlier than the date such property is used under the lease. In the case of property placed in service after December 31, 1980, and before the date of the enactment of this subparagraph, this subparagraph shall be applied by submitting 'the date of the enactment of this subparagraph' for 'such property was placed in service'." See 1983 Amendment note above for subsec. (f)(8)(D).
Subsec. (f)(8)(H) to (K).
Subsec. (f)(10)(B)(i).
Subsec. (f)(12).
Subsec. (i).
Subsec. (j).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2018 Amendment
"(3) For purposes of applying section 168(k) of the Internal Revenue Code of 1986, as in effect on the day before the date of the enactment of
" '(6)
" '(A) "40 percent" in the case of—
" '(i) property placed in service in 2018 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
" '(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2019, and
" '(B) "30 percent" in the case of—
" '(i) property placed in service in 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
" '(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2020.'
"(4) Section 168(k)(7) of the Internal Revenue Code of 1986, as in effect on the day before the date of the enactment of
"(A) by substituting 'paragraphs (1), (2)(F), and (4)' for 'paragraphs (1) and (2)(F)', and
"(B) as if the application of such substitution had been included in section 143 of the Protecting Americans from Tax Hikes Act of 2015."
Amendment by section 101(d)(1), (2), (e) of
Effective Date of 2017 Amendment
Amendment by section 12001(b)(13) of
"(1)
"(A) is acquired after September 27, 2017, and
"(B) is placed in service after such date.
For purposes of the preceding sentence, property shall not be treated as acquired after the date on which a written binding contract is entered into for such acquisition.
"(2)
"(1)
"(2)
"(3)
"(A) which was placed in service before January 1, 2018,
"(B) which is held by an electing real property trade or business (as defined in section 163(j)(7)(B) of the Internal Revenue Code of 1986), and
"(C) for which subparagraph (A), (B), (C), (D), or (E) of section 168(g)(1) of the Internal Revenue Code of 1986 did not apply prior to such date,
the amendments made by subsection (a)(3)(C) shall apply to taxable years beginning after December 31, 2017."
Effective Date of 2015 Amendment
"(A)
"(B)
"(A)
"(B)
"(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 subsection), multiplied by
"(II) a fraction the numerator of which is the number of days in the taxable year before January 1, 2016, 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, 2015, and the denominator of which is the number of days in the taxable year.
"(C)
"(1)
"(2)
Effective Date of 2014 Amendment
Amendment by section 202(e) of
Amendment by section 210(c), (d), (g)(2) of
Amendment by section 211(b) of
Amendment by section 212(b) of
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
"(1)
"(2)
Effective Date of 2009 Amendment
"(1)
"(2)
Effective Date of 2008 Amendment
Amendment of this section and repeal of
[
Effective Date of 2007 Amendment
Effective Date of 2006 Amendment
Effective Date of 2005 Amendments
Amendment by section 403(j) of
Amendment by section 1301(f)(5) of
"(1)
"(2)
"(1)
"(2)
Amendment by section 1326(a)–(c) of
Effective Date of 2004 Amendments
"(1)
"(2)
"(3)
Amendment by section 847(a), (c), (d) of
Amendment by section 403(a) of
Effective Date of 2003 Amendment
Effective Date of 2002 Amendment
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by section 1086(b) of
Amendment by section 1213(c) of
"(A) with respect to property (with an applicable recovery period under section 168(j) of the Internal Revenue Code of 1986 of 6 years or less) held by the taxpayer if the taxpayer claimed the benefits of section 168(j) of such Code with respect to such property on a return filed before March 18, 1997, but only if such return is the first return of tax filed for the taxable year in which such property was placed in service, or
"(B) with respect to wages for which the taxpayer claimed the benefits of section 45A of such Code for a taxable year on a return filed before March 18, 1997, but only if such return was the first return of tax filed for such taxable year."
Effective Date of 1996 Amendment
Amendment by section 1702(h)(1) of
Effective Date of 1995 Amendment
Amendment by
Effective Date of 1993 Amendment
"(1)
"(2)
"(A) the taxpayer or a qualified person entered into a binding written contract to purchase or construct such property before May 13, 1993, or
"(B) the construction of such property was commenced by or for the taxpayer or a qualified person before May 13, 1993.
For purposes of this paragraph, the term 'qualified person' means any person who transfers his rights in such a contract or such property to the taxpayer but only if the property is not placed in service by such person before such rights are transferred to the taxpayer."
Effective Date of 1990 Amendment
Amendment by section 11812(b)(2) of
Amendment by section 11813(b)(9) of
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by sections 1002(a)(5)–(8), (11), (16)(B), (21), (i)(2)(A)–(G), and 1018(b)(2) of
"(1)
"(2)
"(A) is constructed, reconstructed, or acquired by the taxpayer pursuant to a written contract which was binding on July 14, 1988, or
"(B) is constructed or reconstructed by the taxpayer and such construction or reconstruction began by July 14, 1988."
"(1)
"(2)
"(A) is constructed, reconstructed, or acquired by the taxpayer pursuant to a written contract which was binding on July 14, 1988, or
"(B) is constructed or reconstructed by the taxpayer and such construction or reconstruction began by July 14, 1988."
Effective Date of 1986 Amendment; Transitional Rules
"SEC. 203. EFFECTIVE DATES; GENERAL TRANSITIONAL RULES.
"(a)
"(1)
"(A)
"(B)
"(2)
"(A)
"(B)
"(i) the limitation of section 179(b)(1) of the Internal Revenue Code of 1986 (as amended by section 202) shall be reduced by the aggregate deduction under section 179 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986 [Oct. 22, 1986]) for section 179 property placed in service during such taxable year and before January 1, 1987,
"(ii) the limitation of section 179(b)(2) of such Code (as so amended) shall be applied by taking into account the cost of all section 179 property placed in service during such taxable year, and
"(iii) the limitation of section 179(b)(3) of such Code shall be applied by taking into account the taxable income for the entire taxable year reduced by the amount of any deduction under section 179 of such Code for property placed in service during such taxable year and before January 1, 1987.
"(b)
"(1)
"(A) any property which is constructed, reconstructed, or acquired by the taxpayer pursuant to a written contract which was binding on March 1, 1986,
"(B) property which is constructed or reconstructed by the taxpayer if—
"(i) the lesser of (I) $1,000,000, or (II) 5 percent of the cost of such property has been incurred or committed by March 1, 1986, and
"(ii) the construction or reconstruction of such property began by such date, or
"(C) an equipped building or plant facility if construction has commenced as of March 1, 1986, pursuant to a written specific plan and more than one-half of the cost of such equipped building or facility has been incurred or committed by such date.
For purposes of this paragraph, all members of the same affiliated group of corporations (within the meaning of section 1504 of the Internal Revenue Code of 1986) filing a consolidated return shall be treated as one taxpayer.
"(2)
"(A)
| "In the case of property | The applicable |
| with a class life of: | date is: |
| At least 7 but less than 20 years | January 1, 1989 |
| 20 years or more | January 1, 1991. |
"(B)
"(C)
"(i) the class life of property to which section 168(g)(3)(B) of the Internal Revenue Code of 1986 (as added by section 201) applies shall be the class life in effect on January 1, 1986, except that computer-based telephone central office switching equipment described in section 168(e)(3)(B)(iii) of such Code shall be treated as having a class life of 6 years,
"(ii) property described in section 204(a) shall be treated as having a class life of 20 years, and
"(iii) property with no class life shall be treated as having a class life of 12 years.
"(D)
"(3)
"(A) in whose hands such property met the requirements of paragraphs (1) and (2) or section 204(a) (or would have met such requirements if placed in service by such person), or
"(B) who placed the property in service before January 1, 1987,
and such property is leased back by the taxpayer to such person, or is leased to such person, not later than the earlier of the applicable date under paragraph (2) or the day which is 3 months after such property was placed in service.
"(4)
"(A) a self-contained single operating unit or processing operation,
"(B) located on a single site, and
"(C) identified as a single unitary project as of March 1, 1986.
"(c)
"(1)
"(2)
"(A)
"(i)(I) the original use of which commences with the taxpayer, and the construction, reconstruction, or rehabilitation of which began before March 2, 1986, and was completed on or after such date,
"(II) with respect to which a binding contract to incur significant expenditures for construction, reconstruction, or rehabilitation was entered into before March 2, 1986, and some of such expenditures are incurred on or after such date, or
"(III) acquired on or after March 2, 1986, pursuant to a binding contract entered into before such date, and
"(ii) described in an inducement resolution or other comparable preliminary approval adopted by the issuing authority (or by a voter referendum) before March 2, 1986.
"(B)
"(i)
"(ii)
"(C)
"(D)
"(d)
"(e)
"(1)
"(2)
"(A)
"(i) the reserve for deferred taxes (as described in section 167(l)(3)(G)(ii) or 168(e)(3)(B)(ii) of the Internal Revenue Code of 1954 as in effect on the day before the date of the enactment of this Act [Oct. 22, 1986]), over
"(ii) the amount which would be the balance in such reserve if the amount of such reserve were determined by assuming that the corporate rate reductions provided in this Act [see Tables for classification] were in effect for all prior periods.
"(B)
"(i) the ratio of the aggregate deferred taxes for the property to the aggregate timing differences for the property as of the beginning of the period in question, by
"(ii) the amount of the timing differences which reverse during such period.
"SEC. 204. ADDITIONAL TRANSITIONAL RULES.
"(a)
"(1)
"(A)
"(B)
"(i) described in subparagraph (C), (D), (E), or (G) which before March 1, 1986, was publicly announced by a political subdivision of a State for a renovation of an urban area within its jurisdiction,
"(ii) described in subparagraph (C), (D) or (G) which before March 1, 1986, was identified as a single unitary project in the internal financing plans of the primary developer of the project,
"(iii) described in subparagraph (C) or (D), which is not substantially modified on or after March 1, 1986, and
"(iv) described in subparagraph (F) or (H).
"(C)
"(i) a political subdivision granted on July 11, 1985, development rights to the primary developer-purchaser of such project, and
"(ii) such project was the subject of a development agreement between a political subdivision and a bridge authority on December 19, 1984.
For purposes of this subparagraph, section 203(b)(2) shall be applied by substituting 'January 1, 1994' for 'January 1, 1991' each place it appears.
"(D)
"(i) A project is described in this clause if the development agreement with respect thereto was entered into during April 1984 and the estimated cost of the project is approximately $194,000,000.
"(ii) A project is described in this clause if the development agreement with respect thereto was entered into during May 1984 and the estimated cost of the project is approximately $190,000,000.
"(iii) A project is described in this clause if the project has an estimated cost of approximately $92,000,000 and at least $7,000,000 was spent before September 26, 1985, with respect to such project.
"(iv) A project is described in this clause if the estimated project cost is approximately $39,000,000 and at least $2,000,000 of construction cost for such project were incurred before September 26, 1985.
"(v) A project is described in this clause if the development agreement with respect thereto was entered into before September 26, 1985, and the estimated cost of the project is approximately $150,000,000.
"(vi) A project is described in this clause if the board of directors of the primary developer approved such project in December 1982, and the estimated cost of such project is approximately $107,000,000.
"(vii) A project is described in this clause if the board of directors of the primary developer approved such project in December 1982, and the estimated cost of such project is approximately $59,000,000.
"(viii) A project is described in this clause if the Board of Directors of the primary developer approved such project in December 1983, following selection of the developer by a city council on September 26, 1983, and the estimated cost of such project is approximately $107,000,000.
"(E)
"(i) a State or an agency, instrumentality, or political subdivision thereof approved the filing of a general project plan on June 18, 1981, and on October 4, 1984, a State or an agency, instrumentality, or political subdivision thereof confirmed such plan,
"(ii) the project plan as confirmed on October 4, 1984, included construction or renovation of office buildings, a hotel, a trade mart, theaters, and a subway complex, and
"(iii) significant segments of such project were the subject of one or more conditional designations granted by a State or an agency, instrumentality, or political subdivision thereof to one or more developers before January 1, 1985.
The preceding sentence shall apply with respect to a property only to the extent that a building on such property site was identified as part of the project plan before September 26, 1985, and only to the extent that the size of the building on such property site was not substantially increased by reason of a modification to the project plan with respect to such property on or after such date. For purposes of this subparagraph, section 203(b)(2) shall be applied by substituting 'January 1, 1998' for 'January 1, 1991' each place it appears.
"(F) A project is described in this subparagraph if it is a sports and entertainment facility which—
"(i) is to be used by both a National Hockey League team and a National Basketball Association team;
"(ii) is to be constructed on a platform utilizing air rights over land acquired by a State authority and identified as site B in a report dated May 30, 1984, prepared for a State urban development corporation; and
"(iii) is eligible for real property tax, and power and energy benefits pursuant to the provisions of State legislation approved and effective July 7, 1982.
A project is also described in this subparagraph if it is a mixed-use development which is—
"(I) to be constructed above a public railroad station utilized by the national railroad passenger corporation and commuter railroads serving two States; and
"(II) will include the reconstruction of such station so as to make it a more efficient transportation center and to better integrate the station with the development above, such reconstruction plans to be prepared in cooperation with a State transportation authority.
For purposes of this subparagraph, section 203(b)(2) shall be applied by substituting 'January 1, 1998' for the applicable date that would otherwise apply.
"(G) A project is described in this subparagraph if—
"(i) an inducement resolution was passed on March 9, 1984, for the issuance of obligations with respect to such project,
"(ii) such resolution was extended by resolutions passed on August 14, 1984, April 2, 1985, August 13, 1985, and July 8, 1986,
"(iii) an application was submitted on January 31, 1984, for an Urban Development Action Grant with respect to such project, and
"(iv) an Urban Development Action Grant was preliminarily approved for all or part of such project on July 3, 1986.
"(H) A project is described in this subparagraph if it is a redevelopment project, with respect to which $10,000,000 in industrial revenue bonds were approved by a State Development Finance Authority on January 15, 1986, a village transferred approximately $4,000,000 of bond volume authority to the State in June 1986, and a binding Redevelopment Agreement was executed between a city and the development team on June 30, 1986.
"(2)
"(A) which is certified by the Federal Energy Regulatory Commission before March 2, 1986, as a qualifying facility for purposes of the Public Utility Regulatory Policies Act of 1978 [see Short Title note set out under
"(B) which was granted before March 2, 1986, a hydroelectric license for such project by the Federal Energy Regulatory Commission, or
"(C) which is a hydroelectric project of less than 80 megawatts that filed an application for a permit, exemption, or license with the Federal Energy Regulatory Commission before March 2, 1986.
"(3)
"(4)
"(A) to property described in section 12(c)(2) (as amended by the Technical and Miscellaneous Revenue Act of 1988), 31(g)(5), or 31(g)(17)(J) of the Tax Reform Act of 1984 [sections 12(c)(2) and 31(g)(5), (17)(J) of
"(B) to property described in section 209(d)(1)(B) of the Tax Equity and Fiscal Responsibility Act of 1982, as amended by the Tax Reform Act of 1984 [section 209(d)(1)(B) of
"(C) to property described in section 216(b)(3) of the Tax Equity and Fiscal Responsibility Act of 1982 [section 216(b)(3) of
"(5)
"(A) A project is described in this subparagraph if—
"(i) the project involves production platforms for offshore drilling, oil and gas pipeline to shore, process and storage facilities, and a marine terminal, and
"(ii) at least $900,000,000 of the costs of such project were incurred before September 26, 1985.
"(B) A project is described in this subparagraph if—
"(i) such project involves a fiber optic network of at least 20,000 miles, and
"(ii) before September 26, 1985, construction commenced pursuant to the master plan and at least $85,000,000 was spent on construction.
"(C) A project is described in this subparagraph if—
"(i) such project passes through at least 10 States and involves intercity communication links (including one or more repeater sites, terminals and junction stations for microwave transmissions, regenerators or fiber optics and other related equipment),
"(ii) the lesser of $150,000,000 or 5 percent of the total project cost has been expended, incurred, or committed before March 2, 1986, by one or more taxpayers each of which is a member of the same affiliated group (as defined in section 1504(a) [of the Internal Revenue Code of 1986]), and
"(iii) such project consists of a comprehensive plan for meeting network capacity requirements as encompassed within either:
"(I) a November 5, 1985, presentation made to and accepted by the Chairman of the Board and the president of the taxpayer, or
"(II) the approvals by the Board of Directors of the parent company of the taxpayer on May 3, 1985, and September 22, 1985, and of the executive committee of said board on December 23, 1985.
"(D) A project is described in this subparagraph if—
"(i) such project is part of a flat rolled product modernization plan which was initially presented to the Board of Directors of the taxpayer on July 8, 1983,
"(ii) such program will be carried out at 3 locations, and
"(iii) such project will involve a total estimated minimum capital cost of at least $250,000,000.
"(E) A project is described in this subparagraph if the project is being carried out by a corporation engaged in the production of paint, chemicals, fiberglass, and glass, and if—
"(i) the project includes a production line which applies a thin coating to glass in the manufacture of energy efficient residential products, if approved by the management committee of the corporation on January 29, 1986,
"(ii) the project is a turbogenerator which was approved by the president of such corporation and at least $1,000,000 of the cost of which was incurred or committed before such date,
"(iii) the project is a waste-to-energy disposal system which was initially approved by the management committee of the corporation on March 29, 1982, and at least $5,000,000 of the cost of which was incurred before September 26, 1985,
"(iv) the project, which involves the expansion of an existing service facility and the addition of new lab facilities needed to accommodate topcoat and undercoat production needs of a nearby automotive assembly plant, was approved by the corporation's management committee on March 5, 1986, or
"(v) the project is part of a facility to consolidate and modernize the silica production of such corporation and the project was approved by the president of such corporation on August 19, 1985.
"(F) A project is described in this subparagraph if—
"(i) such project involves a port terminal and oil pipeline extending generally from the area of Los Angeles, California, to the area of Midland, Texas, and
"(ii) before September 26, 1985, there is a binding contract for dredging and channeling with respect thereto and a management contract with a construction manager for such project.
"(G) A project is described in this subparagraph if—
"(i) the project is a newspaper printing and distribution plant project with respect to which a contract for the purchase of 8 printing press units and related equipment to be installed in a single press line was entered into on January 8, 1985, and
"(ii) the contract price for such units and equipment represents at least 50 percent of the total cost of such project.
"(H) A project is described in this subparagraph if it is the second phase of a project involving direct current transmission lines spanning approximately 190 miles from the United States-Canadian border to Ayer, Massachusetts, alternating current transmission lines in Massachusetts from Ayers to Millbury to West Medway, DC–AC converted terminals to Monroe, New Hampshire, and Ayer, Massachusetts, and other related equipment and facilities.
"(I) A project is described in this subparagraph if it involves not more than two natural gas-fired combined cycle electric generating units each having a net electrical capability of approximately 233 megawatts, and a sales contract for approximately one-half of the output of the 1st unit was entered into in December 1985.
"(J) A project is described in this subparagraph if—
"(i) the project involves an automobile manufacturing facility (including equipment and incidental appurtenances) to be located in the United States, and
"(ii) either—
"(I) the project was the subject of a memorandum of understanding between 2 automobile manufacturers that was signed before September 25, 1985, the automobile manufacturing facility (including equipment and incidental appurtenances) will involve a total estimated cost of approximately $750,000,000, and will have an annual production capacity of approximately 240,000 vehicles or
"(II) the Board of Directors of an automobile manufacturer approved a written plan for the conversion of existing facilities to produce new models of a vehicle not currently produced in the United States, such facilities will be placed in service by July 1, 1987, and such Board action occurred in July 1985 with respect to a $602,000,000 expenditure, a $438,000,000 expenditure, and a $321,000,000 expenditure.
"(K) A project is described in this subparagraph if—
"(i) the project involves a joint venture between a utility company and a paper company for a supercalendered paper mill, and at least $50,000,000 was incurred or committed with respect to such project before March 1, 1986, or
"(ii) the project involves a paper mill for the manufacture of newsprint (including a cogeneration facility) is generally based on a written design and feasibility study that was completed on December 15, 1981, and will be placed in service before January 1, 1991, or
"(iii) the project is undertaken by a Maine corporation and involves the modernization of pulp and paper mills in Millinocket and/or East Millinocket, Maine, or
"(iv) the project involves the installation of a paper machine for production of coated publication papers, the modernization of a pulp mill, and the installation of machinery and equipment with respect to related processes, as of December 31, 1985, in excess of $50,000,000 was incurred for the project, as of July 1986, in excess of $150,000,000 was incurred for the project, and the project is located in Pine Bluff, Arkansas, or
"(v) the project involves property of a type described in ADR classes 26.1, 26.2, 25, 00.3 and 00.4 included in a paper plant which will manufacture and distribute tissue, towel or napkin products; is located in Effingham County, Georgia; and is generally based upon a written General Description which was submitted to the Georgia Department of Revenue on or about June 13, 1985.
"(L) A project is described in this subparagraph if—
"(i) a letter of intent with respect to such project was executed on June 4, 1985, and
"(ii) a 5-percent downpayment was made in connection with such project for 2 10-unit press lines and related equipment.
"(M) A project is described in this subparagraph if—
"(i) the project involves the retrofit of ammonia plants,
"(ii) as of March 1, 1986, more than $390,000 had been expended for engineering and equipment, and
"(iii) more than $170,000 was expensed in 1985 as a portion of preliminary engineering expense.
"(N) A project is described in this subparagraph if the project involves bulkhead intermodal flat cars which are placed in service before January 1, 1987, and either—
"(i) more than $2,290,000 of expenditures were made before March 1, 1986, with respect to a project involving up to 300 platforms, or
"(ii) more than $95,000 of expenditures were made before March 1, 1986, with respect to a project involving up to 850 platforms.
"(O) A project is described in this subparagraph if—
"(i) the project involves the production and transportation of oil and gas from a well located north of the Arctic Circle, and
"(ii) more than $200,000,000 of cost had been incurred or committed before September 26, 1985.
"(P) A project is described in this subparagraph if—
"(i) a commitment letter was entered into with a financial institution on January 23, 1986, for the financing of the project,
"(ii) the project involves intercity communication links (including microwave and fiber optics communications systems and related property),
"(iii) the project consists of communications links between—
"(I) Omaha, Nebraska, and Council Bluffs, Iowa,
"(II) Waterloo, Iowa and Sioux City, Iowa,
"(III) Davenport, Iowa and Springfield, Illinois, and
"(iv) the estimated cost of such project is approximately $13,000,000.
"(Q) A project is described in this subparagraph if—
"(i) such project is a mining modernization project involving mining, transport, and milling operations,
"(ii) before September 26, 1985, at least $20,000,000 was expended for engineering studies which were approved by the Board of Directors of the taxpayer on January 27, 1983, and
"(iii) such project will involve a total estimated minimum cost of $350,000,000.
"(R) A project is described in this subparagraph if—
"(i) such project is a dragline acquired in connection with a 3-stage program which began in 1980 to increase production from a coal mine,
"(ii) at least $35,000,000 was spent before September 26, 1985, on the 1st 2 stages of the program, and
"(iii) at least $4,000,000 was spent to prepare the mine site for the dragline.
"(S) A project is described in this subparagraph if—it is a project consisting of a mineral processing facility using a heap leaching system (including waste dumps, low-grade dumps, a leaching area, and mine roads) and if—
"(i) convertible subordinated debentures were issued in August 1985, to finance the project,
"(ii) construction of the project was authorized by the Board of Directors of the taxpayer on or before December 31, 1985,
"(iii) at least $750,000 was paid or incurred with respect to the project on or before December 31, 1985, and
"(iv) the project is placed in service on or before December 31, 1986.
"(T) A project is described in this subparagraph if it is a plant facility on Alaska's North Slope which is placed in service before January 1, 1988, and—
"(i) the approximate cost of which is $675,000,000, of which approximately $400,000,000 was spent on off-site construction,
"(ii) the approximate cost of which is $445,000,000, of which approximately $400,000,000 was spent on off-site construction and more than 50 percent of the project cost was spent prior to December 31, 1985, or
"(iii) the approximate cost of which is $375,000,000, of which approximately $260,000,000 was spent on off-site construction.
"(U) A project is described in this subparagraph if it involves the connecting of existing retail stores in the downtown area of a city to a new covered area, the total project will be 250,000 square feet, a formal Memorandum of Understanding relating to development of the project was executed with the city on July 2, 1986, and the estimated cost of the project is $18,186,424.
"(V) A project is described in this subparagraph if it includes a 200,000 square foot office tower, a 200-room hotel, a 300,000 square foot retail center, an 800-space parking facility, the total cost is projected to be $60,000,000, and $1,250,000 was expended with respect to the site before August 25, 1986.
"(W) A project is described in this subparagraph if it is a joint use and development project including an integrated hotel, convention center, office, related retail facilities and public mass transportation terminal, and vehicle parking facilities which satisfies the following conditions:
"(i) is developed within certain air space rights and upon real property exchanged for such joint use and development project which is owned or acquired by a state department of transportation, a regional mass transit district in a county with a population of at least 5,000,000 and a community redevelopment agency;
"(ii) such project affects an existing, approximately 40 acre public mass transportation bus-way terminal facility located adjacent to an interstate highway;
"(iii) a memorandum of understanding with respect to such joint use and development project is executed by a state department of transportation, such a county regional mass transit district and a community redevelopment agency on or before December 31, 1986, and
"(iv) a major portion of such joint use and development project is placed in service by December 31, 1990.
"(X) A project is described in this subparagraph if—
"(i) it is an $8,000,000 project to provide advanced control technology for adipic acid at a plant, which was authorized by the company's Board of Directors in October 1985, at December 31, 1985, $1,400,000 was committed and $400,000 expended with respect to such project, or
"(ii) it is an $8,300,000 project to achieve compliance with State and Federal regulations for particulates emissions, which was authorized by the company's Board of Directors in December 1985, by March 31, 1986, $250,000 was committed and $250,000 was expended with respect to such project, or
"(iii) it is a $22,000,000 project for the retrofit of a plant that makes a raw material for aspartame, which was approved in the company's December 1985 capital budget, if approximately $3,000,000 of the $22,000,000 was spent before August 1, 1986.
"(Y) A project is described in this subparagraph if such project passes through at least 9 States and involves an intercity communication link (including multiple repeater sites and junction stations for microwave transmissions and amplifiers for fiber optics); the link from Buffalo to New York/Elizabeth was completed in 1984; the link from Buffalo to Chicago was completed in 1985; and the link from New York to Washington is completed in 1986.
"(Z) A project is described in this subparagraph if—
"(i) such project involves a fiber optic network of at least 475 miles, passing through Minnesota and Wisconsin; and
"(ii) before January 1, 1986, at least $15,000,000 was expended or committed for electronic equipment or fiber optic cable to be used in constructing the network.
"(6)
"(A) 3 applications for the construction of such pipeline were filed with the Federal Energy Regulatory Commission before November 22, 1985 (and 2 of which were filed before September 26, 1985), and
"(B) such pipeline has 1 of its terminal points near Bakersfield, California.
"(7)
"(A) the lessee or an affiliate is the original lessee of each building in which such property is to be used,
"(B) such lessee is obligated to lease the building under an agreement to lease entered into before September 26, 1985, and such property is provided for such building, and
"(C) such buildings are to serve as world headquarters of the lessee and its affiliates.
For purposes of this paragraph, a corporation is an affiliate of another corporation if both corporations are members of a controlled group of corporations within the meaning of section 1563(a) of the Internal Revenue Code of 1954 without regard to section 1563(b)(2) of such Code. Such lessee shall include a securities firm that meets the requirements of subparagraph (A), except the lessee is obligated to lease the building under a lease entered into on June 18, 1986.
"(8)
"(A) there is a binding written contract between a service recipient and a service provider with respect to the operation of such facility to pay for the services to be provided by such facility,
"(B) a service recipient or governmental unit (or any entity related to such recipient or unit) made a financial commitment of at least $200,000 for the financing or construction of such facility,
"(C) such facility is the Tri-Cities Solid Waste Recovery Project involving Fremont, Newark, and Union City, California, and has received an authority to construct from the Environmental Protection Agency or from a State or local agency authorized by the Environmental Protection Agency to issue air quality permits under the Clean Air Act [
"(D) a bond volume carryforward election was made for the facility and the facility is for Chattanooga, Knoxville, or Kingsport, Tennessee, or
"(E) such facility is to serve Haverhill, Massachusetts.
"(9)
"(10)
"(A) site preparation for such facility commenced before September 1985, and a parish council approved a service agreement with respect to such facility on December 4, 1985;
"(B) a city-parish advertised in September 1985, for bids for construction of secondary treatment improvements for such facility, in May 1985, the city-parish received statements from 16 firms interested in privatizing the wastewater treatment facilities, and the metropolitan council selected a privatizer at its meeting on November 20, 1985, and adopted a resolution authorizing the Mayor to enter into contractual negotiation with the selected privatizer;
"(C) the property is part of a wastewater treatment facility serving Greenville, South Carolina with respect to which a binding service agreement between a privatizer and the Western Carolina Regional Sewer Authority with respect to such facility was signed before January 1, 1986; or
"(D) such property is part of a wastewater treatment facility (located in Cameron County, Texas, within one mile of the City of Harlingen), an application for a wastewater discharge permit was filed with respect to such facility on December 4, 1985, and a City Commission approved a letter of intent relating to a service agreement with respect to such facility on August 7, 1986; or a wastewater facility (located in Harlingen, Texas) which is a subject of such letter of intent and service agreement and the design of which was contracted for in a letter of intent dated January 23, 1986.
"(11)
"(A) the aircraft is manufactured in the United States. For purposes of this subparagraph, an aircraft is 'manufactured' at the point of its final assembly,
"(B) the aircraft was in inventory or in the planned production schedule of the final assembly manufacturer, with orders placed for the engine(s) on or before August 16, 1986, and
"(C) the aircraft is purchased or subject to a binding contract on or before December 31, 1986, and is delivered and placed in service by the purchaser, before July 1, 1987.
"(12)
"(A) on or before January 28, 1986, there was a binding contract to construct or acquire a satellite, and
"(i) an agreement to launch was in existence on that date, or
"(ii) on or before August 5, 1983, the Federal Communications Commission had authorized the construction and for which the authorized party has a specific although undesignated agreement to launch in existence on January 28, 1986;
"(B) by order adopted on July 25, 1985, the Federal Communications Commission granted the taxpayer an orbital slot and authorized the taxpayer to launch and operate 2 satellites with a cost of approximately $300,000,000; or
"(C) the International Telecommunications Satellite Organization or the International Maritime Satellite Organization entered into written binding contracts before May 1, 1985.
"(13)
"(14)
"(A) at least $100,000 was paid or incurred with respect to the project before March 1, 1986, a memorandum of understanding was executed on September 13, 1985, and the project is placed in service before January 1, 1989,
"(B) at least $500,000 was paid or incurred with respect to the projects before May 6, 1986, the projects involve a 22-megawatt combined cycle gas turbine plant and a 45-megawatt coal waste plant, and applications for qualifying facility status were filed with the Federal Energy Regulatory Commission on March 5, 1986,
"(C) the project cost approximates $125,000,000 to $140,000,000 and an application was made to the Federal Energy Regulatory Commission in July 1985,
"(D) an inducement resolution for such facility was adopted on September 10, 1985, a development authority was given an inducement date of September 10, 1985, for a loan not to exceed $80,000,000 with respect to such facility, and such facility is expected to have a capacity of approximately 30 megawatts of electric power and 70,000 pounds of steam per hour,
"(E) at least $1,000,000 was incurred with respect to the project before May 6, 1986, the project involves a 52-megawatt combined cycle gas turbine plant and a petition was filed with the Connecticut Department of Public Utility Control to approve a power sales agreement with respect to the project on March 27, 1986,
"(F) the project has a planned scheduled capacity of approximately 38,000 kilowatts, the project property is placed in service before January 1, 1991, and the project is operated, established, or constructed pursuant to certain agreements, the negotiation of which began before 1986, with public or municipal utilities conducting business in Massachusetts, or
"(G) the Board of Regents of Oklahoma State University took official action on July 25, 1986, with respect to the project.
In the case of the project described in subparagraph (F), section 203(b)(2)(A) shall be applied by substituting 'January 1, 1991' for 'January 1, 1989'.
"(15)
"(A) a tax-exempt entity will own an equity interest in all property included in the project (except the coal mine equipment), and
"(B) at least $72,000,000 was expended in the acquisition of coal leases, land and water rights, engineering studies, and other development costs before May 6, 1986.
For purposes of this paragraph, section 203(b)(2) shall be applied by substituting 'January 1, 1996' for 'January 1, 1991' each place it appears.
"(16)
"(A)
"(B)
"(17)
"(18)
"(A) the Board of Directors of an electric power cooperation authorized the investigation of a sale leaseback of a nuclear generation facility by resolution dated January 22, 1985, and
"(B) a loan was extended by the Rural Electrification Administration on February 20, 1986, which contained a covenant with respect to used property leasing from unit II.
"(19)
"(A) The amendments made by section 201 shall not apply to a light rail transit system, the approximate cost of which is $235,000,000, if, with respect to which, the board of directors of a corporation (formed in September 1984 for the purpose of developing, financing, and operating the system) authorized a $300,000 expenditure for a feasibility study in April 1985.
"(B) The amendments made by section 201 shall not apply to any project for rehabilitation of regional railroad rights of way and properties including grade crossings which was authorized by the Board of Directors of such company prior to October 1985; and/or was modified, altered or enlarged as a result of termination of company contracts, but approved by said Board of Directors no later than January 30, 1986, and which is in the public interest, and which is subject to binding contracts or substantive commitments by December 31, 1987.
"(20)
"(21)
"(22) The amendments made by section 201 shall not apply to a computer and office support center building in Minneapolis, with respect to which the first contract, with an architecture firm, was signed on April 30, 1985, and a construction contract was signed on March 12, 1986.
"(23)
"(24)
"(A)
"(B)
"(i) the estimated cost of reconstruction is approximately $39,000,000;
"(ii) reconstruction was commenced prior to December 1, 1985;
"(iii) at least $17,000,000 was expended before December 31, 1985; and
"(C)
"(D) The amendments made by section 201 shall not apply to a 562-foot passenger cruise ship, which was purchased in 1980 for the purpose of returning the vessel to United States service, the approximate cost of refurbishment of which is approximately $47,000,000.
"(E) The amendments made by section 201 shall not apply to the Muskegon, Michigan, Cross-Lake Ferry project having a projected cost of approximately $7,200,000.
"(F) The amendments made by section 201 shall not apply to a new automobile carrier vessel, the contract price for which is no greater than $28,000,000, and which will be constructed for and placed in service by OSG Car Carriers, Inc., to transport, under the United States flag and with an American crew, foreign automobiles to North America in a case where negotiations for such transportation arrangements commenced in 1985, and definitive transportation contracts were awarded before June 1986.
"(25)
"(A) a 26.5 megawatt plant in Fresno, California, and
"(B) a 26.5 megawatt plant in Rocklin, California.
"(26) The amendments made by section 201 shall not apply to property which is a geothermal project of less than 20 megawatts that was certified by the Federal Energy Regulatory Commission on July 14, 1986, as a qualifying small power production facility for purposes of the Public Utility Regulatory Policies Act of 1978 [see Short Title note set out under
"(27)
"(A) A mixed use development on the East River the total cost of which is approximately $400,000,000, with respect to which a letter of intent was executed on January 24, 1984, and with respect to which approximately $2.5 million had been spent by March 1, 1986.
"(B) A 356-room hotel, banquet, and conference facility (including 540,000 square feet of office space) the approximate cost of which is $158,000,000, with respect to which a letter of intent was executed on June 1, 1984, and with respect to which an inducement resolution and bond resolution was adopted on August 20, 1985.
"(C) Phase 1 of a 4-phase project involving the construction of laboratory space and ground-floor retail space the estimated cost of which is $22,000,000 and with respect to which a memoradum [sic] of understanding was made on August 29, 1983.
"(D) A project involving the development of a 490,000 square foot mixed-use building at 152 W. 57th Street, New York, New York, the estimated cost of which is $100,000,000, and with respect to which a building permit application was filed in May 1986.
"(E) A mixed-use project containing a 300 unit, 12-story hotel, garage, two multi-rise office buildings, and also included a park, renovated riverboat, and barge with festival marketplace, the capital outlays for which approximate $68,000,000.
"(F) The construction of a three-story office building that will serve as the home office for an insurance group and its affiliated companies, with respect to which a city agreed to transfer its ownership of the land for the project in a Redevelopment Agreement executed on September 18, 1985, once certain conditions are met.
"(G) A commercial bank formed under the laws of the State of New York which entered into an agreement on September 5, 1985, to construct its headquarters at 60 Wall Street, New York, New York, with respect to such headquarters.
"(H) Any property which is part of a commercial and residential project, the first phase of which is currently under construction, to be developed on land which is the subject of an ordinance passed on July 20, 1981, by the city council of the city in which such land is located, designating such land and the improvements to be placed thereon as a residential-business planned development, which development is being financed in part by the proceeds of industrial development bonds in the amount of $62,600,000 issued on December 4, 1985.
"(I) A 600,000 square foot mixed use building known as Flushing Center with respect to which a letter of intent was executed on March 26, 1986.
In the case of the building described in subparagraph (I), section 203(b)(2)(A) shall be applied by substituting 'January 1, 1993' for the applicable date which would otherwise apply.
"(28) The amendments made by section 201 shall not apply to an $80,000,000 capital project steel seamless tubular casings minimill and melting facility located in Youngstown, Ohio, which was purchased by the taxpayer in April 1985, and—
"(A) the purchase and renovation of which was approved by a committee of the Board of Directors on February 22, 1985, and
"(B) as of December 31, 1985, more than $20,000,000 was incurred or committed with respect to the renovation.
"(29) The amendments made by section 201 shall not apply to any project for residential rental property if—
"(A) an inducement resolution with respect to such project was adopted by the State housing development authority on January 25, 1985, and
"(B) such project was the subject of a law suit filed on October 25, 1985.
"(30) The amendments made by section 201 shall not apply to a 30 megawatt electric generating facility fueled by geothermal and wood waste, the approximate cost of which is $55,000,000, and with respect to which a 30-year power sales contract was executed on March 22, 1985.
"(31) The amendments made by section 201 shall not apply to railroad maintenance-of-way equipment, with respect to which a Boston bank entered into a firm binding contract with a major northeastern railroad before March 2, 1986, to finance $10,500,000 of such equipment, if all of the equipment was placed in service before August 1, 1986.
"(32) The amendment made by section 201 shall not apply to—
"(A) a facility constructed on approximately seven acres of land located on Ogle's Poso Creek Oil field, the primary fuel of which will be bituminous coal from Utah or Wyoming, with respect to which an application for an authority to construct was filed on December 26, 1985, an authority to construct was issued on July 2, 1986, and a prevention of significant deterioration permit application was submitted in May 1985,
"(B) a facility constructed on approximately seven acres of land located on Teorco's Jasmin oil field, the primary fuel of which will be bituminous coal from Utah or Wyoming, with respect to which an authority to construct was filed on December 26, 1985, an authority to construct was issued on July 2, 1986, and a prevention of significant deterioration permit application was submitted in July 1985,
"(C) the Mountain View Apartments, in Hadley, Massachusetts,
"(D) a facility expected to have a capacity of not less than 65 megawatts of electricity, the steam from which is to be sold to a pulp and paper mill, with respect to which application was made to the Federal Regulatory Commission for certification as a qualified facility on November 1, 1985, and received such certification on January 24, 1986,
"(E) $5,000,000 of equipment ordered in 1986, in connection with a 60,000 square foot plant in Masontown, Pennsylvania, that was completed in 1983,
"(F) a magnetic resonance imaging machine, with respect to which a binding contract to purchase was entered into in April 1986, in connection with the construction of a magnetic resonance imaging clinic with respect to which a Determination of Need certification was obtained from a State Department of Public Health on October 22, 1985, if such property is placed in service before December 31, 1986,
"(G) a company located in Salina, Kansas, which has been engaged in the construction of highways and city streets since 1946, but only to the extent of $1,410,000 of investment in new section 38 property,
"(H) a $300,000 project undertaken by a small metal finishing company located in Minneapolis, Minnesota, the first parts of which were received and paid for in January 1986, with respect to which the company received Board approval to purchase the largest piece of machinery it has ever ordered in 1985,
"(I) A $1,200,000 finishing machine that was purchased on April 2, 1986 and placed into service in September 1986 by a company located in Davenport, Iowa,
"(J) A 25 megawatt small power production facility, with respect to which Qualifying Facility status numbered QF86–593–000 was granted on March 5, 1986,
"(K) A 250 megawatt coal-fired electric plant in northeastern Nevada estimated to cost $600,000,000 and known as the Thousand Springs project, on which the Sierra Pacific Power Company, a subsidiary of Sierra Pacific Resources, began in 1980 work to design, finance, construct, and operate (and section 203(b)(2) shall be applied with respect to such plant by substituting 'January 1, 1995' for 'January 1, 1991'),
"(L) 128 units of rental housing in connection with the Point Gloria Limited Partnership,
"(M) property which is part of the Kenosha Downtown Redevelopment Project and which is financed with the proceeds of bonds issued pursuant to section 1317(6)(W) [set out as a note under
"(N) Lakeland Park Phase II, in Baton Rouge, Louisiana,
"(O) the Santa Rosa Hotel, in Pensacola, Florida,
"(P) the Sheraton Baton Rouge, in Baton Rouge, Louisiana,
"(Q) $300,000 of equipment placed in service in 1986, in connection with the renovation of the Best Western Townhouse Convention Center in Cedar Rapids, Iowa,
"(R) the segment of a nationwide fiber optics telecommunications network placed in service by SouthernNet, the total estimated cost of which is $37,000,000,
"(S) two cogeneration facilities, to be placed in service by the Reading Anthracite Coal Company (or any subsidiary thereof), costing approximately $110,000,000 each, with respect to which filings were made with the Federal Energy Regulatory Commission by December 31, 1985, and which are located in Pennsylvania,
"(T) a portion of a fiber optics network placed in service by LDX NET after December 31, 1988, but only to the extent the cost of such portion does not exceed $25,000,000,
"(U) 3 newly constructed fishing vessels, and one vessel that is overhauled, constructed by Mid Coast Marine, but only to the extent of $6,700,000 of investment,
"(V) $350,000 of equipment acquired in connection with the reopening of a plant in Bristol, Rhode Island, which plant was purchased by Buttonwoods, Ltd., Associates on February 7, 1986,
"(W) $4,046,000 of equipment placed in service by Brendle's Incorporated, acquired in connection with a Distribution Center,
"(X) a multi-family mixed-use housing project located in a home rule city, the zoning for which was changed to residential business planned development on November 26, 1985, and with respect to which both the home rule city on December 4, 1985, and the State housing finance agency on December 20, 1985, adopted inducement resolutions,
"(Y) the Myrtle Beach Convention Center, in South Carolina, to the extent of $25,000,000 of investment, and
"(Z) railroad cars placed in service by the Pullman Leasing Company, pursuant to an April 3, 1986 purchase order, costing approximately $10,000,000.
"(33) The amendments made by section 201 [amending this section and
"(A) $400,000 of equipment placed in service by Super Key Market, if such equipment is placed in service before January 1, 1987,
"(B) the Trolley Square project, the total project cost of which is $24,500,000, and the amount of depreciable real property of which is $14,700,000.
"(C)(i) a waste-to-energy project in Derry, New Hampshire, costing approximately $60,000,000, and
"(ii) a waste-to-energy project in Manchester, New Hampshire, costing approximately $60,000,000,
"(D) the City of Los Angeles Co-composting project, the estimated cost of which is $62,000,000, with respect to which, on July 17, 1985, the California Pollution Control Financing Authority issued an initial resolution in the maximum amount of $75,000,000 to finance this project,
"(E) the St. Charles, Missouri Mixed-Use Center,
"(F) Oxford Place in Tulsa, Oklahoma,
"(G) an amount of investment generating $20,000,000 of investment tax credits attributable to property used on the Illinois Diversatech Campus,
"(H) $25,000,000 of equipment used in the Melrose Park Engine Plant that is sold and leased back by Navistar,
"(I) 80,000 vending machines, for a cost approximating $3,400,000 placed into service by Folz Vending Co.,
"(J) A 25.85 megawatt alternative energy facility located in Deblois, Maine, with respect to which certification by the Federal Energy Regulatory Commission was made on April 3, 1986,
"(K) Burbank Manors, in Illinois, and
"(L) a cogeneration facility to be built at a paper company in Turners Falls, Massachusetts, with respect to which a letter of intent was executed on behalf of the paper company on September 26, 1985.
"(40) [Par. (40) probably should follow par. (39).]
"(34) The amendments made by section 201 shall not apply to an approximately 240,000 square foot beverage container manufacturing plant located in Batesville, Mississippi, or plant equipment used exclusively on the plant premises if—
"(A) a 2-year supply contract was signed by the taxpayer and a customer on November 1, 1985,
"(B) such contract further obligated the customer to purchase beverage containers for an additional 5-year period if physical signs of construction of the plant are present before September 1986,
"(C) ground clearing for such plant began before August 1986, and
"(D) construction is completed, the equipment is installed, and operations are commenced before July 1, 1987.
"(35) The amendments made by section 201 shall not apply to any property which is part of the multifamily housing at the Columbia Point Project in Boston, Massachusetts. A project shall be treated as not described in the preceding sentence and as not described in section 252(f)(1)(D) [set out as a note under
"(36) The amendments made by section 201 shall not apply to any ethanol facility located in Blair, Nebraska, if—
"(A) in July of 1984 an initial binding construction contract was entered into for such facility,
"(B) in June of 1986, certain Department of Energy recommended contract changes required a change of contractor, and
"(C) in September of 1986, a new contract to construct such facility, consistent with such recommended changes, was entered into.
"(37) The amendments made by section 201 shall not apply to any property which is part of a sewage treatment facility if, prior to January 1, 1986, the City of Conyers, Georgia, selected a privatizer to construct such facility, received a guaranteed maximum price bid for the construction of such facility, signed a letter of intent and began substantial negotiations of a service agreement with respect to such facility.
"(38) The amendments made by section 201 shall not apply to—
"(A) a $28,000,000 wood resource complex for which construction was authorized by the Board of Directors on August 9, 1985,
"(B) an electrical cogeneration plant in Bethel, Maine which is to generate 2 megawatts of electricity from the burning of wood residues, with respect to which a contract was entered into on July 10, 1984, and with respect to which $200,000 of the expected $2,000,000 cost had been committed before June 15, 1986,
"(C) a mixed income housing project in Portland, Maine which is known as the Back Bay Tower and which is expected to cost $17,300,000,
"(D) the Eastman Place project and office building in Rochester, New York, which is projected to cost $20,000,000, with respect to which an inducement resolution was adopted in December 1986, and for which a binding contract of $500,000 was entered into on April 30, 1986,
"(E) the Marquis Two project in Atlanta, Georgia which has a total budget of $72,000,000 and the construction phase of which began under a contract entered into on March 26, 1986,
"(F) a 166-unit continuing care retirement center in New Orleans, Louisiana, the construction contract for which was signed on February 12, 1986, and is for a maximum amount not to exceed $8,500,000,
"(G) the expansion of the capacity of an oil refining facility in Rosemont, Minnesota from 137,000 to 207,000 barrels per day which is expected to be completed by December 31, 1990, and
"(H) a project in Ransom, Pennsylvania which will burn coal waste (known as 'culm') with an approximate cost of $64,000,000 and for which a certification from the Federal Energy Regulatory Commission was received on March 11, 1986.
"(39) The amendments made by section 201 shall not apply to any facility for the manufacture of an improved particle board if a binding contract to purchase such equipment was executed March 3, 1986, such equipment will be placed in service by January 1, 1988, and such facility is located in or near Moncure, North Carolina.
"(b)
"(c)
"(1) Section 203(b)(2) shall be applied by substituting 'January 1, 1992' for 'January 1, 1991' in the following cases.
"(A) in the case of a 2-unit nuclear powered electric generating plant (and equipment and incidental appurtenances), located in Pennsylvania and constructed pursuant to contracts entered into by the owner operator of the facility before December 31, 1975, including contracts with the engineer/constructor and the nuclear steam system supplier, such contracts shall be treated as contracts described in section 203(b)(1)(A),
"(B) a cogeneration facility with respect to which an application with the Federal Energy Regulatory Commission was filed on August 2, 1985, and approved October 15, 1985.
"(C) in the case of a 1,300 megawatt coal-fired steam powered electric generating plant (and related equipment and incidental appurtenances), which the three owners determined in 1984 to convert from nuclear power to coal power and for which more than $600,000,000 had been incurred or committed for construction before September 25, 1985, except that no investment tax credit will be allowable under section 49(d)(3) added by section 211(a) of this Act [
"(2) Section 203(b)(2) shall be applied by substituting 'April 1, 1992' for the applicable date that would otherwise apply, in the case of the second unit of a twin steam electric generating facility and related equipment which was granted a certificate of public convenience and necessity by a public service commission prior to January 1, 1982, if the first unit of the facility was placed in service prior to January 1, 1985, and before September 26, 1985, more than $100,000,000 had been expended toward the construction of the second unit.
"(3) Section 203(b)(2) shall be applied by substituting 'January 1, 1990,' (or, in the case of a project described in subparagraph (B), by substituting 'April 1, 1992') for the applicable date that would otherwise apply in the case of—
"(A) new commercial passenger aircraft used by a domestic airline, if a binding contract with respect to such aircraft was entered into on or before April 1, 1986, and such aircraft has a present class life of 12 years,
"(B) a pumped storage hydroelectric project with respect to which an application was made to the Federal Energy Regulatory Commission for a license on February 4, 1974, and license was issued August 1, 1977, the project number of which is 2740, and
"(C) a newsprint mill in Pend Oreille county, Washington, costing about $290,000,000.
In the case of an aircraft described in subparagraph (A), section 203(b)(1)(A) shall be applied by substituting 'April 1, 1986' for 'March 1, 1986' and section 49(e)(1)(B) of the Internal Revenue Code of 1986 shall not apply.
"(4) The amendments made by section 201 [amending this section and
"(A) Arena project, Michigan, but only with respect to $78,000,000 of investments.
"(B) Campbell Soup Company, Pennsylvania, California, North Carolina, Ohio, Maryland, Florida, Nebraska, Michigan, South Carolina, Texas, New Jersey, and Delaware, but only with respect to $9,329,000 of regular investment tax credits.
"(C) The Southeast Overtown/Park West development, Florida, but only with respect to $200,000,000 of investments.
"(D) Equipment placed in service and operated by Leggett and Platt before July 1, 1987, but only with respect to $2,000,000 of regular investment tax credits, and subsections (c) and (d) of section 49 of the Internal Revenue Code of 1986 shall not apply to such equipment.
"(E) East Bank Housing Project.
"(F) $1,561,215 of investments by Standard Telephone Company.
"(G) Five aircraft placed in service before January 1, 1987, by Presidential Air.
"(H) A rehabilitation project by Ann Arbor Railroad, but only with respect to $2,900,000 of investments.
"(I) Property that is part of a cogeneration project located in Ada, Michigan, but only with respect to $30,000,000 of investments.
"(J) Anchor Store Project, Michigan, but only with respect to $21,000,000 of investments.
"(K) A waste-fired electrical generating facility of Biogen Power, but only with respect to $34,000,000 of investments.
"(L) $14,000,000 of television transmitting towers placed in service by Media General, Inc., which were subject to binding contracts as of January 21, 1986, and will be placed in service before January 1, 1988,
"(M) Interests of Samuel A. Hardage (whether owned individually or in partnership form).
"(N) Two aircraft of Mesa Airlines with an aggregate cost of $5,723,484.
"(O) Yarn-spinning equipment used at Spray Cotton Mills, but only with respect to $3,000,000 of investments.
"(P) 328 units of low-income housing at Angelus Plaza, but only with respect to $20,500,000 of investments.
"(Q) One aircraft of Continental Aviation Services with a cost of approximately $15,000,000 that was purchased pursuant to a contract entered into during March of 1983 and that is placed in service by December 31, 1988.
"(d)
"(1)
"(2)
"(3)
"(e)
"(1)
"(A) shall not apply to any property placed in service during 1987 or 1988, or
"(B) shall apply to any property placed in service during 1985 or 1986,
which is property to replace property lost, damaged, or destroyed in such disaster.
"(2)
Amendment by section 201(a) of
Amendment by sections 1802(a)(1)–(2)(D), (G), (3), (4)(A), (B), (7), (b)(1), 1809(a)(1)–(2)(B), (4)(A), (B) of
"(I) Except as otherwise provided in this clause, the amendment made by clause (i) [amending this section] shall apply to property placed in service after September 27, 1985; except that such amendment shall not apply to any property acquired pursuant to a binding written contract in effect on such date (and at all times thereafter).
"(II) If an election under this subclause is made with respect to any property, the amendment made by clause (i) shall apply to such property whether or not placed in service on or before September 27, 1985."
Effective Date of 1985 Amendment
"(1)
"(2)
"(A) the taxpayer or a qualified person entered into a binding contract to purchase or construct such property before May 9, 1985, or
"(B) construction of such property was commenced by or for the taxpayer or a qualified person before May 9, 1985.
For purposes of this paragraph, the term 'qualified person' means any person whose rights in such a contract or such property are transferred to the taxpayer, but only if such property is not placed in service before such rights are transferred to the taxpayer.
"(3)
"(4)
"(5)
Effective Date of 1984 Amendment
Amendment by section 12 of
"(1)
"(A) to property placed in service by the taxpayer after May 23, 1983, in taxable years ending after such date, and
"(B) to property placed in service by the taxpayer on or before May 23, 1983, if the lease to the tax-exempt entity is entered into after May 23, 1983.
"(2)
"(A) a lease entered into on or before May 23, 1983 (or a sublease under such a lease), or
"(B) any renewal or extension of a lease entered into on or before May 23, 1983, if such renewal or extension is pursuant to an option exercisable by the tax-exempt entity which was held by the tax-exempt entity on May 23, 1983.
"(3)
"(A) The amendments made by this section shall not apply with respect to any property leased to a tax-exempt entity if such lease is pursuant to 1 or more written binding contracts which, on May 23, 1983, and at all times thereafter, required—
"(i) the taxpayer (or his predecessor in interest under the contract) to acquire, construct, reconstruct, or rehabilitate such property, and
"(ii) the tax-exempt entity (or a tax-exempt predecessor thereof) to be the lessee of such property.
"(B) Paragraph (9) of section 168(j) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by this section) shall not apply with respect to any property owned by a partnership if—
"(i) such property was acquired by such partnership on or before October 21, 1983, or
"(ii) such partnership entered into a written binding contract which, on October 21, 1983, and at all times thereafter, required the partnership to acquire or construct such property.
"(C) The amendments made by this section shall not apply with respect to any property leased to a tax-exempt entity (other than any foreign person or entity)—
"(i) if—
"(I) on or before May 23, 1983, the taxpayer (or his predecessor in interest under the contract) or the tax-exempt entity entered into a written binding contract to acquire, construct, reconstruct, or rehabilitate such property and such property had not previously been used by the tax-exempt entity, or
"(II) the taxpayer or the tax-exempt entity acquired the property after June 30, 1982, and on or before May 23, 1983, or completed the construction, reconstruction, or rehabilitation of the property after December 31, 1982, and on or before May 23, 1983, and
"(ii) if such lease is pursuant to a written binding contract entered into before January 1, 1985, which requires the tax-exempt entity to be the lessee of such property.
"(4)
"(A)
"(i) on or before November 1, 1983, there was significant official governmental action with respect to the project or its design, and
"(ii) the lease to the tax-exempt entity is pursuant to a written binding contract entered into before January 1, 1985, which requires the tax-exempt entity to be the lessee of the property.
"(B)
"(C)
"(i) such credit union shall not be treated as an agency or instrumentality of the United States; and
"(ii) clause (ii) of subparagraph (A) shall be applied by substituting 'January 1, 1987' for 'January 1, 1985'.
"(D)
"(E)
"(i) on June 16, 1982, the legislative body of the local governmental unit adopted a bond ordinance to provide funds to renovate elevators in a deteriorating building owned by the local governmental unit and listed in the National Register, and
"(ii) the chief executive officer of the local governmental unit, in connection with the renovation of such building, made an application on June 1, 1983, to a State agency for a Federal historic preservation grant and made an application on June 17, 1983, to the Economic Development Administration of the United States Department of Commerce for a grant,
the requirements of clauses (i) and (ii) of subparagraph (A) shall be treated as met.
"(5)
"(A) such vehicle is placed in service before January 1, 1988, or
"(B) such vehicle is placed in service on or after such date—
"(i) pursuant to a binding contract or commitment entered into before April 1, 1983, and
"(ii) solely because of conditions which, as determined by the Secretary of the Treasury or his delegate, are not within the control of the lessor or lessee.
"(6)
"(7)
"(8)
"(A)
"(B)
"(i) on June 15, 1983, the City Council approved a resolution under which the city authorized the procurement of equity investments for such facility, and
"(ii) on July 12, 1983, the Industrial Development Board of the city approved a resolution to issue a $100,000,000 industrial development bond issue to provide funds to purchase such facility.
"(9)
"(10)
"(A) an express appropriation has been made for rentals under such lease for the fiscal year 1983 before May 23, 1983, and
"(B) the United States or an agency or instrumentality thereof has not provided an indemnification against the loss of all or a portion of the tax benefits claimed under the lease or service contract.
"(11)
"(A)
"(B)
"(i) before October 21, 1983, the partnership was organized, a request for exemption with respect to such partnership was filed with the Department of Labor, and a private placement memorandum stating the maximum number of units in the partnership that would be offered had been circulated,
"(ii) the interest in the property to be acquired, directly or indirectly (including through acquiring an interest in another partnership) by such partnership was described in such private placement memorandum, and
"(iii) the marketing of partnership units in such partnership is completed not later than two years after the later of the date of the enactment of this Act [July 18, 1984] or the date of publication in the Federal Register of such exemption by the Department of Labor and the aggregate number of units in such partnership sold does not exceed the amount described in clause (i).
"(C)
"(D)
"(i) before March 6, 1984, the partnership was organized and publicly announced the maximum amount (as shown in the registration statement, prospectus or partnership agreement, whichever is greater) of interests which would be sold in the partnership, and
"(ii) the marketing or partnership interests in such partnership was completed not later than the 90th day after the date of the enactment of this Act [July 18, 1984] and the aggregate amount of interest in such partnership sold does not exceed the maximum amount described in clause (i).
"(12)
"(13)
"(A) such contract or other arrangement if such contract or other arrangement was entered into before November 5, 1983, or
"(B) any renewal or other extension of such contract or other arrangement pursuant to an option contained in such contract or other arrangement on November 5, 1983.
"(14)
"(A) 'November 5, 1983' for 'May 23, 1983' and 'November 1, 1983', as the case may be, and
"(B) 'organization described in section 593 of the Internal Revenue Code of 1986' for 'tax-exempt entity'.
"(15)
"(A)
"(i) is placed in service by the taxpayer before January 1, 1984, and
"(ii) is used by such foreign person or entity pursuant to a lease entered into before January 1, 1984.
"(B)
"(C)
"(i) if—
"(I) on or before May 23, 1983, the taxpayer (or a predecessor in interest under the contract) or the foreign person or entity entered into a written binding contract to acquire, construct, or rehabilitate such property and such property had not previously been used by the foreign person or entity, or
"(II) the taxpayer or the foreign person or entity acquired the property or completed the construction, reconstruction, or rehabilitation of the property after December 31, 1982 and on or before May 23, 1983, and
"(ii) if such lease is pursuant to a written binding contract entered into before January 1, 1984, which requires the foreign person or entity to be the lessee of such property.
"(D)
"(i) on or before November 1, 1983, the foreign person or entity entered into a written binding contract to acquire such aircraft, and
"(ii) such aircraft is originally placed in service by such foreign person or entity (or its successor in interest under the contract) after May 23, 1983, and before January 1, 1986.
"(E)
"(16)
"(A)
"(B)
"(i)
"(ii)
"(I) shall be the amount of tax which would be imposed by section 11 of such Code if the exempt arbitrage profits were taxable income (and there were no other taxable income), and
"(II) shall be imposed for the first taxable year of the tax-exempt use period (as defined in section 168(j)(4)(E)(ii) of such Code).
"(C)
"(i)
"(I) associated with property described in section 168(j)(4)(E)(i), and
"(II) issued before January 1, 1985.
"(ii)
"(D)
"(i)
"(ii)
"(I) part VI of subchapter A of
"(II) determining the amount of any credit allowable under subpart A of part IV of such subchapter.
"(E)
"(i) shall be made at such time and in such manner as the Secretary may prescribe,
"(ii) shall apply to any successor organization which is engaged in substantially similar activities, and
"(iii) once made, shall be irrevocable.
"(17)
"(A) Property is described in this subparagraph if such property is leased to a university, and—
"(i) on June 16, 1983, the Board of Administrators of the university adopted a resolution approving the rehabilitation of the property in connection with an overall campus development program; and
"(ii) the property houses a basketball arena and university offices.
"(B) Property is described in this subparagraph if such property is leased to a charitable organization, and—
"(i) on August 21, 1981, the charitable organization acquired the property, with a view towards rehabilitating the property; and
"(ii) on June 12, 1982, an arson fire caused substantial damage to the property, delaying the planned rehabilitation.
"(C) Property is described in this subparagraph if such property is leased to a corporation that is described in section 501(c)(3) of the Internal Revenue Code of 1986 (relating to organizations exempt from tax) pursuant to a contract—
"(i) which was entered into on August 3, 1983; and
"(ii) under which the corporation first occupied the property on December 22, 1983.
"(D) Property is described in this subparagraph if such property is leased to an educational institution for use as an Arts and Humanities Center and with respect to which—
"(i) in November 1982, an architect was engaged to design a planned renovation;
"(ii) in January 1983, the architectural plans were completed;
"(iii) in December 1983, a demolition contract was entered into; and
"(iv) in March 1984, a renovation contract was entered into.
"(E) Property is described in this subparagraph if such property is used by a college as a dormitory, and—
"(i) in October 1981, the college purchased the property with a view towards renovating the property;
"(ii) renovation plans were delayed because of a zoning dispute; and
"(iii) in May 1983, the court of highest jurisdiction in the State in which the college is located resolved the zoning dispute in favor of the college.
"(F) Property is described in this subparagraph if such property is a fraternity house related to a university with respect to which—
"(i) in August 1982, the university retained attorneys to advise the university regarding the rehabilitation of the property;
"(ii) on January 21, 1983, the governing body of the university established a committee to develop rehabilitation plans;
"(iii) on January 10, 1984, the governor of the state in which the university is located approved historic district designation for an area that includes the property; and
"(iv) on February 2, 1984, historic preservation certification applications for the property were filed with a historic landmarks commission.
"(G) Property is described in this subparagraph if such property is leased to a retirement community with respect to which—
"(i) on January 5, 1977, a certificate of incorporation was filed with the appropriate authority of the state in which the retirement community is located; and
"(ii) on November 22, 1983, the Board of Trustees adopted a resolution evidencing the intention to begin immediate construction of the property.
"(H) Property is described in this subparagraph if such property is used by a university, and—
"(i) in July 1982, the Board of Trustees of the university adopted a master plan for the financing of the property; and
"(ii) as of August 1, 1983, at least $60,000 in private expenditures had been expended in connection with the property.
In the case of Clemson University, the preceding sentence applies only to the Continuing Education Center and the component housing project.
"(I) Property is described in this subparagraph if such property is used by a university as a fine arts center and the Board of Trustees of such university authorized the sale-leaseback agreement with respect to such property on March 7, 1984.
"(J) Property is described in this subparagraph if such property is used by a tax-exempt entity as an international trade center, and
"(i) prior to 1982, an environmental impact study for such property was completed;
"(ii) on June 24, 1981, a developer made a written commitment to provide one-third of the financing for the development of such property; and
"(iii) on October 20, 1983, such developer was approved by the Board of Directors of the tax-exempt entity.
"(K) Property is described in this subparagraph if such property is used by university of osteopathic medicine and health sciences, and on or before December 31, 1983, the Board of Trustees of such university approved the construction of such property.
"(L) Property is described in this subparagraph if such property is used by a tax-exempt entity, and—
"(i) such use is pursuant to a lease with a taxpayer which placed substantial improvements in service;
"(ii) on May 23, 1983, there existed architectural plans and specifications (within the meaning of sec. 48(g)(1)(C)(ii) of the Internal Revenue Code of 1986); and
"(iii) prior to May 23, 1983, at least 10 percent of the total cost of such improvements was actually paid or incurred.
Property is described in this subparagraph if such property was leased to a tax-exempt entity pursuant to a lease recorded in the Register of Deed of Essex County, New Jersey, on May 7, 1984, and a deed of such property was recorded in the Register of Deed of Essex County, New Jersey, on May 7, 1984.
"(M) Property is described in this subparagraph if such property is used as a convention center and on June 2, 1983, the City Council of the city in which the center is located provided for over $6 million for the project.
"(18)
"(A)
"(i) leased by the taxpayer on or before November 1, 1983, or
"(ii) leased by the taxpayer after November 1, 1983, if on or before such date the taxpayer entered into a written binding contract requiring the taxpayer to lease such property.
"(B)
"(19)
"(A)
"(B)
"(20)
"(A)
"(B)
"(i)
"(ii)
"(I) by substituting 'property' for 'building' each place it appears therein,
"(II) by substituting '20 percent' for '25 percent' in clause (ii) thereof, and
"(III) without regard to clause (iii) thereof.
"(C)
"(D)
[
[
"(I) on or before March 28, 1985, the taxpayer (or a predecessor in interest under the contract) or the tax-exempt entity entered into a written binding contract to acquire, construct, or rehabilitate the property, or
"(II) the taxpayer or the tax-exempt entity began the construction, reconstruction, or rehabilitation of the property on or before March 28, 1985."]
"(1)
"(2)
"(A) the taxpayer or a qualified person entered into a binding contract to purchase or construct such property before March 16, 1984, or
"(B) construction of such property was commenced by or for the taxpayer or a qualified person before March 16, 1984.
For purposes of this paragraph the term 'qualified person' means any person who transfers his rights in such a contract or such property to the taxpayer, but only if such property is not placed in service by such person before such rights are transferred to the taxpayer.
"(3)
"(A)
"(i) is held by a person as property described in section 1221(1) [
"(ii) is disposed of by such person before January 1, 1985,
such person shall not, for purposes of paragraph (2), be treated as having placed such property in service before such property is disposed of merely because such person rented such property or held such property for rental. No deduction for depreciation or amortization shall be allowed to such person with respect to such property,
"(B)
"(i) bonds were issued to finance such property before 1984, and
"(ii) an architectural contract was entered into before March 16, 1984,
paragraph (2) shall be applied by substituting 'May 2' for 'March 16'.
"(4)
"(5)
"(A) paragraph (1) shall be applied by substituting 'June 22, 1984' for 'March 15, 1984', and
"(B) paragraph (2) shall be applied by substituting 'June 23, 1984' for 'March 15, 1984' each place it appears."
Amendment by section 113(a)(2) of
"(A) The amendments made by paragraphs (1) of subsection (b) [amending this section] shall apply to any motion picture film or video tape placed in service before, on, or after the date of the enactment of this Act [July 18, 1984], except that such amendment shall not apply to—
"(i) any qualified film placed in service by the taxpayer before March 15, 1984, if the taxpayer treated such film as recovery property for purposes of section 168 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] on a return of tax under
"(ii) any qualified film placed in service by the taxpayer before January 1, 1985, if—
"(I) 20 percent or more of the production costs of such film were incurred before March 16, 1984, and
"(II) the taxpayer treats such film as recovery property for purposes of section 168 of such Code.
No credit shall be allowable under section 38 of such Code with respect to any qualified film described in clause (ii), except to the extent provided in section 48(k) of such Code.
"(B) The amendment made by paragraph (2) and (3) of subsection (b) [amending this section and
"(C) The amendment made by paragraph (4) of subsection (b) [amending
"(D) For purposes of this paragraph, the terms 'qualified film' and 'production costs' have the same respective meanings as when used in section 48(k) of the Internal Revenue Code of 1986."
Amendment by section 474(r)(7) of
Amendment by section 612(e) of
Amendment by section 628(b) of
Effective Date of 1983 Amendment
Amendment by title I of
Amendment by section 541 of
Effective Date of 1982 Amendment
Amendment by
"(1)
"(2)
"(B)
"(3)
"(i) with respect to such property a binding contract to acquire or to construct such property was entered into by the lessee after December 31, 1980, and before July 2, 1982, or
"(ii) such property was acquired by the lessee, or construction of such property was commenced by or for the lessee, after December 31, 1980, and before July 2, 1982.
"(B)
"(i) an agreement to which section 168(f)(8)(A) of the Internal Revenue Code of 1986 applies was entered into before August 15, 1982, and
"(ii) the lessee under such agreement is a qualified lessee (within the meaning of paragraph (6)).
"(i)
"(I) such property is used principally by the taxpayer directly in connection with the trade or business of the taxpayer of the manufacture of automobiles or light-duty trucks,
"(II) such property is automotive manufacturing property, and
"(III) such property would be described in subparagraph (A) if 'October 1' were substituted for 'January 1'.
"(ii)
"(iii)
"(iv)
"(i) is a commercial passenger aircraft (other than a helicopter), and
"(ii) would be described in subparagraph (A) if 'January 1, 1984' were substituted for 'January 1, 1983'.
For purposes of determining whether property described in this subparagraph is described in subparagraph (A), subparagraph (A)(ii) shall be applied by substituting 'June 25, 1981' for 'December 31, 1980' and by substituting 'February 20, 1982' for 'July 2, 1982' and construction of the aircraft shall be treated as having been begun during the period referred to in subparagraph (A)(ii) if during such period construction or reconstruction of a subassembly was commenced, or the stub wing join occurred.
"(i) is a turbine or boiler of a cooperative organization engaged in the furnishing of electric energy to persons in rural areas, and
"(ii) would be property described in subparagraph (A) if 'July 1' were substituted for 'January 1'.
For purposes of determining whether property described in this subparagraph is described in subparagraph (A), such property shall be treated as having been acquired during the period referred to in subparagraph (A)(ii) if at least 20 percent of the cost of such property is paid during such period.
"(i) is used by the taxpayer directly in connection with the trade or business of the taxpayer of the manufacture or production of steel, and
"(ii) would be described in subparagraph (A) if 'January 1, 1984' were substituted for 'January 1, 1983'.
"(G)
"(i)
"(I) is used directly in connection with the manufacture or production of low sulfur gaseous fuel from coal, and
"(II) would be described in subparagraph (A) if 'July 1, 1984' were substituted for 'January 1, 1983'.
"(ii)
"(iii)
"(I) 50 percent of the cost basis of such property, or
"(II) $67,500,000.
"(iv)
"(I) such property shall be treated as placed in service when the taxpayer receives an operating permit with respect to such property from a State environmental protection agency, and
"(II) the term of the lease with respect to such property shall be treated as being 5 years.
"(4)
"(5)
"(A) is placed in service before January 1, 1988, or
"(B) is placed in service after such date—
"(i) pursuant to a binding contract or commitment entered into before April 1, 1983, and
"(ii) solely because of conditions which, as determined by the Secretary of the Treasury or his delegate, are not within the control of the lessor or lessee.
"(6)
"(i) had net operating losses in each of the three most recent taxable years ending before July 1, 1982, and had an aggregate net operating loss for the five most recent taxable years ending before July 1, 1982, and
"(ii) which uses the property subject to the agreement to manufacture and produce within the United States a class of products in an industry with respect to which—
"(I) the taxpayer produced less than 5 percent of the total number of units (or value) of such products during the period covering the three most recent taxable years of the taxpayer ending before July 1, 1982, and
"(II) four or fewer United States persons (including as one person an affiliated group as defined in section 1504(a)) other than the taxpayer manufactured 85 percent or more of the total number of all units (or value) within such class of products manufactured and produced in the United States during such period.
"(i) the term 'class of products' means any of the categories designated and numbered as a 'class of products' in the 1977 Census of Manufacturers compiled and published by the Secretary of Commerce under
"(ii) information—
"(I) compiled or published by the Secretary of Commerce, as part of or in connection with the Statistical Abstract of the United States or the Census of Manufacturers, regarding the number of units (or value) of a class of products manufactured and produced in the United States during any period, or
"(II) if information under subclause (I) is not available, so compiled or published with respect to the number of such units shipped or sold by such manufacturers during any period,
shall constitute prima facie evidence of the total number of all units of such class of products manufactured and produced in the United States in such period.
"(6)
"(7)
[
"(1)
"(A)
"(B)
"(i)
"(ii) $150,000
"(I) the cost basis of the property subject to the agreement, plus
"(II) the cost basis of any property subject to an agreement to which this subparagraph previously applied, which was entered into during the same calendar year, and with respect to which the lessee was the lessee of the agreement described in subclause (I) (or any related person within the meaning of section 168(e)(4)(D)),
exceeds $150,000. For purposes of subclause (II), in the case of an individual, there shall not be taken into account any agreement of any individual who is a related person involving property which is used in a trade or business of farming of such related person which is separate from the trade or business of farming of the lessee described in subclause (II).
"(2)
"(1)
"(2)
"(i) the construction, reconstruction, or rehabilitation of which began before July 1, 1982, or
"(ii) with respect to which a binding agreement to incur significant expenditures was entered into before July 1, 1982.
"(i)
"(ii)
In the case of an inducement resolution adopted by an issuing authority before July 1, 1982, for purposes of applying subparagraphs (A)(i) and (B)(ii) with respect to obligations described in such resolution, the term 'facilities' means the facilities described in such resolution.
"(3)
Amendment by section 224(c)(1), (2) of
Effective Date
"(a)
"(b)
"(c)
"(1)(A) Except as provided in subparagraph (B), the amendments made by subsections (a) and (b) of section 207 [amending
"(B) The amendments made by subparagraph (B)(i) of section 207(a)(2) [amending
"(C) If any net operating loss for any taxable year ending on or before December 31, 1975, could be a net operating loss carryover to a taxable year ending in 1981 by reason of subclause (II) of section 172(b)(1)(E)(ii) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect on the day before the date of the enactment of this Act [Aug. 13, 1981] and as modified by section 1(b) of
"(2)(A) The amendments made by subsection (c)(1) of section 207 [amending
"(B) The amendment made by subsection (c)(2) of section 207 [amending
"(C) The amendments made by subsection (c)(3) of section 207 [amending
"(3)
Savings Provision
For provisions that nothing in amendment by section 401(b)(13)(A), (d)(1)(D)(iv) of
For provisions that nothing in amendment by
Normalization Requirements
"(1)
"(2)
"(A) the taxpayer was required by a regulatory agency to compute depreciation for public utility property on the basis of an average life or composite rate method, and
"(B) the taxpayer's books and underlying records did not contain the vintage account data necessary to apply the average rate assumption method,
the taxpayer will be treated as using a normalization method of accounting if, with respect to such jurisdiction, the taxpayer uses the alternative method for public utility property that is subject to the regulatory authority of that jurisdiction.
"(3)
"(A)
"(i) the reserve for deferred taxes (as described in section 168(i)(9)(A)(ii) of the Internal Revenue Code of 1986) as of the day before the corporate rate reductions provided in the amendments made by this section [amending this section and
"(ii) the amount which would be the balance in such reserve if the amount of such reserve were determined by assuming that the corporate rate reductions provided in this Act [see Tables for classification] were in effect for all prior periods.
"(B)
"(i) the ratio of the aggregate deferred taxes for the property to the aggregate timing differences for the property as of the beginning of the period in question, by
"(ii) the amount of the timing differences which reverse during such period.
"(C)
"(i) computes the excess tax reserve on all public utility property included in the plant account on the basis of the weighted average life or composite rate used to compute depreciation for regulatory purposes, and
"(ii) reduces the excess tax reserve ratably over the remaining regulatory life of the property.
"(4)
"(A) the taxpayer's tax for the taxable year shall be increased by the amount by which it reduces its excess tax reserve more rapidly than permitted under a normalization method of accounting, and
"(B) such taxpayer shall not be treated as using a normalization method of accounting for purposes of subsections (f)(2) and (i)(9)(C) of section 168 of the Internal Revenue Code of 1986."
Depreciation Study
"(1) shall conduct a comprehensive study of the recovery periods and depreciation methods under section 168 of the Internal Revenue Code of 1986, and
"(2) not later than March 31, 2000, shall submit the results of such study, together with recommendations for determining such periods and methods in a more rational manner, to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate."
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Treatment of Certain Farm Finance Leases
"(A)
"(i) any partnership or grantor trust is the lessor under a specified agreement,
"(ii) such partnership or grantor trust met the requirements of section 168(f)(8)(C)(i) of the Internal Revenue Code of 1954 (relating to special rules for finance leases) when the agreement was entered into, and
"(iii) a person became a partner in such partnership (or a beneficiary in such trust) after its formation but before September 26, 1985,
then, for purposes of applying the revenue laws of the United States in respect to such agreement, the portion of the property allocable to partners (or beneficiaries) not described in clause (iii) shall be treated as if it were subject to a separate agreement and the portion of such property allocable to the partner or beneficiary described in clause (iii) shall be treated as if it were subject to a separate agreement.
"(B)
"(i) an agreement dated as of December 20, 1982, as amended and restated as of February 1, 1983, involving approximately $8,734,000 of property at December 31, 1983,
"(ii) an agreement dated as of December 15, 1983, as amended and restated as of January 3, 1984, involving approximately $13,199,000 of property at December 31, 1984, or
"(iii) an agreement dated as of October 25, 1984, as amended and restated as of December 1, 1984, involving approximately $966,000 of property at December 31, 1984."
Certain Residential Real Property Treated as Residential Rental Property
Coordination With Imputed Interest Changes
"(A) any reference in any amendment made by this subsection [amending this section and
"(B) section 168(f)(12)(B)(ii) of the Internal Revenue Code of 1954 [now 1986] (as amended by paragraph (4)(A)) shall be applied by substituting '18 years' for '19 years'."
Termination of Safe Harbor Leasing Rules
Transitional Rules for 1984 Amendment
"(1)
"(A) a binding contract to acquire or to construct such property was entered into by or for the lessee before March 7, 1984, or
"(B) such property was acquired by the lessee, or the construction of such property was begun, by or for the lessee, before March 7, 1984.
The preceding sentence shall not apply to any property with respect to which an election is made under this sentence at such time after the date of the enactment of the Tax Reform Act of 1986 [Oct. 22, 1986] as the Secretary of the Treasury or his delegate may prescribe.
"(2)
"(A)
"(i) which is automotive manufacturing property, and
"(ii) with respect to which the lessee is a qualified lessee (within the meaning of section 208(d)(6) of the Tax Equity and Fiscal Responsibility Act of 1982) [
"(B) $150,000,000
"(i) the cost basis of the property subject to the agreement, plus
"(ii) the cost basis of any property subject to an agreement to which subparagraph (A) previously applied and with respect to which the lessee was the lessee under the agreement described in clause (i) (or any related person within the meaning of section 168(e)(4)(D) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]),
exceeds $150,000,000.
"(C)
"(i) property used principally by the taxpayer directly in connection with the trade or business of the taxpayer of the manufacturing of automobiles or trucks (other than truck tractors) with a gross vehicle weight of 13,000 pounds or less,
"(ii) machinery, equipment, and special tools of the type included in former depreciation range guideline classes 37.11 and 37.12, and
"(iii) any special tools owned by the taxpayer which are used by a vendor solely for the production of component parts for sale to the taxpayer.
"(3)
"(A) for which an application for certification was filed with the Federal Energy Regulatory Commission on December 30, 1983,
"(B) for which an application for a construction permit was filed with a State environmental protection agency on February 20, 1984, and
"(C) which is placed in service before January 1, 1988."
Special Leasing Rule Regarding Coal Gasification Facilities
Certain Leases Before October 20, 1981, Treated as Qualified Leases
Motor Vehicle Operating Leases
"(a)
"(b)
"(1)
"(A) which was entered into before—
"(i) the enactment of any law, or
"(ii) the publication by the Secretary of the Treasury or his delegate of any regulation,
which provides that any agreement with a terminal rental adjustment clause is not a lease,
"(B) with respect to which the lessor under the agreement—
"(i) is personally liable for the repayment of, or
"(ii) has pledged property (but only to the extent of the net fair market value of the lessor's interest in such property), other than property subject to the agreement or property directly or indirectly financed by indebtedness secured by property subject to the agreement, as security for,
all amounts borrowed to finance the acquisition of property subject to the agreement, and
"(C) with respect to which the lessee under the agreement uses the property subject to the agreement in a trade or business or for the production of income.
"(2)
"(c)
Information Returns With Respect to Safe Harbor Leases
"(a)
"(1)
"(2)
"(A)
"(B)
"(3)
"(A) a lessor or lessee fails to file any return within the time prescribed by this subsection, and
"(B) such failure is shown to be due to reasonable cause and not due to willful neglect,
the lessor or lessee shall be treated as having filed a timely return if a return is filed within a reasonable time after the failure is ascertained.
"(b)
"(1) The name, address, and taxpayer identifying number of the lessor and the lessee (and parent company if a consolidated return is filed);
"(2) The district director's office with which the income tax returns of the lessor and lessee are filed;
"(3) A description of each individual property with respect to which the election is made;
"(4) The date on which the lessee places the property in service, the date on which the lease begins and the term of the lease;
"(5) The recovery property class and the ADR midpoint life of the leased property;
"(6) The payment terms between the parties to the lease transaction;
"(7) Whether the ACRS deductions and the investment tax credit are allowable to the same taxpayer;
"(8) The aggregate amount paid to outside parties to arrange or carry out the transaction;
"(9) For the lessor only: the unadjusted basis of the property as defined in section 168(d)(1);
"(10) For the lessor only: if the lessor is a partnership or a grantor trust, the name, address, and taxpayer identifying number of the partners or the beneficiaries, and the district director's office with which the income tax return of each partner or beneficiary is filed; and
"(11) Such other information as may be required by the return or its instructions.
Paragraph (8) shall not apply with respect to any person for any calendar year if it is reasonable to estimate that the aggregate adjusted basis of the property of such person which will be subject to subsection (a) for such year is $1,000,000 or less.
"(c)
Regulated Public Utilities; Special Transitional Rule for Normalization Requirements
Interim Regulations With Respect to Normalization; Authority To Prescribe
1 See References in Text note below.
2 So in original. The word "or" probably should not appear.
§169. Amortization of pollution control facilities
(a) Allowance of deduction
Every person, at his election, shall be entitled to a deduction with respect to the amortization of the amortizable basis of any certified pollution control facility (as defined in subsection (d)), based on a period of 60 months. Such amortization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the amortizable basis of the pollution control facility at the end of such month divided by the number of months (including the month for which the deduction is computed) remaining in the period. Such amortizable basis at the end of the month shall be computed without regard to the amortization deduction for such month. The amortization deduction provided by this section with respect to any month shall be in lieu of the depreciation deduction with respect to such pollution control facility for such month provided by section 167. The 60-month period shall begin, as to any pollution control facility, at the election of the taxpayer, with the month following the month in which such facility was completed or acquired, or with the succeeding taxable year.
(b) Election of amortization
The election of the taxpayer to take the amortization deduction and to begin the 60-month period with the month following the month in which the facility is completed or acquired, or with the taxable year succeeding the taxable year in which such facility is completed or acquired, shall be made by filing with the Secretary, in such manner, in such form, and within such time, as the Secretary may by regulations prescribe, a statement of such election.
(c) Termination of amortization deduction
A taxpayer which has elected under subsection (b) to take the amortization deduction provided in subsection (a) may, at any time after making such election, discontinue the amortization deduction with respect to the remainder of the amortization period, such discontinuance to begin as of the beginning of any month specified by the taxpayer in a notice in writing filed with the Secretary before the beginning of such month. The depreciation deduction provided under section 167 shall be allowed, beginning with the first month as to which the amortization deduction does not apply, and the taxpayer shall not be entitled to any further amortization deduction under this section with respect to such pollution control facility.
(d) Definitions and special rules
For purposes of this section—
(1) Certified pollution control facility
The term "certified pollution control facility" means a new identifiable treatment facility which is used, in connection with a plant or other property in operation before January 1, 1976, to abate or control water or atmospheric pollution or contamination by removing, altering, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat and which—
(A) the State certifying authority having jurisdiction with respect to such facility has certified to the Federal certifying authority as having been constructed, reconstructed, erected, or acquired in conformity with the State program or requirements for abatement or control of water or atmospheric pollution or contamination;
(B) the Federal certifying authority has certified to the Secretary (i) as being in compliance with the applicable regulations of Federal agencies and (ii) as being in furtherance of the general policy of the United States for cooperation with the States in the prevention and abatement of water pollution under the Federal Water Pollution Control Act, as amended (
(C) does not significantly—
(i) increase the output or capacity, extend the useful life, or reduce the total operating costs of such plant or other property (or any unit thereof), or
(ii) alter the nature of the manufacturing or production process or facility.
(2) State certifying authority
The term "State certifying authority" means, in the case of water pollution, the State water pollution control agency as defined in section 13(a) of the Federal Water Pollution Control Act and, in the case of air pollution, the air pollution control agency as defined in section 302(b) of the Clean Air Act. The term "State certifying authority" includes any interstate agency authorized to act in place of a certifying authority of the State.
(3) Federal certifying authority
The term "Federal certifying authority" means, in the case of water pollution, the Secretary of the Interior and, in the case of air pollution, the Secretary of Health and Human Services.
(4) New identifiable treatment facility
(A) In general
For purposes of paragraph (1), the term "new identifiable treatment facility" includes only tangible property (not including a building and its structural components, other than a building which is exclusively a treatment facility) which is of a character subject to the allowance for depreciation provided in section 167, which is identifiable as a treatment facility, and which is property—
(i) the construction, reconstruction, or erection of which is completed by the taxpayer after December 31, 1968, or
(ii) acquired after December 31, 1968, if the original use of the property commences with the taxpayer and commences after such date.
In applying this section in the case of property described in clause (i) there shall be taken into account only that portion of the basis which is properly attributable to construction, reconstruction, or erection after December 31, 1968.
(B) Certain facilities placed in operation after April 11, 2005
In the case of any facility described in paragraph (1) solely by reason of paragraph (5), subparagraph (A) shall be applied by substituting "April 11, 2005" for "December 31, 1968" each place it appears therein.
(5) Special rule relating to certain atmospheric pollution control facilities
In the case of any atmospheric pollution control facility which is placed in service after April 11, 2005, and used in connection with an electric generation plant or other property which is primarily coal fired—
(A) paragraph (1) shall be applied without regard to the phrase "in operation before January 1, 1976", and
(B) in the case of a facility placed in service in connection with a plant or other property placed in operation after December 31, 1975, this section shall be applied by substituting "84" for "60" each place it appears in subsections (a) and (b).
(e) Profitmaking abatement works, etc.
The Federal certifying authority shall not certify any property under subsection (d)(1)(B) to the extent it appears that by reason of profits derived through the recovery of wastes or otherwise in the operation of such property, its costs will be recovered over its actual useful life.
(f) Amortizable basis
(1) Defined
For purposes of this section, the term "amortizable basis" means that portion of the adjusted basis (for determining gain) of a certified pollution control facility which may be amortized under this section.
(2) Special rules
(A) If a certified pollution control facility has a useful life (determined as of the first day of the first month for which a deduction is allowable under this section) in excess of 15 years, the amortizable basis of such facility shall be equal to an amount which bears the same ratio to the portion of the adjusted basis of such facility, which would be eligible for amortization but for the application of this subparagraph, as 15 bears to the number of years of useful life of such facility.
(B) The amortizable basis of a certified pollution control facility with respect to which an election under this section is in effect shall not be increased, for purposes of this section, for additions or improvements after the amortization period has begun.
(g) Depreciation deduction
The depreciation deduction provided by section 167 shall, despite the provisions of subsection (a), be allowed with respect to the portion of the adjusted basis which is not the amortizable basis.
[(h) Repealed. Pub. L. 92–178, title I, §104(f)(2), Dec. 10, 1971, 85 Stat. 502 ]
(i) Life tenant and remainderman
In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowable to the life tenant.
(j) Cross reference
For special rule with respect to certain gain derived from the disposition of property the adjusted basis of which is determined with regard to this section, see section 1245.
(Added
Editorial Notes
References in Text
The Federal Water Pollution Control Act, as amended (
The Clean Air Act, referred to in subsec. (d)(1)(B), is act July 14, 1955, ch. 360,
Section 302(b) of the Clean Air Act, referred to in subsec. (d)(2), formerly classified to
Prior Provisions
A prior section 169, act Aug. 16, 1954, ch. 736,
Amendments
2018—Subsec. (d)(5)(B).
2005—Subsec. (d).
Subsec. (d)(3).
Subsec. (d)(4)(B).
Subsec. (d)(5).
Subsec. (d)(5)(B).
1976—Subsecs. (b), (c).
Subsec. (d)(1).
Subsec. (d)(4).
1975—Subsec. (d)(4)(B).
1971—Subsec. (h).
Statutory Notes and Related Subsidiaries
Effective Date of 2005 Amendment
Amendment by
Effective Date of 1976 Amendment
Effective Date
Executive Documents
Transfer of Functions
Functions vested in Secretary of the Interior and Secretary of Health, Education, and Welfare by subsec. (d)(1)(B), (3) of this section transferred to Administrator of Environmental Protection Agency by Reorg. Plan No. 3, of 1970, §2(a)(9), eff. Dec. 2, 1970, 35 F.R. 15623,
§170. Charitable, etc., contributions and gifts
(a) Allowance of deduction
(1) General rule
There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary.
(2) Corporations on accrual basis
In the case of a corporation reporting its taxable income on the accrual basis, if—
(A) the board of directors authorizes a charitable contribution during any taxable year, and
(B) payment of such contribution is made after the close of such taxable year and on or before the 15th day of the fourth month following the close of such taxable year,
then the taxpayer may elect to treat such contribution as paid during such taxable year. The election may be made only at the time of the filing of the return for such taxable year, and shall be signified in such manner as the Secretary shall by regulations prescribe.
(3) Future interests in tangible personal property
For purposes of this section, payment of a charitable contribution which consists of a future interest in tangible personal property shall be treated as made only when all intervening interests in, and rights to the actual possession or enjoyment of, the property have expired or are held by persons other than the taxpayer or those standing in a relationship to the taxpayer described in section 267(b) or 707(b). For purposes of the preceding sentence, a fixture which is intended to be severed from the real property shall be treated as tangible personal property.
(b) Percentage limitations
(1) Individuals
In the case of an individual, the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagraphs.
(A) General rule
Any charitable contribution to—
(i) a church or a convention or association of churches,
(ii) an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on,
(iii) an organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical research, if the organization is a hospital, or if the organization is a medical research organization directly engaged in the continuous active conduct of medical research in conjunction with a hospital, and during the calendar year in which the contribution is made such organization is committed to spend such contributions for such research before January 1 of the fifth calendar year which begins after the date such contribution is made,
(iv) an organization which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a)) from the United States or any State or political subdivision thereof or from direct or indirect contributions from the general public, and which is organized and operated exclusively to receive, hold, invest, and administer property and to make expenditures to or for the benefit of a college or university which is an organization referred to in clause (ii) of this subparagraph and which is an agency or instrumentality of a State or political subdivision thereof, or which is owned or operated by a State or political subdivision thereof or by an agency or instrumentality of one or more States or political subdivisions,
(v) a governmental unit referred to in subsection (c)(1),
(vi) an organization referred to in subsection (c)(2) which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a)) from a governmental unit referred to in subsection (c)(1) or from direct or indirect contributions from the general public,
(vii) a private foundation described in subparagraph (F),
(viii) an organization described in section 509(a)(2) or (3), or
(ix) an agricultural research organization directly engaged in the continuous active conduct of agricultural research (as defined in section 1404 of the National Agricultural Research, Extension, and Teaching Policy Act of 1977) in conjunction with a land-grant college or university (as defined in such section) or a non-land grant college of agriculture (as defined in such section), and during the calendar year in which the contribution is made such organization is committed to spend such contribution for such research before January 1 of the fifth calendar year which begins after the date such contribution is made,
shall be allowed to the extent that the aggregate of such contributions does not exceed 50 percent of the taxpayer's contribution base for the taxable year.
(B) Other contributions
Any charitable contribution other than a charitable contribution to which subparagraph (A) applies shall be allowed to the extent that the aggregate of such contributions does not exceed the lesser of—
(i) 30 percent of the taxpayer's contribution base for the taxable year, or
(ii) the excess of 50 percent of the taxpayer's contribution base for the taxable year over the amount of charitable contributions allowable under subparagraph (A) (determined without regard to subparagraph (C)).
If the aggregate of such contributions exceeds the limitation of the preceding sentence, such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution (to which subparagraph (A) does not apply) in each of the 5 succeeding taxable years in order of time.
(C) Special limitation with respect to contributions described in subparagraph (A) of certain capital gain property
(i) In the case of charitable contributions described in subparagraph (A) of capital gain property to which subsection (e)(1)(B) does not apply, the total amount of contributions of such property which may be taken into account under subsection (a) for any taxable year shall not exceed 30 percent of the taxpayer's contribution base for such year. For purposes of this subsection, contributions of capital gain property to which this subparagraph applies shall be taken into account after all other charitable contributions (other than charitable contributions to which subparagraph (D) applies).
(ii) If charitable contributions described in subparagraph (A) of capital gain property to which clause (i) applies exceeds 30 percent of the taxpayer's contribution base for any taxable year, such excess shall be treated, in a manner consistent with the rules of subsection (d)(1), as a charitable contribution of capital gain property to which clause (i) applies in each of the 5 succeeding taxable years in order of time.
(iii) At the election of the taxpayer (made at such time and in such manner as the Secretary prescribes by regulations), subsection (e)(1) shall apply to all contributions of capital gain property (to which subsection (e)(1)(B) does not otherwise apply) made by the taxpayer during the taxable year. If such an election is made, clauses (i) and (ii) shall not apply to contributions of capital gain property made during the taxable year, and, in applying subsection (d)(1) for such taxable year with respect to contributions of capital gain property made in any prior contribution year for which an election was not made under this clause, such contributions shall be reduced as if subsection (e)(1) had applied to such contributions in the year in which made.
(iv) For purposes of this paragraph, the term "capital gain property" means, with respect to any contribution, any capital asset the sale of which at its fair market value at the time of the contribution would have resulted in gain which would have been long-term capital gain. For purposes of the preceding sentence, any property which is property used in the trade or business (as defined in section 1231(b)) shall be treated as a capital asset.
(D) Special limitation with respect to contributions of capital gain property to organizations not described in subparagraph (A)
(i) In general
In the case of charitable contributions (other than charitable contributions to which subparagraph (A) applies) of capital gain property, the total amount of such contributions of such property taken into account under subsection (a) for any taxable year shall not exceed the lesser of—
(I) 20 percent of the taxpayer's contribution base for the taxable year, or
(II) the excess of 30 percent of the taxpayer's contribution base for the taxable year over the amount of the contributions of capital gain property to which subparagraph (C) applies.
For purposes of this subsection, contributions of capital gain property to which this subparagraph applies shall be taken into account after all other charitable contributions.
(ii) Carryover
If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution of capital gain property to which clause (i) applies in each of the 5 succeeding taxable years in order of time.
(E) Contributions of qualified conservation contributions
(i) In general
Any qualified conservation contribution (as defined in subsection (h)(1)) shall be allowed to the extent the aggregate of such contributions does not exceed the excess of 50 percent of the taxpayer's contribution base over the amount of all other charitable contributions allowable under this paragraph.
(ii) Carryover
If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution to which clause (i) applies in each of the 15 succeeding years in order of time.
(iii) Coordination with other subparagraphs
For purposes of applying this subsection and subsection (d)(1), contributions described in clause (i) shall not be treated as described in subparagraph (A), (B), (C), or (D) and such subparagraphs shall apply without regard to such contributions.
(iv) Special rule for contribution of property used in agriculture or livestock production
(I) In general
If the individual is a qualified farmer or rancher for the taxable year for which the contribution is made, clause (i) shall be applied by substituting "100 percent" for "50 percent".
(II) Exception
Subclause (I) shall not apply to any contribution of property made after the date of the enactment of this subparagraph which is used in agriculture or livestock production (or available for such production) unless such contribution is subject to a restriction that such property remain available for such production. This subparagraph shall be applied separately with respect to property to which subclause (I) does not apply by reason of the preceding sentence prior to its application to property to which subclause (I) does apply.
(v) Definition
For purposes of clause (iv), the term "qualified farmer or rancher" means a taxpayer whose gross income from the trade or business of farming (within the meaning of section 2032A(e)(5)) is greater than 50 percent of the taxpayer's gross income for the taxable year.
(F) Certain private foundations
The private foundations referred to in subparagraph (A)(vii) and subsection (e)(1)(B) are—
(i) a private operating foundation (as defined in section 4942(j)(3)),
(ii) any other private foundation (as defined in section 509(a)) which, not later than the 15th day of the third month after the close of the foundation's taxable year in which contributions are received, makes qualifying distributions (as defined in section 4942(g), without regard to paragraph (3) thereof), which are treated, after the application of section 4942(g)(3), as distributions out of corpus (in accordance with section 4942(h)) in an amount equal to 100 percent of such contributions, and with respect to which the taxpayer obtains adequate records or other sufficient evidence from the foundation showing that the foundation made such qualifying distributions, and
(iii) a private foundation all of the contributions to which are pooled in a common fund and which would be described in section 509(a)(3) but for the right of any substantial contributor (hereafter in this clause called "donor") or his spouse to designate annually the recipients, from among organizations described in paragraph (1) of section 509(a), of the income attributable to the donor's contribution to the fund and to direct (by deed or by will) the payment, to an organization described in such paragraph (1), of the corpus in the common fund attributable to the donor's contribution; but this clause shall apply only if all of the income of the common fund is required to be (and is) distributed to one or more organizations described in such paragraph (1) not later than the 15th day of the third month after the close of the taxable year in which the income is realized by the fund and only if all of the corpus attributable to any donor's contribution to the fund is required to be (and is) distributed to one or more of such organizations not later than one year after his death or after the death of his surviving spouse if she has the right to designate the recipients of such corpus.
(G) Increased limitation for cash contributions
(i) In general
In the case of any contribution of cash to an organization described in subparagraph (A), the total amount of such contributions which may be taken into account under subsection (a) for any taxable year beginning after December 31, 2017, and before January 1, 2026, shall not exceed 60 percent of the taxpayer's contribution base for such year.
(ii) Carryover
If the aggregate amount of contributions described in clause (i) exceeds the applicable limitation under clause (i) for any taxable year described in such clause, such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution to which clause (i) applies in each of the 5 succeeding years in order of time.
(iii) Coordination with subparagraphs (A) and (B)
(I) In general
Contributions taken into account under this subparagraph shall not be taken into account under subparagraph (A).
(II) Limitation reduction
For each taxable year described in clause (i), and each taxable year to which any contribution under this subparagraph is carried over under clause (ii), subparagraph (A) shall be applied by reducing (but not below zero) the contribution limitation allowed for the taxable year under such subparagraph by the aggregate contributions allowed under this subparagraph for such taxable year, and subparagraph (B) shall be applied by treating any reference to subparagraph (A) as a reference to both subparagraph (A) and this subparagraph.
(H) Contribution base defined
For purposes of this section, the term "contribution base" means adjusted gross income (computed without regard to any net operating loss carryback to the taxable year under section 172).
(2) Corporations
In the case of a corporation—
(A) In general
The total deductions under subsection (a) for any taxable year (other than for contributions to which subparagraph (B) or (C) applies) shall not exceed 10 percent of the taxpayer's taxable income.
(B) Qualified conservation contributions by certain corporate farmers and ranchers
(i) In general
Any qualified conservation contribution (as defined in subsection (h)(1))—
(I) which is made by a corporation which, for the taxable year during which the contribution is made, is a qualified farmer or rancher (as defined in paragraph (1)(E)(v)) and the stock of which is not readily tradable on an established securities market at any time during such year, and
(II) which, in the case of contributions made after the date of the enactment of this subparagraph, is a contribution of property which is used in agriculture or livestock production (or available for such production) and which is subject to a restriction that such property remain available for such production,
shall be allowed to the extent the aggregate of such contributions does not exceed the excess of the taxpayer's taxable income over the amount of charitable contributions allowable under subparagraph (A).
(ii) Carryover
If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(2)) as a charitable contribution to which clause (i) applies in each of the 15 succeeding taxable years in order of time.
(C) Qualified conservation contributions by certain Native Corporations
(i) In general
Any qualified conservation contribution (as defined in subsection (h)(1)) which—
(I) is made by a Native Corporation, and
(II) is a contribution of property which was land conveyed under the Alaska Native Claims Settlement Act,
shall be allowed to the extent that the aggregate amount of such contributions does not exceed the excess of the taxpayer's taxable income over the amount of charitable contributions allowable under subparagraph (A).
(ii) Carryover
If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(2)) as a charitable contribution to which clause (i) applies in each of the 15 succeeding taxable years in order of time.
(iii) Native Corporation
For purposes of this subparagraph, the term "Native Corporation" has the meaning given such term by section 3(m) of the Alaska Native Claims Settlement Act.
(D) Taxable income
For purposes of this paragraph, taxable income shall be computed without regard to—
(i) this section,
(ii) part VIII (except section 248),
(iii) any net operating loss carryback to the taxable year under section 172,
(iv) any capital loss carryback to the taxable year under section 1212(a)(1) 1
(v) section 199A(g).
(c) Charitable contribution defined
For purposes of this section, the term "charitable contribution" means a contribution or gift to or for the use of—
(1) A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.
(2) A corporation, trust, or community chest, fund, or foundation—
(A) created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States;
(B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals;
(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and
(D) which is not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.
A contribution or gift by a corporation to a trust, chest, fund, or foundation shall be deductible by reason of this paragraph only if it is to be used within the United States or any of its possessions exclusively for purposes specified in subparagraph (B). Rules similar to the rules of section 501(j) shall apply for purposes of this paragraph.
(3) A post or organization of war veterans, or an auxiliary unit or society of, or trust or foundation for, any such post or organization—
(A) organized in the United States or any of its possessions, and
(B) no part of the net earnings of which inures to the benefit of any private shareholder or individual.
(4) In the case of a contribution or gift by an individual, a domestic fraternal society, order, or association, operating under the lodge system, but only if such contribution or gift is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.
(5) A cemetery company owned and operated exclusively for the benefit of its members, or any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, if such company or corporation is not operated for profit and no part of the net earnings of such company or corporation inures to the benefit of any private shareholder or individual.
For purposes of this section, the term "charitable contribution" also means an amount treated under subsection (g) as paid for the use of an organization described in paragraph (2), (3), or (4).
(d) Carryovers of excess contributions
(1) Individuals
(A) In general
In the case of an individual, if the amount of charitable contributions described in subsection (b)(1)(A) payment of which is made within a taxable year (hereinafter in this paragraph referred to as the "contribution year") exceeds 50 percent of the taxpayer's contribution base for such year, such excess shall be treated as a charitable contribution described in subsection (b)(1)(A) paid in each of the 5 succeeding taxable years in order of time, but, with respect to any such succeeding taxable year, only to the extent of the lesser of the two following amounts:
(i) the amount by which 50 percent of the taxpayer's contribution base for such succeeding taxable year exceeds the sum of the charitable contributions described in subsection (b)(1)(A) payment of which is made by the taxpayer within such succeeding taxable year (determined without regard to this subparagraph) and the charitable contributions described in subsection (b)(1)(A) payment of which was made in taxable years before the contribution year which are treated under this subparagraph as having been paid in such succeeding taxable year; or
(ii) in the case of the first succeeding taxable year, the amount of such excess, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess not treated under this subparagraph as a charitable contribution described in subsection (b)(1)(A) paid in any taxable year intervening between the contribution year and such succeeding taxable year.
(B) Special rule for net operating loss carryovers
In applying subparagraph (A), the excess determined under subparagraph (A) for the contribution year shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172(b)(2)) and increases the net operating loss deduction for a taxable year succeeding the contribution year.
(2) Corporations
(A) In general
Any contribution made by a corporation in a taxable year (hereinafter in this paragraph referred to as the "contribution year") in excess of the amount deductible for such year under subsection (b)(2)(A) shall be deductible for each of the 5 succeeding taxable years in order of time, but only to the extent of the lesser of the two following amounts: (i) the excess of the maximum amount deductible for such succeeding taxable year under subsection (b)(2)(A) over the sum of the contributions made in such year plus the aggregate of the excess contributions which were made in taxable years before the contribution year and which are deductible under this subparagraph for such succeeding taxable year; or (ii) in the case of the first succeeding taxable year, the amount of such excess contribution, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess contribution not deductible under this subparagraph for any taxable year intervening between the contribution year and such succeeding taxable year.
(B) Special rule for net operating loss carryovers
For purposes of subparagraph (A), the excess of—
(i) the contributions made by a corporation in a taxable year to which this section applies, over
(ii) the amount deductible in such year under the limitation in subsection (b)(2)(A),
shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172(b)(2)) and increases a net operating loss carryover under section 172 to a succeeding taxable year.
(e) Certain contributions of ordinary income and capital gain property
(1) General rule
The amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the sum of—
(A) the amount of gain which would not have been long-term capital gain (determined without regard to section 1221(b)(3)) if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution), and
(B) in the case of a charitable contribution—
(i) of tangible personal property—
(I) if the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under section 501 (or, in the case of a governmental unit, to any purpose or function described in subsection (c)), or
(II) which is applicable property (as defined in paragraph (7)(C), but without regard to clause (ii) thereof) which is sold, exchanged, or otherwise disposed of by the donee before the last day of the taxable year in which the contribution was made and with respect to which the donee has not made a certification in accordance with paragraph (7)(D),
(ii) to or for the use of a private foundation (as defined in section 509(a)), other than a private foundation described in subsection (b)(1)(F),
(iii) of any patent, copyright (other than a copyright described in section 1221(a)(3) or 1231(b)(1)(C)), trademark, trade name, trade secret, know-how, software (other than software described in section 197(e)(3)(A)(i)), or similar property, or applications or registrations of such property, or
(iv) of any taxidermy property which is contributed by the person who prepared, stuffed, or mounted the property or by any person who paid or incurred the cost of such preparation, stuffing, or mounting,
the amount of gain which would have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution).
For purposes of applying this paragraph (other than in the case of gain to which section 617(d)(1), 1245(a), 1250(a), 1252(a), or 1254(a) applies), property which is property used in the trade or business (as defined in section 1231(b)) shall be treated as a capital asset. For purposes of applying this paragraph in the case of a charitable contribution of stock in an S corporation, rules similar to the rules of section 751 shall apply in determining whether gain on such stock would have been long-term capital gain if such stock were sold by the taxpayer.
(2) Allocation of basis
For purposes of paragraph (1), in the case of a charitable contribution of less than the taxpayer's entire interest in the property contributed, the taxpayer's adjusted basis in such property shall be allocated between the interest contributed and any interest not contributed in accordance with regulations prescribed by the Secretary.
(3) Special rule for certain contributions of inventory and other property
(A) Qualified contributions
For purposes of this paragraph, a qualified contribution shall mean a charitable contribution of property described in paragraph (1) or (2) of section 1221(a), by a corporation (other than a corporation which is an S corporation) to an organization which is described in section 501(c)(3) and is exempt under section 501(a) (other than a private foundation, as defined in section 509(a), which is not an operating foundation, as defined in section 4942(j)(3)), but only if—
(i) the use of the property by the donee is related to the purpose or function constituting the basis for its exemption under section 501 and the property is to be used by the donee solely for the care of the ill, the needy, or infants;
(ii) the property is not transferred by the donee in exchange for money, other property, or services;
(iii) the taxpayer receives from the donee a written statement representing that its use and disposition of the property will be in accordance with the provisions of clauses (i) and (ii); and
(iv) in the case where the property is subject to regulation under the Federal Food, Drug, and Cosmetic Act, as amended, such property must fully satisfy the applicable requirements of such Act and regulations promulgated thereunder on the date of transfer and for one hundred and eighty days prior thereto.
(B) Amount of reduction
The reduction under paragraph (1)(A) for any qualified contribution (as defined in subparagraph (A)) shall be no greater than the sum of—
(i) one-half of the amount computed under paragraph (1)(A) (computed without regard to this paragraph), and
(ii) the amount (if any) by which the charitable contribution deduction under this section for any qualified contribution (computed by taking into account the amount determined in clause (i), but without regard to this clause) exceeds twice the basis of such property.
(C) Special rule for contributions of food inventory
(i) General rule
In the case of a charitable contribution of food from any trade or business of the taxpayer, this paragraph shall be applied—
(I) without regard to whether the contribution is made by a C corporation, and
(II) only to food that is apparently wholesome food.
(ii) Limitation
The aggregate amount of such contributions for any taxable year which may be taken into account under this section shall not exceed—
(I) in the case of any taxpayer other than a C corporation, 15 percent of the taxpayer's aggregate net income for such taxable year from all trades or businesses from which such contributions were made for such year, computed without regard to this section, and
(II) in the case of a C corporation, 15 percent of taxable income (as defined in subsection (b)(2)(D)).
(iii) Rules related to limitation
(I) Carryover
If such aggregate amount exceeds the limitation imposed under clause (ii), such excess shall be treated (in a manner consistent with the rules of subsection (d)) as a charitable contribution described in clause (i) in each of the 5 succeeding taxable years in order of time.
(II) Coordination with overall corporate limitation
In the case of any charitable contribution which is allowable after the application of clause (ii)(II), subsection (b)(2)(A) shall not apply to such contribution, but the limitation imposed by such subsection shall be reduced (but not below zero) by the aggregate amount of such contributions. For purposes of subsection (b)(2)(B), such contributions shall be treated as allowable under subsection (b)(2)(A).
(iv) Determination of basis for certain taxpayers
If a taxpayer—
(I) does not account for inventories under section 471, and
(II) is not required to capitalize indirect costs under section 263A,
the taxpayer may elect, solely for purposes of subparagraph (B), to treat the basis of any apparently wholesome food as being equal to 25 percent of the fair market value of such food.
(v) Determination of fair market value
In the case of any such contribution of apparently wholesome food which cannot or will not be sold solely by reason of internal standards of the taxpayer, lack of market, or similar circumstances, or by reason of being produced by the taxpayer exclusively for the purposes of transferring the food to an organization described in subparagraph (A), the fair market value of such contribution shall be determined—
(I) without regard to such internal standards, such lack of market, such circumstances, or such exclusive purpose, and
(II) by taking into account the price at which the same or substantially the same food items (as to both type and quality) are sold by the taxpayer at the time of the contribution (or, if not so sold at such time, in the recent past).
(vi) Apparently wholesome food
For purposes of this subparagraph, the term "apparently wholesome food" has the meaning given to such term by section 22(b)(2) of the Bill Emerson Good Samaritan Food Donation Act (
(D) This paragraph shall not apply to so much of the amount of the gain described in paragraph (1)(A) which would be long-term capital gain but for the application of sections 617, 1245, 1250, or 1252.
(4) Special rule for contributions of scientific property used for research
(A) Limit on reduction
In the case of a qualified research contribution, the reduction under paragraph (1)(A) shall be no greater than the amount determined under paragraph (3)(B).
(B) Qualified research contributions
For purposes of this paragraph, the term "qualified research contribution" means a charitable contribution by a corporation of tangible personal property described in paragraph (1) of section 1221(a), but only if—
(i) the contribution is to an organization described in subparagraph (A) or subparagraph (B) of section 41(e)(6),
(ii) the property is constructed or assembled by the taxpayer,
(iii) the contribution is made not later than 2 years after the date the construction or assembly of the property is substantially completed,
(iv) the original use of the property is by the donee,
(v) the property is scientific equipment or apparatus substantially all of the use of which by the donee is for research or experimentation (within the meaning of section 174), or for research training, in the United States in physical or biological sciences,
(vi) the property is not transferred by the donee in exchange for money, other property, or services, and
(vii) the taxpayer receives from the donee a written statement representing that its use and disposition of the property will be in accordance with the provisions of clauses (v) and (vi).
(C) Construction of property by taxpayer
For purposes of this paragraph, property shall be treated as constructed by the taxpayer only if the cost of the parts used in the construction of such property (other than parts manufactured by the taxpayer or a related person) do not exceed 50 percent of the taxpayer's basis in such property.
(D) Corporation
For purposes of this paragraph, the term "corporation" shall not include—
(i) an S corporation,
(ii) a personal holding company (as defined in section 542), and
(iii) a service organization (as defined in section 414(m)(3)).
(5) Special rule for contributions of stock for which market quotations are readily available
(A) In general
Subparagraph (B)(ii) of paragraph (1) shall not apply to any contribution of qualified appreciated stock.
(B) Qualified appreciated stock
Except as provided in subparagraph (C), for purposes of this paragraph, the term "qualified appreciated stock" means any stock of a corporation—
(i) for which (as of the date of the contribution) market quotations are readily available on an established securities market, and
(ii) which is capital gain property (as defined in subsection (b)(1)(C)(iv)).
(C) Donor may not contribute more than 10 percent of stock of corporation
(i) In general
In the case of any donor, the term "qualified appreciated stock" shall not include any stock of a corporation contributed by the donor in a contribution to which paragraph (1)(B)(ii) applies (determined without regard to this paragraph) to the extent that the amount of the stock so contributed (when increased by the aggregate amount of all prior such contributions by the donor of stock in such corporation) exceeds 10 percent (in value) of all of the outstanding stock of such corporation.
(ii) Special rule
For purposes of clause (i), an individual shall be treated as making all contributions made by any member of his family (as defined in section 267(c)(4)).
[(6) Repealed. Pub. L. 113–295, div. A, title II, §221(a)(28)(B), Dec. 19, 2014, 128 Stat. 4041 ]
(7) Recapture of deduction on certain dispositions of exempt use property
(A) In general
In the case of an applicable disposition of applicable property, there shall be included in the income of the donor of such property for the taxable year of such donor in which the applicable disposition occurs an amount equal to the excess (if any) of—
(i) the amount of the deduction allowed to the donor under this section with respect to such property, over
(ii) the donor's basis in such property at the time such property was contributed.
(B) Applicable disposition
For purposes of this paragraph, the term "applicable disposition" means any sale, exchange, or other disposition by the donee of applicable property—
(i) after the last day of the taxable year of the donor in which such property was contributed, and
(ii) before the last day of the 3-year period beginning on the date of the contribution of such property,
unless the donee makes a certification in accordance with subparagraph (D).
(C) Applicable property
For purposes of this paragraph, the term "applicable property" means charitable deduction property (as defined in section 6050L(a)(2)(A))—
(i) which is tangible personal property the use of which is identified by the donee as related to the purpose or function constituting the basis of the donee's exemption under section 501, and
(ii) for which a deduction in excess of the donor's basis is allowed.
(D) Certification
A certification meets the requirements of this subparagraph if it is a written statement which is signed under penalty of perjury by an officer of the donee organization and—
(i) which—
(I) certifies that the use of the property by the donee was substantial and related to the purpose or function constituting the basis for the donee's exemption under section 501, and
(II) describes how the property was used and how such use furthered such purpose or function, or
(ii) which—
(I) states the intended use of the property by the donee at the time of the contribution, and
(II) certifies that such intended use has become impossible or infeasible to implement.
(f) Disallowance of deduction in certain cases and special rules
(1) In general
No deduction shall be allowed under this section for a contribution to or for the use of an organization or trust described in section 508(d) or 4948(c)(4) subject to the conditions specified in such sections.
(2) Contributions of property placed in trust
(A) Remainder interest
In the case of property transferred in trust, no deduction shall be allowed under this section for the value of a contribution of a remainder interest unless the trust is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664), or a pooled income fund (described in section 642(c)(5)).
(B) Income interests, etc.
No deduction shall be allowed under this section for the value of any interest in property (other than a remainder interest) transferred in trust unless the interest is in the form of a guaranteed annuity or the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair market value of the trust property (to be determined yearly) and the grantor is treated as the owner of such interest for purposes of applying section 671. If the donor ceases to be treated as the owner of such an interest for purposes of applying section 671, at the time the donor ceases to be so treated, the donor shall for purposes of this chapter be considered as having received an amount of income equal to the amount of any deduction he received under this section for the contribution reduced by the discounted value of all amounts of income earned by the trust and taxable to him before the time at which he ceases to be treated as the owner of the interest. Such amounts of income shall be discounted to the date of the contribution. The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph.
(C) Denial of deduction in case of payments by certain trusts
In any case in which a deduction is allowed under this section for the value of an interest in property described in subparagraph (B), transferred in trust, no deduction shall be allowed under this section to the grantor or any other person for the amount of any contribution made by the trust with respect to such interest.
(D) Exception
This paragraph shall not apply in a case in which the value of all interests in property transferred in trust are deductible under subsection (a).
(3) Denial of deduction in case of certain contributions of partial interests in property
(A) In general
In the case of a contribution (not made by a transfer in trust) of an interest in property which consists of less than the taxpayer's entire interest in such property, a deduction shall be allowed under this section only to the extent that the value of the interest contributed would be allowable as a deduction under this section if such interest had been transferred in trust. For purposes of this subparagraph, a contribution by a taxpayer of the right to use property shall be treated as a contribution of less than the taxpayer's entire interest in such property.
(B) Exceptions
Subparagraph (A) shall not apply to—
(i) a contribution of a remainder interest in a personal residence or farm,
(ii) a contribution of an undivided portion of the taxpayer's entire interest in property, and
(iii) a qualified conservation contribution.
(4) Valuation of remainder interest in real property
For purposes of this section, in determining the value of a remainder interest in real property, depreciation (computed on the straight line method) and depletion of such property shall be taken into account, and such value shall be discounted at a rate of 6 percent per annum, except that the Secretary may prescribe a different rate.
(5) Reduction for certain interest
If, in connection with any charitable contribution, a liability is assumed by the recipient or by any other person, or if a charitable contribution is of property which is subject to a liability, then, to the extent necessary to avoid the duplication of amounts, the amount taken into account for purposes of this section as the amount of the charitable contribution—
(A) shall be reduced for interest (i) which has been paid (or is to be paid) by the taxpayer, (ii) which is attributable to the liability, and (iii) which is attributable to any period after the making of the contribution, and
(B) in the case of a bond, shall be further reduced for interest (i) which has been paid (or is to be paid) by the taxpayer on indebtedness incurred or continued to purchase or carry such bond, and (ii) which is attributable to any period before the making of the contribution.
The reduction pursuant to subparagraph (B) shall not exceed the interest (including interest equivalent) on the bond which is attributable to any period before the making of the contribution and which is not (under the taxpayer's method of accounting) includible in the gross income of the taxpayer for any taxable year. For purposes of this paragraph, the term "bond" means any bond, debenture, note, or certificate or other evidence of indebtedness.
(6) Deductions for out-of-pocket expenditures
No deduction shall be allowed under this section for an out-of-pocket expenditure made by any person on behalf of an organization described in subsection (c) (other than an organization described in section 501(h)(5) (relating to churches, etc.)) if the expenditure is made for the purpose of influencing legislation (within the meaning of section 501(c)(3)).
(7) Reformations to comply with paragraph (2)
(A) In general
A deduction shall be allowed under subsection (a) in respect of any qualified reformation (within the meaning of section 2055(e)(3)(B)).
(B) Rules similar to section 2055(e)(3) to apply
For purposes of this paragraph, rules similar to the rules of section 2055(e)(3) shall apply.
(8) Substantiation requirement for certain contributions
(A) General rule
No deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B).
(B) Content of acknowledgement
An acknowledgement meets the requirements of this subparagraph if it includes the following information:
(i) The amount of cash and a description (but not value) of any property other than cash contributed.
(ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i).
(iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.
For purposes of this subparagraph, the term "intangible religious benefit" means any intangible religious benefit which is provided by an organization organized exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context.
(C) Contemporaneous
For purposes of subparagraph (A), an acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of—
(i) the date on which the taxpayer files a return for the taxable year in which the contribution was made, or
(ii) the due date (including extensions) for filing such return.
(D) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations that may provide that some or all of the requirements of this paragraph do not apply in appropriate cases.
(9) Denial of deduction where contribution for lobbying activities
No deduction shall be allowed under this section for a contribution to an organization which conducts activities to which section 162(e)(1) applies on matters of direct financial interest to the donor's trade or business, if a principal purpose of the contribution was to avoid Federal income tax by securing a deduction for such activities under this section which would be disallowed by reason of section 162(e) if the donor had conducted such activities directly. No deduction shall be allowed under section 162(a) for any amount for which a deduction is disallowed under the preceding sentence.
(10) Split-dollar life insurance, annuity, and endowment contracts
(A) In general
Nothing in this section or in section 545(b)(2), 642(c), 2055, 2106(a)(2), or 2522 shall be construed to allow a deduction, and no deduction shall be allowed, for any transfer to or for the use of an organization described in subsection (c) if in connection with such transfer—
(i) the organization directly or indirectly pays, or has previously paid, any premium on any personal benefit contract with respect to the transferor, or
(ii) there is an understanding or expectation that any person will directly or indirectly pay any premium on any personal benefit contract with respect to the transferor.
(B) Personal benefit contract
For purposes of subparagraph (A), the term "personal benefit contract" means, with respect to the transferor, any life insurance, annuity, or endowment contract if any direct or indirect beneficiary under such contract is the transferor, any member of the transferor's family, or any other person (other than an organization described in subsection (c)) designated by the transferor.
(C) Application to charitable remainder trusts
In the case of a transfer to a trust referred to in subparagraph (E), references in subparagraphs (A) and (F) to an organization described in subsection (c) shall be treated as a reference to such trust.
(D) Exception for certain annuity contracts
If, in connection with a transfer to or for the use of an organization described in subsection (c), such organization incurs an obligation to pay a charitable gift annuity (as defined in section 501(m)) and such organization purchases any annuity contract to fund such obligation, persons receiving payments under the charitable gift annuity shall not be treated for purposes of subparagraph (B) as indirect beneficiaries under such contract if—
(i) such organization possesses all of the incidents of ownership under such contract,
(ii) such organization is entitled to all the payments under such contract, and
(iii) the timing and amount of payments under such contract are substantially the same as the timing and amount of payments to each such person under such obligation (as such obligation is in effect at the time of such transfer).
(E) Exception for certain contracts held by charitable remainder trusts
A person shall not be treated for purposes of subparagraph (B) as an indirect beneficiary under any life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust (as defined in section 664(d)) solely by reason of being entitled to any payment referred to in paragraph (1)(A) or (2)(A) of section 664(d) if—
(i) such trust possesses all of the incidents of ownership under such contract, and
(ii) such trust is entitled to all the payments under such contract.
(F) Excise tax on premiums paid
(i) In general
There is hereby imposed on any organization described in subsection (c) an excise tax equal to the premiums paid by such organization on any life insurance, annuity, or endowment contract if the payment of premiums on such contract is in connection with a transfer for which a deduction is not allowable under subparagraph (A), determined without regard to when such transfer is made.
(ii) Payments by other persons
For purposes of clause (i), payments made by any other person pursuant to an understanding or expectation referred to in subparagraph (A) shall be treated as made by the organization.
(iii) Reporting
Any organization on which tax is imposed by clause (i) with respect to any premium shall file an annual return which includes—
(I) the amount of such premiums paid during the year and the name and TIN of each beneficiary under the contract to which the premium relates, and
(II) such other information as the Secretary may require.
The penalties applicable to returns required under section 6033 shall apply to returns required under this clause. Returns required under this clause shall be furnished at such time and in such manner as the Secretary shall by forms or regulations require.
(iv) Certain rules to apply
The tax imposed by this subparagraph shall be treated as imposed by
(G) Special rule where State requires specification of charitable gift annuitant in contract
In the case of an obligation to pay a charitable gift annuity referred to in subparagraph (D) which is entered into under the laws of a State which requires, in order for the charitable gift annuity to be exempt from insurance regulation by such State, that each beneficiary under the charitable gift annuity be named as a beneficiary under an annuity contract issued by an insurance company authorized to transact business in such State, the requirements of clauses (i) and (ii) of subparagraph (D) shall be treated as met if—
(i) such State law requirement was in effect on February 8, 1999,
(ii) each such beneficiary under the charitable gift annuity is a bona fide resident of such State at the time the obligation to pay a charitable gift annuity is entered into, and
(iii) the only persons entitled to payments under such contract are persons entitled to payments as beneficiaries under such obligation on the date such obligation is entered into.
(H) Member of family
For purposes of this paragraph, an individual's family consists of the individual's grandparents, the grandparents of such individual's spouse, the lineal descendants of such grandparents, and any spouse of such a lineal descendant.
(I) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations to prevent the avoidance of such purposes.
(11) Qualified appraisal and other documentation for certain contributions
(A) In general
(i) Denial of deduction
In the case of an individual, partnership, or corporation, no deduction shall be allowed under subsection (a) for any contribution of property for which a deduction of more than $500 is claimed unless such person meets the requirements of subparagraphs (B), (C), and (D), as the case may be, with respect to such contribution.
(ii) Exceptions
(I) Readily valued property
Subparagraphs (C) and (D) shall not apply to cash, property described in subsection (e)(1)(B)(iii) or section 1221(a)(1), publicly traded securities (as defined in section 6050L(a)(2)(B)), and any qualified vehicle described in paragraph (12)(A)(ii) for which an acknowledgement under paragraph (12)(B)(iii) is provided.
(II) Reasonable cause
Clause (i) shall not apply if it is shown that the failure to meet such requirements is due to reasonable cause and not to willful neglect.
(B) Property description for contributions of more than $500
In the case of contributions of property for which a deduction of more than $500 is claimed, the requirements of this subparagraph are met if the individual, partnership or corporation includes with the return for the taxable year in which the contribution is made a description of such property and such other information as the Secretary may require. The requirements of this subparagraph shall not apply to a C corporation which is not a personal service corporation or a closely held C corporation.
(C) Qualified appraisal for contributions of more than $5,000
In the case of contributions of property for which a deduction of more than $5,000 is claimed, the requirements of this subparagraph are met if the individual, partnership, or corporation obtains a qualified appraisal of such property and attaches to the return for the taxable year in which such contribution is made such information regarding such property and such appraisal as the Secretary may require.
(D) Substantiation for contributions of more than $500,000
In the case of contributions of property for which a deduction of more than $500,000 is claimed, the requirements of this subparagraph are met if the individual, partnership, or corporation attaches to the return for the taxable year a qualified appraisal of such property.
(E) Qualified appraisal and appraiser
For purposes of this paragraph—
(i) Qualified appraisal
The term "qualified appraisal" means, with respect to any property, an appraisal of such property which—
(I) is treated for purposes of this paragraph as a qualified appraisal under regulations or other guidance prescribed by the Secretary, and
(II) is conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed under subclause (I).
(ii) Qualified appraiser
Except as provided in clause (iii), the term "qualified appraiser" means an individual who—
(I) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary,
(II) regularly performs appraisals for which the individual receives compensation, and
(III) meets such other requirements as may be prescribed by the Secretary in regulations or other guidance.
(iii) Specific appraisals
An individual shall not be treated as a qualified appraiser with respect to any specific appraisal unless—
(I) the individual demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and
(II) the individual has not been prohibited from practicing before the Internal Revenue Service by the Secretary under section 330(c) 2 of
(F) Aggregation of similar items of property
For purposes of determining thresholds under this paragraph, property and all similar items of property donated to 1 or more donees shall be treated as 1 property.
(G) Special rule for pass-thru entities
In the case of a partnership or S corporation, this paragraph shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level.
(H) Regulations
The Secretary may prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations that may provide that some or all of the requirements of this paragraph do not apply in appropriate cases.
(12) Contributions of used motor vehicles, boats, and airplanes
(A) In general
In the case of a contribution of a qualified vehicle the claimed value of which exceeds $500—
(i) paragraph (8) shall not apply and no deduction shall be allowed under subsection (a) for such contribution unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization that meets the requirements of subparagraph (B) and includes the acknowledgement with the taxpayer's return of tax which includes the deduction, and
(ii) if the organization sells the vehicle without any significant intervening use or material improvement of such vehicle by the organization, the amount of the deduction allowed under subsection (a) shall not exceed the gross proceeds received from such sale.
(B) Content of acknowledgement
An acknowledgement meets the requirements of this subparagraph if it includes the following information:
(i) The name and taxpayer identification number of the donor.
(ii) The vehicle identification number or similar number.
(iii) In the case of a qualified vehicle to which subparagraph (A)(ii) applies—
(I) a certification that the vehicle was sold in an arm's length transaction between unrelated parties,
(II) the gross proceeds from the sale, and
(III) a statement that the deductible amount may not exceed the amount of such gross proceeds.
(iv) In the case of a qualified vehicle to which subparagraph (A)(ii) does not apply—
(I) a certification of the intended use or material improvement of the vehicle and the intended duration of such use, and
(II) a certification that the vehicle would not be transferred in exchange for money, other property, or services before completion of such use or improvement.
(v) Whether the donee organization provided any goods or services in consideration, in whole or in part, for the qualified vehicle.
(vi) A description and good faith estimate of the value of any goods or services referred to in clause (v) or, if such goods or services consist solely of intangible religious benefits (as defined in paragraph (8)(B)), a statement to that effect.
(C) Contemporaneous
For purposes of subparagraph (A), an acknowledgement shall be considered to be contemporaneous if the donee organization provides it within 30 days of—
(i) the sale of the qualified vehicle, or
(ii) in the case of an acknowledgement including a certification described in subparagraph (B)(iv), the contribution of the qualified vehicle.
(D) Information to Secretary
A donee organization required to provide an acknowledgement under this paragraph shall provide to the Secretary the information contained in the acknowledgement. Such information shall be provided at such time and in such manner as the Secretary may prescribe.
(E) Qualified vehicle
For purposes of this paragraph, the term "qualified vehicle" means any—
(i) motor vehicle manufactured primarily for use on public streets, roads, and highways,
(ii) boat, or
(iii) airplane.
Such term shall not include any property which is described in section 1221(a)(1).
(F) Regulations or other guidance
The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this paragraph. The Secretary may prescribe regulations or other guidance which exempts sales by the donee organization which are in direct furtherance of such organization's charitable purpose from the requirements of subparagraphs (A)(ii) and (B)(iv)(II).
(13) Contributions of certain interests in buildings located in registered historic districts
(A) In general
No deduction shall be allowed with respect to any contribution described in subparagraph (B) unless the taxpayer includes with the return for the taxable year of the contribution a $500 filing fee.
(B) Contribution described
A contribution is described in this subparagraph if such contribution is a qualified conservation contribution (as defined in subsection (h)) which is a restriction with respect to the exterior of a building described in subsection (h)(4)(C)(ii) and for which a deduction is claimed in excess of $10,000.
(C) Dedication of fee
Any fee collected under this paragraph shall be used for the enforcement of the provisions of subsection (h).
(14) Reduction for amounts attributable to rehabilitation credit
In the case of any qualified conservation contribution (as defined in subsection (h)), the amount of the deduction allowed under this section shall be reduced by an amount which bears the same ratio to the fair market value of the contribution as—
(A) the sum of the credits allowed to the taxpayer under section 47 for the 5 preceding taxable years with respect to any building which is a part of such contribution, bears to
(B) the fair market value of the building on the date of the contribution.
(15) Special rule for taxidermy property
(A) Basis
For purposes of this section and notwithstanding section 1012, in the case of a charitable contribution of taxidermy property which is made by the person who prepared, stuffed, or mounted the property or by any person who paid or incurred the cost of such preparation, stuffing, or mounting, only the cost of the preparing, stuffing, or mounting shall be included in the basis of such property.
(B) Taxidermy property
For purposes of this section, the term "taxidermy property" means any work of art which—
(i) is the reproduction or preservation of an animal, in whole or in part,
(ii) is prepared, stuffed, or mounted for purposes of recreating one or more characteristics of such animal, and
(iii) contains a part of the body of the dead animal.
(16) Contributions of clothing and household items
(A) In general
In the case of an individual, partnership, or corporation, no deduction shall be allowed under subsection (a) for any contribution of clothing or a household item unless such clothing or household item is in good used condition or better.
(B) Items of minimal value
Notwithstanding subparagraph (A), the Secretary may by regulation deny a deduction under subsection (a) for any contribution of clothing or a household item which has minimal monetary value.
(C) Exception for certain property
Subparagraphs (A) and (B) shall not apply to any contribution of a single item of clothing or a household item for which a deduction of more than $500 is claimed if the taxpayer includes with the taxpayer's return a qualified appraisal with respect to the property.
(D) Household items
For purposes of this paragraph—
(i) In general
The term "household items" includes furniture, furnishings, electronics, appliances, linens, and other similar items.
(ii) Excluded items
Such term does not include—
(I) food,
(II) paintings, antiques, and other objects of art,
(III) jewelry and gems, and
(IV) collections.
(E) Special rule for pass-thru entities
In the case of a partnership or S corporation, this paragraph shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level.
(17) Recordkeeping
No deduction shall be allowed under subsection (a) for any contribution of a cash, check, or other monetary gift unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.
(18) Contributions to donor advised funds
A deduction otherwise allowed under subsection (a) for any contribution to a donor advised fund (as defined in section 4966(d)(2)) shall only be allowed if—
(A) the sponsoring organization (as defined in section 4966(d)(1)) with respect to such donor advised fund is not—
(i) described in paragraph (3), (4), or (5) of subsection (c), or
(ii) a type III supporting organization (as defined in section 4943(f)(5)(A)) which is not a functionally integrated type III supporting organization (as defined in section 4943(f)(5)(B)), and
(B) the taxpayer obtains a contemporaneous written acknowledgment (determined under rules similar to the rules of paragraph (8)(C)) from the sponsoring organization (as so defined) of such donor advised fund that such organization has exclusive legal control over the assets contributed.
(19) Certain qualified conservation contributions
(A) In general
In the case of a qualified conservation contribution to which this paragraph applies, no deduction shall be allowed under subsection (a) for such contribution unless the partnership making such contribution—
(i) includes on its return for the taxable year in which the contribution is made a statement that the partnership made such a contribution, and
(ii) provides such information about the contribution as the Secretary may require.
(B) Contributions to which this paragraph applies
This paragraph shall apply to any qualified conservation contribution—
(i) the conservation purpose of which is the preservation of any building which is a certified historic structure (as defined in subsection (h)(4)(C)),
(ii) which is made by a partnership (whether directly or as a distributive share of a contribution of another partnership), and
(iii) the amount of which exceeds 2.5 times the sum of each partner's relevant basis (as defined in subsection (h)(7)) in the partnership making the contribution.
(C) Application to other pass-through entities
Except as may be otherwise provided by the Secretary, the rules of this paragraph shall apply to S corporations and other pass-through entities in the same manner as such rules apply to partnerships.
(g) Amounts paid to maintain certain students as members of taxpayer's household
(1) In general
Subject to the limitations provided by paragraph (2), amounts paid by the taxpayer to maintain an individual (other than a dependent, as defined in section 152 (determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), or a relative of the taxpayer) as a member of his household during the period that such individual is—
(A) a member of the taxpayer's household under a written agreement between the taxpayer and an organization described in paragraph (2), (3), or (4) of subsection (c) to implement a program of the organization to provide educational opportunities for pupils or students in private homes, and
(B) a full-time pupil or student in the twelfth or any lower grade at an educational organization described in section 170(b)(1)(A)(ii) located in the United States,
shall be treated as amounts paid for the use of the organization.
(2) Limitations
(A) Amount
Paragraph (1) shall apply to amounts paid within the taxable year only to the extent that such amounts do not exceed $50 multiplied by the number of full calendar months during the taxable year which fall within the period described in paragraph (1). For purposes of the preceding sentence, if 15 or more days of a calendar month fall within such period such month shall be considered as a full calendar month.
(B) Compensation or reimbursement
Paragraph (1) shall not apply to any amount paid by the taxpayer within the taxable year if the taxpayer receives any money or other property as compensation or reimbursement for maintaining the individual in his household during the period described in paragraph (1).
(3) Relative defined
For purposes of paragraph (1), the term "relative of the taxpayer" means an individual who, with respect to the taxpayer, bears any of the relationships described in subparagraphs (A) through (G) of section 152(d)(2).
(4) No other amount allowed as deduction
No deduction shall be allowed under subsection (a) for any amount paid by a taxpayer to maintain an individual as a member of his household under a program described in paragraph (1)(A) except as provided in this subsection.
(h) Qualified conservation contribution
(1) In general
For purposes of subsection (f)(3)(B)(iii), the term "qualified conservation contribution" means a contribution—
(A) of a qualified real property interest,
(B) to a qualified organization,
(C) exclusively for conservation purposes.
(2) Qualified real property interest
For purposes of this subsection, the term "qualified real property interest" means any of the following interests in real property:
(A) the entire interest of the donor other than a qualified mineral interest,
(B) a remainder interest, and
(C) a restriction (granted in perpetuity) on the use which may be made of the real property.
(3) Qualified organization
For purposes of paragraph (1), the term "qualified organization" means an organization which—
(A) is described in clause (v) or (vi) of subsection (b)(1)(A), or
(B) is described in section 501(c)(3) and—
(i) meets the requirements of section 509(a)(2), or
(ii) meets the requirements of section 509(a)(3) and is controlled by an organization described in subparagraph (A) or in clause (i) of this subparagraph.
(4) Conservation purpose defined
(A) In general
For purposes of this subsection, the term "conservation purpose" means—
(i) the preservation of land areas for outdoor recreation by, or the education of, the general public,
(ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,
(iii) the preservation of open space (including farmland and forest land) where such preservation is—
(I) for the scenic enjoyment of the general public, or
(II) pursuant to a clearly delineated Federal, State, or local governmental conservation policy,
and will yield a significant public benefit, or
(iv) the preservation of an historically important land area or a certified historic structure.
(B) Special rules with respect to buildings in registered historic districts
In the case of any contribution of a qualified real property interest which is a restriction with respect to the exterior of a building described in subparagraph (C)(ii), such contribution shall not be considered to be exclusively for conservation purposes unless—
(i) such interest—
(I) includes a restriction which preserves the entire exterior of the building (including the front, sides, rear, and height of the building), and
(II) prohibits any change in the exterior of the building which is inconsistent with the historical character of such exterior,
(ii) the donor and donee enter into a written agreement certifying, under penalty of perjury, that the donee—
(I) is a qualified organization (as defined in paragraph (3)) with a purpose of environmental protection, land conservation, open space preservation, or historic preservation, and
(II) has the resources to manage and enforce the restriction and a commitment to do so, and
(iii) in the case of any contribution made in a taxable year beginning after the date of the enactment of this subparagraph, the taxpayer includes with the taxpayer's return for the taxable year of the contribution—
(I) a qualified appraisal (within the meaning of subsection (f)(11)(E)) of the qualified property interest,
(II) photographs of the entire exterior of the building, and
(III) a description of all restrictions on the development of the building.
(C) Certified historic structure
For purposes of subparagraph (A)(iv), the term "certified historic structure" means—
(i) any building, structure, or land area which is listed in the National Register, or
(ii) any building which is located in a registered historic district (as defined in section 47(c)(3)(B)) and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district.
A building, structure, or land area satisfies the preceding sentence if it satisfies such sentence either at the time of the transfer or on the due date (including extensions) for filing the transferor's return under this chapter for the taxable year in which the transfer is made.
(5) Exclusively for conservation purposes
For purposes of this subsection—
(A) Conservation purpose must be protected
A contribution shall not be treated as exclusively for conservation purposes unless the conservation purpose is protected in perpetuity.
(B) No surface mining permitted
(i) In general
Except as provided in clause (ii), in the case of a contribution of any interest where there is a retention of a qualified mineral interest, subparagraph (A) shall not be treated as met if at any time there may be extraction or removal of minerals by any surface mining method.
(ii) Special rule
With respect to any contribution of property in which the ownership of the surface estate and mineral interests has been and remains separated, subparagraph (A) shall be treated as met if the probability of surface mining occurring on such property is so remote as to be negligible.
(6) Qualified mineral interest
For purposes of this subsection, the term "qualified mineral interest" means—
(A) subsurface oil, gas, or other minerals, and
(B) the right to access to such minerals.
(7) Limitation on deduction for qualified conservation contributions made by pass-through entities
(A) In general
A contribution by a partnership (whether directly or as a distributive share of a contribution of another partnership) shall not be treated as a qualified conservation contribution for purposes of this section if the amount of such contribution exceeds 2.5 times the sum of each partner's relevant basis in such partnership.
(B) Relevant basis
For purposes of this paragraph—
(i) In general
The term "relevant basis" means, with respect to any partner, the portion of such partner's modified basis in the partnership which is allocable (under rules similar to the rules of section 755) to the portion of the real property with respect to which the contribution described in subparagraph (A) is made.
(ii) Modified basis
The term "modified basis" means, with respect to any partner, such partner's adjusted basis in the partnership as determined—
(I) immediately before the contribution described in subparagraph (A),
(II) without regard to section 752, and
(III) by the partnership after taking into account the adjustments described in subclauses (I) and (II) and such other adjustments as the Secretary may provide.
(C) Exception for contributions outside 3-year holding period
Subparagraph (A) shall not apply to any contribution which is made at least 3 years after the latest of—
(i) the last date on which the partnership that made such contribution acquired any portion of the real property with respect to which such contribution is made,
(ii) the last date on which any partner in the partnership that made such contribution acquired any interest in such partnership, and
(iii) if the interest in the partnership that made such contribution is held through 1 or more partnerships—
(I) the last date on which any such partnership acquired any interest in any other such partnership, and
(II) the last date on which any partner in any such partnership acquired any interest in such partnership.
(D) Exception for family partnerships
(i) In general
Subparagraph (A) shall not apply with respect to any contribution made by any partnership if substantially all of the partnership interests in such partnership are held, directly or indirectly, by an individual and members of the family of such individual.
(ii) Members of the family
For purposes of this subparagraph, the term "members of the family" means, with respect to any individual—
(I) the spouse of such individual, and
(II) any individual who bears a relationship to such individual which is described in subparagraphs (A) through (G) of section 152(d)(2).
(E) Exception for contributions to preserve certified historic structures
Subparagraph (A) shall not apply to any qualified conservation contribution the conservation purpose of which is the preservation of any building which is a certified historic structure (as defined in paragraph (4)(C)).
(F) Application to other pass-through entities
Except as may be otherwise provided by the Secretary, the rules of this paragraph shall apply to S corporations and other pass-through entities in the same manner as such rules apply to partnerships.
(G) Regulations
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations or other guidance—
(i) to require reporting, including reporting related to tiered partnerships and the modified basis of partners, and
(ii) to prevent the avoidance of the purposes of this paragraph.
(i) Standard mileage rate for use of passenger automobile
For purposes of computing the deduction under this section for use of a passenger automobile, the standard mileage rate shall be 14 cents per mile.
(j) Denial of deduction for certain travel expenses
No deduction shall be allowed under this section for traveling expenses (including amounts expended for meals and lodging) while away from home, whether paid directly or by reimbursement, unless there is no significant element of personal pleasure, recreation, or vacation in such travel.
[(k) Repealed. Pub. L. 113–295, div. A, title II, §221(a)(28)(C), Dec. 19, 2014, 128 Stat. 4041 ]
(l) Treatment of certain amounts paid to or for the benefit of institutions of higher education
(1) In general
No deduction shall be allowed under this section for any amount described in paragraph (2).
(2) Amount described
For purposes of paragraph (1), an amount is described in this paragraph if—
(A) the amount is paid by the taxpayer to or for the benefit of an educational organization—
(i) which is described in subsection (b)(1)(A)(ii), and
(ii) which is an institution of higher education (as defined in section 3304(f)), and
(B) the taxpayer receives (directly or indirectly) as a result of paying such amount the right to purchase tickets for seating at an athletic event in an athletic stadium of such institution.
If any portion of a payment is for the purchase of such tickets, such portion and the remaining portion (if any) of such payment shall be treated as separate amounts for purposes of this subsection.
(m) Certain donee income from intellectual property treated as an additional charitable contribution
(1) Treatment as additional contribution
In the case of a taxpayer who makes a qualified intellectual property contribution, the deduction allowed under subsection (a) for each taxable year of the taxpayer ending on or after the date of such contribution shall be increased (subject to the limitations under subsection (b)) by the applicable percentage of qualified donee income with respect to such contribution which is properly allocable to such year under this subsection.
(2) Reduction in additional deductions to extent of initial deduction
With respect to any qualified intellectual property contribution, the deduction allowed under subsection (a) shall be increased under paragraph (1) only to the extent that the aggregate amount of such increases with respect to such contribution exceed the amount allowed as a deduction under subsection (a) with respect to such contribution determined without regard to this subsection.
(3) Qualified donee income
For purposes of this subsection, the term "qualified donee income" means any net income received by or accrued to the donee which is properly allocable to the qualified intellectual property.
(4) Allocation of qualified donee income to taxable years of donor
For purposes of this subsection, qualified donee income shall be treated as properly allocable to a taxable year of the donor if such income is received by or accrued to the donee for the taxable year of the donee which ends within or with such taxable year of the donor.
(5) 10-year limitation
Income shall not be treated as properly allocable to qualified intellectual property for purposes of this subsection if such income is received by or accrued to the donee after the 10-year period beginning on the date of the contribution of such property.
(6) Benefit limited to life of intellectual property
Income shall not be treated as properly allocable to qualified intellectual property for purposes of this subsection if such income is received by or accrued to the donee after the expiration of the legal life of such property.
(7) Applicable percentage
For purposes of this subsection, the term "applicable percentage" means the percentage determined under the following table which corresponds to a taxable year of the donor ending on or after the date of the qualified intellectual property contribution:
| Taxable Year of Donor Ending on or After Date of Contribution: | Applicable Percentage: |
|---|---|
| 1st | 100 |
| 2nd | 100 |
| 3rd | 90 |
| 4th | 80 |
| 5th | 70 |
| 6th | 60 |
| 7th | 50 |
| 8th | 40 |
| 9th | 30 |
| 10th | 20 |
| 11th | 10 |
| 12th | 10. |
(8) Qualified intellectual property contribution
For purposes of this subsection, the term "qualified intellectual property contribution" means any charitable contribution of qualified intellectual property—
(A) the amount of which taken into account under this section is reduced by reason of subsection (e)(1), and
(B) with respect to which the donor informs the donee at the time of such contribution that the donor intends to treat such contribution as a qualified intellectual property contribution for purposes of this subsection and section 6050L.
(9) Qualified intellectual property
For purposes of this subsection, the term "qualified intellectual property" means property described in subsection (e)(1)(B)(iii) (other than property contributed to or for the use of an organization described in subsection (e)(1)(B)(ii)).
(10) Other special rules
(A) Application of limitations on charitable contributions
Any increase under this subsection of the deduction provided under subsection (a) shall be treated for purposes of subsection (b) as a deduction which is attributable to a charitable contribution to the donee to which such increase relates.
(B) Net income determined by donee
The net income taken into account under paragraph (3) shall not exceed the amount of such income reported under section 6050L(b)(1).
(C) Deduction limited to 12 taxable years
Except as may be provided under subparagraph (D)(i), this subsection shall not apply with respect to any qualified intellectual property contribution for any taxable year of the donor after the 12th taxable year of the donor which ends on or after the date of such contribution.
(D) Regulations
The Secretary may issue regulations or other guidance to carry out the purposes of this subsection, including regulations or guidance—
(i) modifying the application of this subsection in the case of a donor or donee with a short taxable year, and
(ii) providing for the determination of an amount to be treated as net income of the donee which is properly allocable to qualified intellectual property in the case of a donee who uses such property to further a purpose or function constituting the basis of the donee's exemption under section 501 (or, in the case of a governmental unit, any purpose described in section 170(c)) and does not possess a right to receive any payment from a third party with respect to such property.
(n) Expenses paid by certain whaling captains in support of Native Alaskan subsistence whaling
(1) In general
In the case of an individual who is recognized by the Alaska Eskimo Whaling Commission as a whaling captain charged with the responsibility of maintaining and carrying out sanctioned whaling activities and who engages in such activities during the taxable year, the amount described in paragraph (2) (to the extent such amount does not exceed $10,000 for the taxable year) shall be treated for purposes of this section as a charitable contribution.
(2) Amount described
(A) In general
The amount described in this paragraph is the aggregate of the reasonable and necessary whaling expenses paid by the taxpayer during the taxable year in carrying out sanctioned whaling activities.
(B) Whaling expenses
For purposes of subparagraph (A), the term "whaling expenses" includes expenses for—
(i) the acquisition and maintenance of whaling boats, weapons, and gear used in sanctioned whaling activities,
(ii) the supplying of food for the crew and other provisions for carrying out such activities, and
(iii) storage and distribution of the catch from such activities.
(3) Sanctioned whaling activities
For purposes of this subsection, the term "sanctioned whaling activities" means subsistence bowhead whale hunting activities conducted pursuant to the management plan of the Alaska Eskimo Whaling Commission.
(4) Substantiation of expenses
The Secretary shall issue guidance requiring that the taxpayer substantiate the whaling expenses for which a deduction is claimed under this subsection, including by maintaining appropriate written records with respect to the time, place, date, amount, and nature of the expense, as well as the taxpayer's eligibility for such deduction, and that (to the extent provided by the Secretary) such substantiation be provided as part of the taxpayer's return of tax.
(o) Special rules for fractional gifts
(1) Denial of deduction in certain cases
(A) In general
No deduction shall be allowed for a contribution of an undivided portion of a taxpayer's entire interest in tangible personal property unless all interests in the property are held immediately before such contribution by—
(i) the taxpayer, or
(ii) the taxpayer and the donee.
(B) Exceptions
The Secretary may, by regulation, provide for exceptions to subparagraph (A) in cases where all persons who hold an interest in the property make proportional contributions of an undivided portion of the entire interest held by such persons.
(2) Valuation of subsequent gifts
In the case of any additional contribution, the fair market value of such contribution shall be determined by using the lesser of—
(A) the fair market value of the property at the time of the initial fractional contribution, or
(B) the fair market value of the property at the time of the additional contribution.
(3) Recapture of deduction in certain cases; addition to tax
(A) Recapture
The Secretary shall provide for the recapture of the amount of any deduction allowed under this section (plus interest) with respect to any contribution of an undivided portion of a taxpayer's entire interest in tangible personal property—
(i) in any case in which the donor does not contribute all of the remaining interests in such property to the donee (or, if such donee is no longer in existence, to any person described in section 170(c)) on or before the earlier of—
(I) the date that is 10 years after the date of the initial fractional contribution, or
(II) the date of the death of the donor, and
(ii) in any case in which the donee has not, during the period beginning on the date of the initial fractional contribution and ending on the date described in clause (i)—
(I) had substantial physical possession of the property, and
(II) used the property in a use which is related to a purpose or function constituting the basis for the organizations' exemption under section 501.
(B) Addition to tax
The tax imposed under this chapter for any taxable year for which there is a recapture under subparagraph (A) shall be increased by 10 percent of the amount so recaptured.
(4) Definitions
For purposes of this subsection—
(A) Additional contribution
The term "additional contribution" means any charitable contribution by the taxpayer of any interest in property with respect to which the taxpayer has previously made an initial fractional contribution.
(B) Initial fractional contribution
The term "initial fractional contribution" means, with respect to any taxpayer, the first charitable contribution of an undivided portion of the taxpayer's entire interest in any tangible personal property.
(p) Special rule for taxpayers who do not elect to itemize deductions
In the case of any taxable year beginning in 2021, if the individual does not elect to itemize deductions for such taxable year, the deduction under this section shall be equal to the deduction, not in excess of $300 ($600 in the case of a joint return), which would be determined under this section if the only charitable contributions taken into account in determining such deduction were contributions made in cash during such taxable year (determined without regard to subsections (b)(1)(G)(ii) and (d)(1)) to an organization described in section 170(b)(1)(A) and not—
(1) to an organization described in section 509(a)(3), or
(2) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in section 4966(d)(2)).
(q) Other cross references
(1) For treatment of certain organizations providing child care, see section 501(k).
(2) For charitable contributions of estates and trusts, see section 642(c).
(3) For nondeductibility of contributions by common trust funds, see section 584.
(4) For charitable contributions of partners, see section 702.
(5) For charitable contributions of nonresident aliens, see section 873.
(6) For treatment of gifts for benefit of or use in connection with the Naval Academy as gifts to or for use of the United States, see
(7) For treatment of gifts accepted by the Secretary of State, the Director of the International Communication Agency, or the Director of the United States International Development Cooperation Agency, as gifts to or for the use of the United States, see section 25 of the State Department Basic Authorities Act of 1956.
(8) For treatment of gifts of money accepted by the Attorney General for credit to the "Commissary Funds Federal Prisons" as gifts to or for the use of the United States, see
(9) For charitable contributions to or for the use of Indian tribal governments (or their subdivisions), see section 7871.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 1404 of the National Agricultural Research, Extension, and Teaching Policy Act of 1977, referred to in subsec. (b)(1)(A)(ix), is classified to
The date of the enactment of this subparagraph, referred to in subsecs. (b)(1)(E)(iv)(II), (2)(B)(i)(II) and (h)(4)(B)(iii), is the date of enactment of
The Alaska Native Claims Settlement Act, referred to in subsec. (b)(2)(C)(i)(II), (iii), is
The Federal Food, Drug, and Cosmetic Act, as amended, referred to in subsec. (e)(3)(A)(iv), is act June 25, 1938, ch. 675,
The date of the enactment of this subparagraph, referred to in subsec. (e)(3)(C)(vi), is the date of enactment of
Section 25 of the State Department Basic Authorities Act of 1956, referred to in subsec. (q)(7), is classified to
Codification
Sections 1202(a), 1204(a), 1206(a), (b)(1), 1213(a)–(d), 1214(a), (b), 1215(a), 1216(a), 1217(a), 1218(a), 1219(c)(1), and 1234(a) of
Amendments
2022—Subsec. (f)(19).
Subsec. (h)(7).
2020—Subsecs. (p), (q).
2018—Subsec. (b)(1)(A)(ix).
Subsec. (e)(3)(D), (E).
Subsec. (p)(6).
2017—Subsec. (b)(1)(G), (H).
Subsec. (b)(2)(D)(iv), (v).
Subsec. (b)(2)(D)(vi).
Subsec. (f)(8)(D), (E).
Subsec. (l)(1).
Subsec. (l)(2)(B).
2015—Subsec. (a)(2)(B).
Subsec. (b)(1)(A)(ix).
Subsec. (b)(1)(E)(vi).
Subsec. (b)(2)(A).
Subsec. (b)(2)(B)(ii).
Subsec. (b)(2)(B)(iii).
Subsec. (b)(2)(C), (D).
Subsec. (e)(3)(C)(ii).
Subsec. (e)(3)(C)(iii).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(3)(C)(v), (vi).
2014—Subsec. (b)(1)(E)(vi).
Subsec. (b)(2)(B)(iii).
Subsec. (b)(3).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(6).
Subsec. (k).
2013—Subsec. (b)(1)(E)(vi).
Subsec. (b)(2)(B)(iii).
Subsec. (e)(3)(C)(iv).
2010—Subsec. (b).
Subsec. (e)(1).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(3)(D)(iv).
Subsec. (e)(6)(G).
2008—Subsec. (b).
Subsec. (b)(3).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(3)(D)(iii).
Subsec. (e)(3)(D)(iv).
Subsec. (e)(6)(G).
2007—Subsec. (b)(1)(A)(vii).
Subsec. (e)(1)(B)(i)(II).
Subsec. (e)(1)(B)(ii).
Subsec. (e)(7)(D)(i)(I).
Subsec. (o)(1)(A).
Subsec. (o)(3)(A)(i).
2006—Subsec. (b)(1)(E) to (G).
Subsec. (b)(2).
"(A) this section,
"(B) part VIII (except section 248),
"(C) section 199,
"(D) any net operating loss carryback to the taxable year under section 172, and
"(E) any capital loss carryback to the taxable year under section 1212(a)(1)."
See Codification note above.
Subsec. (d)(2).
Subsec. (e)(1)(A).
Subsec. (e)(1)(B)(i).
Subsec. (e)(1)(B)(iv).
Subsec. (e)(3)(C)(iv).
Subsec. (e)(3)(D)(iv).
Subsec. (e)(4)(B)(ii).
Subsec. (e)(4)(B)(iii).
Subsec. (e)(6)(B)(ii).
Subsec. (e)(6)(D).
Subsec. (e)(6)(G).
Subsec. (e)(7).
Subsec. (f)(11)(E).
Subsec. (f)(13).
Subsec. (f)(14).
Subsec. (f)(15).
Subsec. (f)(16).
Subsec. (f)(17).
Subsec. (f)(18).
Subsec. (h)(4)(B).
Subsec. (h)(4)(C).
Subsecs. (o), (p).
2005—Subsec. (b)(2)(C) to (E).
Subsec. (e)(3)(C).
Subsec. (e)(3)(D).
Subsec. (e)(3)(E).
Subsec. (f)(12)(B)(v), (vi).
2004—Subsec. (e)(1)(B)(iii).
Subsec. (e)(6)(G).
Subsec. (f)(10)(A).
Subsec. (f)(11).
Subsec. (f)(11)(A)(ii)(I).
Subsec. (f)(12).
Subsec. (g)(1).
Subsec. (g)(3).
Subsec. (m).
Subsec. (n).
Subsec. (o).
2003—Subsec. (e)(6)(B)(i)(III).
2002—Subsec. (e)(6)(B)(i)(III).
Subsec. (e)(6)(B)(iv).
2001—Subsec. (e)(1).
2000—Subsec. (e)(6).
Subsec. (e)(6)(A), (B).
Subsec. (e)(6)(B)(i)(III).
Subsec. (e)(6)(B)(ii).
Subsec. (e)(6)(B)(iv).
Subsec. (e)(6)(B)(viii).
Subsec. (e)(6)(C).
Subsec. (e)(6)(D), (E).
Subsec. (e)(6)(F).
Subsec. (e)(6)(G).
1999—Subsec. (e)(3)(A), (4)(B).
Subsec. (f)(10).
1998—Subsec. (e)(5)(D).
"(i) after December 31, 1994, and before July 1, 1996, or
"(ii) after June 30, 1998."
Subsec. (e)(6)(B)(iv).
Subsec. (e)(6)(B)(vi), (vii).
Subsec. (e)(6)(C)(ii)(I).
Subsec. (e)(6)(F).
1997—Subsec. (e)(5)(D)(ii).
Subsec. (e)(6).
Subsec. (h)(5)(B)(ii).
Subsec. (i).
1996—Subsec. (e)(1).
Subsec. (e)(5)(D).
1993—Subsec. (f)(8).
Subsec. (f)(9).
1990—Subsec. (h)(4)(B)(ii).
Subsec. (i).
Subsecs. (j) to (n).
1988—Subsecs. (m), (n).
1987—Subsec. (c)(2)(D).
1986—Subsec. (b)(1)(C)(iv).
Subsec. (e)(1)(B).
Subsec. (e)(4)(B)(i).
Subsecs. (k) to (m).
1984—Subsec. (a)(3).
Subsec. (b)(1)(A)(vii).
Subsec. (b)(1)(B).
Subsec. (b)(1)(B)(i).
Subsec. (b)(1)(C).
Subsec. (b)(1)(D) to (F).
Subsec. (e)(1).
Subsec. (e)(1)(B)(ii).
Subsec. (e)(3)(C).
Subsec. (e)(5).
Subsec. (f)(7).
Subsec. (h)(5)(B).
Subsec. (j).
Subsec. (k).
Subsec. (l).
1983—Subsec. (h)(4)(B)(ii).
Subsec. (k)(8).
1982—Subsec. (c)(2).
Subsec. (e)(3)(A).
Subsec. (e)(4)(D)(i).
Subsec. (k)(7).
1981—Subsec. (b)(2).
Subsec. (e)(4).
Subsec. (i).
Subsecs. (j), (k).
1980—Subsec. (f)(3).
Subsecs. (h), (i).
Subsec. (i)(6).
Subsec. (j).
1978—Subsec. (e)(1)(B).
1977—Subsec. (f)(3)(B)(iii).
1976—Subsec. (a).
Subsec. (b)(1)(A)(vii).
Subsec. (b)(1)(B)(ii).
Subsec. (b)(1)(C).
Subsec. (b)(1)(D) to (F).
Subsec. (b)(2).
Subsec. (c).
Subsec. (c)(2)(B).
Subsec. (c)(2)(D).
Subsec. (d)(1)(A).
Subsec. (e)(1).
Subsec. (e)(1)(B)(ii).
Subsec. (e)(2).
Subsec. (e)(3).
Subsec. (f)(2).
Subsec. (f)(3).
Subsec. (f)(4).
Subsec. (f)(6).
Subsec. (g).
Subsec. (g)(1)(B).
Subsec. (h).
Subsec. (i).
Subsec. (j).
1969—Subsec. (a)(3).
Subsec. (b).
Subsec. (c).
Subsec. (d).
Subsec. (e).
Subsec. (f).
Subsec. (g).
Subsec. (h).
Subsec. (i).
Subsec. (j).
1966—Subsec. (e).
1964—Subsec. (b)(1)(A)(v), (vi), (2), (5).
Subsec. (e).
Subsec. (f).
Subsec. (g).
Subsecs. (h), (i).
1962—Subsec. (b)(1)(A)(iv).
Subsec. (b)(1)(B).
Subsecs. (e) to (g).
1960—Subsec. (c).
Subsecs. (d) to (f).
1958—Subsec. (b)(1)(C).
Subsec. (b)(3).
Subsec. (b)(4).
1956—Subsec. (b)(1)(A)(iii). Act Aug. 7, 1956, §1, provided for the allowance, as deductions, of contributions to medical research organizations.
Statutory Notes and Related Subsidiaries
Change of Name
International Communication Agency, and Director thereof, redesignated United States Information Agency, and Director thereof, by section 303 of
Effective Date of 2022 Amendment
"(1)
"(2)
Effective Date of 2020 Amendment
Amendment by
Effective Date of 2018 Amendment
Amendment by
Effective Date of 2017 Amendment
Amendment by section 11011(d)(5) of
Amendment by section 13305(b)(2) of
Effective Date of 2015 Amendment
"(1)
"(2)
"(1)
"(2)
"(A)
"(B)
Effective Date of 2014 Amendment
Amendment by section 221(a)(28) of
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Amendment by section 301(a) of
Effective Date of 2008 Amendment
Amendment of this section and repeal of
[
Effective Date of 2007 Amendment
Effective Date of 2006 Amendment
"(1)
"(2)
"(3)
"(1)
"(2)
"(3)
Effective Date of 2005 Amendments
Amendments by
Effective Date of 2004 Amendments
Amendment by section 413(c)(30) of
Amendment by section 207(15), (16) of
Effective Date of 2001 Amendment
Amendment by
Effective Date of 2000 Amendment
Effective Date of 1999 Amendment
"(1)
"(2)
"(3)
Effective Date of 1998 Amendments
Amendment by
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Effective Date of 1993 Amendment
Amendment by section 13222(b) of
Effective Date of 1990 Amendment
Amendment by section 11813(b)(10) of
Effective Date of 1988 Amendment
"(1)
"(2)
Effective Date of 1987 Amendment
Effective Date of 1986 Amendment
Amendment by section 142(d) of
Amendment by section 231(f) of
Amendment by section 301(b)(2) of
Amendment by section 1831 of
Effective Date of 1984 Amendment
Amendment by section 174(b)(5)(A) of
"(1)
"(2)
Amendment by section 1022(b) of
Effective Date of 1983 Amendment
For effective date of amendment by
Amendment by title I of
Effective Date of 1982 Amendment
Amendment by
Amendment by
Effective Date of 1981 Amendment
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Effective Date of 1977 Amendment
Effective Date of 1976 Amendment
Amendment by section 1307 (d)(1)(B)(i), (c) of
Amendment by section 1313(b)(1) of
Amendment by section 1901(a)(28) of
Effective Date of 1969 Amendment
Amendment by section 101(j)(2) of
"(1)(A) Except as provided in subparagraphs (B) and (C), the amendments made by subsection (a) [amending this section and
"(B) Subsections (e) and (f)(1) of section 170 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by subsection (a)) shall apply to contributions paid after December 31, 1969, except that, with respect to a letter or memorandum or similar property described in section 1221(3) of such Code (as amended by section 514 of this Act), such subsection (e) shall apply to contributions paid after July 25, 1969.
"(C) Paragraphs (2), (3), and (4) of section 170(f) of such Code (as amended by subsection (a)) shall apply to transfers in trust and contributions made after July 31, 1969.
"(D) For purposes of applying section 170(d) of such Code (as amended by subsection (a)) with respect to contributions paid in a taxable year beginning before January 1, 1970, subsection (b)(1)(D), subsection (e), and paragraphs (1), (2), (3), and (4) of subsection (f) of section 170 of such Code shall not apply.
"(2) The amendments made by subsection (b) [amending
"(3) The amendment made by subsection (c) [amending
"(4)(A) Except as provided in subparagraphs (B) and (C), the amendments made by paragraphs (1) and (2) of subsection (d) [amending
"(B) Such amendments shall not apply in the case of property passing under the terms of a will executed on or before October 9, 1969—
"(i) if the decedent dies before October 9, 1972, without having republished the will after October 9, 1969, by codicil or otherwise,
"(ii) if the decedent at no time after October 9, 1969, had the right to change the portions of the will which pertain to the passing of the property to, or for the use of, an organization described in section 2055(a) [
"(iii) if the will is not republished by codicil or otherwise before October 9, 1972, and the decedent is on such date and at all times thereafter under a mental disability to republish the will by codicil or otherwise.
"(C) Such amendments shall not apply in the case of property transferred in trust on or before October 9, 1969—
"(i) if the decedent dies before October 9, 1972, without having amended after October 9, 1969, the instrument governing the disposition of the property,
"(ii) if the property transferred was an irrevocable interest to, or for the use of, an organization described in section 2055(a), or
"(iii) if the instrument governing the disposition of the property was not amended by the decedent before October 9, 1972, and the decedent is on such date and at all times thereafter under a mental disability to change the disposition of the property.
"(D) The amendment made by paragraph (3) of subsection (d) [amending
"(E) The amendments made by paragraph (4) of subsection (d) [amending
"(5) The amendment made by subsection (e) [enacting
"(6) The amendments made by subsection (f) [amending
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1964 Amendment
"(1) The amendments made by subsections (a), (b), and (c) [amending this section and
"(2) The amendments made by subsection (d) [amending this section and
"(3) The amendments made by subsection (e) [amending this section] shall apply to transfers of future interests made after December 31, 1963, in taxable years ending after such date, except that such amendments shall not apply to any transfer of a future interest made before July 1, 1964, where—
"(A) the sole intervening interest or right is a nontransferable life interest reserved by the donor, or
"(B) in the case of a joint gift by husband and wife, the sole intervening interest or right is a nontransferable life interest reserved by the donors which expires not later than the death of whichever of such donors dies later.
For purposes of the exception contained in the preceding sentence, a right to make a transfer of the reserved life interest to the donee of the future interest shall not be treated as making a life interest transferable."
Amendment by section 231(b)(1) of
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1960 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by section 11 of
Effective Date of 1956 Amendment
Act Aug. 7, 1956, ch. 1031, §2,
Savings Provision
For provisions that nothing in amendment by section 401(b)(14) of
For provisions that nothing in amendment by
Construction; Valid Existing Rights Preserved
Transfer of Functions
United States International Development Cooperation Agency (other than Agency for International Development and Overseas Private Investment Corporation) abolished and functions and authorities transferred, see
For transfer of functions, personnel, assets, and liabilities of the Overseas Private Investment Corporation to the United States International Development Finance Corporation and treatment of related references, see
Extension of Statute of Limitations for Listed Transactions
Safe Harbors and Opportunity for Donor to Correct Certain Deed Errors
"(1)
"(2)
"(A)
"(i) the amended deed is signed by the donor and donee and recorded within such 90-day period, and
"(ii) such amendment is treated as effective as of the date of the recording of the original easement deed.
"(B)
"(i) which—
"(I) is part of a reportable transaction (as defined in section 6707A(c)(1) of the Internal Revenue Code of 1986), or
"(II) is described in Internal Revenue Service Notice 2017–10,
"(ii) which by reason of section 170(h)(7) of such Code, as added by this section, is not treated as a qualified conservation contribution,
"(iii) if a deduction for such contribution under section 170 of such Code has been disallowed by the Secretary of the Treasury (or such Secretary's delegate), and the donor is contesting such disallowance in a case which is docketed in a Federal court on a date before the date the amended deed is recorded by the donor, or
"(iv) if a claimed deduction for such contribution under section 170 of such Code resulted in an underpayment to which a penalty under section 6662 or 6663 of such Code applies and—
"(I) such penalty has been finally determined administratively, or
"(II) if such penalty is challenged in court, the judicial proceeding with respect to such penalty has been concluded by a decision or judgment which has become final."
Temporary Modification of Limitations on Charitable Contributions
"(a)
"(1)
"(2)
"(A)
"(i)
"(ii)
"(B)
"(i)
"(ii)
"(3)
"(A)
"(i) such contribution is paid in cash during calendar year 2020 or 2021 to an organization described in section 170(b)(1)(A) of such Code, and
"(ii) the taxpayer has elected the application of this section with respect to such contribution.
"(B)
"(i) to an organization described in section 509(a)(3) of the Internal Revenue Code of 1986, or
"(ii) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in section 4966(d)(2) of such Code).
"(C)
"(b)
"(c)
[
Anti-Abuse Rules
"(1) the circumvention of the reduction of the charitable deduction by embedding or bundling the patent or similar property as part of a charitable contribution of property that includes the patent or similar property,
"(2) the manipulation of the basis of the property to increase the amount of the charitable deduction through the use of related persons, pass-thru entities, or other intermediaries, or through the use of any provision of law or regulation (including the consolidated return regulations), and
"(3) a donor from changing the form of the patent or similar property to property of a form for which different deduction rules would apply."
Authority To Waive Appraisal Requirement for Certain Charitable Contributions of Property
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Treatment of Certain Amounts Paid to or for the Benefit of Certain Institutions of Higher Education
Substantiation of Charitable Contributions of Property
"(1)
"(A) to obtain a qualified appraisal for the property contributed,
"(B) to attach an appraisal summary to the return on which such deduction is first claimed for such contribution, and
"(C) to include on such return such additional information (including the cost basis and acquisition date of the contributed property) as the Secretary may prescribe in such regulations.
Such regulations shall require the taxpayer to retain any qualified appraisal.
"(2)
"(A) if such contribution is of property (other than publicly traded securities), and
"(B) if the claimed value of such property (plus the claimed value of all similar items of property donated to 1 or more donees) exceeds $5,000.
In the case of any property which is nonpublicly traded stock, subparagraph (B) shall be applied by substituting '$10,000' for '$5,000'.
"(3)
"(4)
"(A) a description of the property appraised,
"(B) the fair market value of such property on the date of contribution and the specific basis for the valuation,
"(C) a statement that such appraisal was prepared for income tax purposes,
"(D) the qualifications of the qualified appraiser,
"(E) the signature and TIN of such appaiser, [sic] and
"(F) such additional information as the Secretary prescribes in such regulations.
"(5)
"(A)
"(i) the taxpayer,
"(ii) a party to the transaction in which the taxpayer acquired the property,
"(iii) the donee,
"(iv) any person employed by any of the foregoing persons or related to any of the foregoing persons under section 267(b) of the Internal Revenue Code of 1986, or
"(v) to the extent provided in such regulations, any person whose relationship to the taxpayer would cause a reasonable person to question the independence of such appraiser.
"(B)
"(6)
"(A)
"(B)
"(C)
"(D)
"(E)
Charitable Lead Trusts and Charitable Remainder Trusts in Case of Income and Gift Taxes
For includibility of provisions comparable to
Deduction of Contributions to Certain Organizations for Judicial Reform
"(1) to consider proposals for the reorganization of the judicial branch of the government of any State of the United States or political subdivision of such State, and
"(2) to provide information, make recommendations, and seek public support or opposition as to such proposals,
shall be treated as a charitable contribution if no part of the net earnings of such organization inures to the benefit of any private shareholder or individual. The provisions of the preceding sentence shall not apply to any organization which participates in, or intervenes in, any political campaign on behalf of any candidate for public office."
1 So in original. Probably should be followed by ", and".
2 See References in Text note below.
§171. Amortizable bond premium
(a) General rule
In the case of any bond, as defined in subsection (d), the following rules shall apply to the amortizable bond premium (determined under subsection (b)) on the bond:
(1) Taxable bonds
In the case of a bond (other than a bond the interest on which is excludable from gross income), the amount of the amortizable bond premium for the taxable year shall be allowed as a deduction.
(2) Tax-exempt bonds
In the case of any bond the interest on which is excludable from gross income, no deduction shall be allowed for the amortizable bond premium for the taxable year.
(3) Cross reference
For adjustment to basis on account of amortizable bond premium, see section 1016(a)(5).
(b) Amortizable bond premium
(1) Amount of bond premium
For purposes of paragraph (2), the amount of bond premium, in the case of the holder of any bond, shall be determined—
(A) with reference to the amount of the basis (for determining loss on sale or exchange) of such bond,
(B)(i) with reference to the amount payable on maturity (or if it results in a smaller amortizable bond premium attributable to the period before the call date, with reference to the amount payable on the earlier call date), in the case of a bond described in subsection (a)(1), and
(ii) with reference to the amount payable on maturity or on an earlier call date, in the case of a bond described in subsection (a)(2).
(C) with adjustments proper to reflect unamortized bond premium, with respect to the bond, for the period before the date as of which subsection (a) becomes applicable with respect to the taxpayer with respect to such bond.
In no case shall the amount of bond premium on a convertible bond include any amount attributable to the conversion features of the bond.
(2) Amount amortizable
The amortizable bond premium of the taxable year shall be the amount of the bond premium attributable to such year. In the case of a bond to which paragraph (1)(B)(i) applies and which has a call date, the amount of bond premium attributable to the taxable year in which the bond is called shall include an amount equal to the excess of the amount of the adjusted basis (for determining loss on sale or exchange) of such bond as of the beginning of the taxable year over the amount received on redemption of the bond or (if greater) the amount payable on maturity.
(3) Method of determination
(A) In general
Except as provided in regulations prescribed by the Secretary, the determinations required under paragraphs (1) and (2) shall be made on the basis of the taxpayer's yield to maturity determined by—
(i) using the taxpayer's basis (for purposes of determining loss on sale or exchange) of the obligation, and
(ii) compounding at the close of each accrual period (as defined in section 1272(a)(5)).
(B) Special rule where earlier call date is used
For purposes of subparagraph (A), if the amount payable on an earlier call date is used under paragraph (1)(B)(i) in determining the amortizable bond premium attributable to the period before the earlier call date, such bond shall be treated as maturing on such date for the amount so payable and then reissued on such date for the amount so payable.
(4) Treatment of certain bonds acquired in exchange for other property
(A) In general
If—
(i) a bond is acquired by any person in exchange for other property, and
(ii) the basis of such bond is determined (in whole or in part) by reference to the basis of such other property,
for purposes of applying this subsection to such bond while held by such person, the basis of such bond shall not exceed its fair market value immediately after the exchange. A similar rule shall apply in the case of such bond while held by any other person whose basis is determined (in whole or in part) by reference to the basis in the hands of the person referred to in clause (i).
(B) Special rule where bond exchanged in reorganization
Subparagraph (A) shall not apply to an exchange by the taxpayer of a bond for another bond if such exchange is a part of a reorganization (as defined in section 368). If any portion of the basis of the taxpayer in a bond transferred in such an exchange is not taken into account in determining bond premium by reason of this paragraph, such portion shall not be taken into account in determining the amount of bond premium on any bond received in the exchange.
(c) Election as to taxable bonds
(1) Eligibility to elect; bonds with respect to which election permitted
In the case of bonds the interest on which is not excludible from gross income, this section shall apply only if the taxpayer has so elected.
(2) Manner and effect of election
The election authorized under this subsection shall be made in accordance with such regulations as the Secretary shall prescribe. If such election is made with respect to any bond (described in paragraph (1)) of the taxpayer, it shall also apply to all such bonds held by the taxpayer at the beginning of the first taxable year to which the election applies and to all such bonds thereafter acquired by him and shall be binding for all subsequent taxable years with respect to all such bonds of the taxpayer, unless, on application by the taxpayer, the Secretary permits him, subject to such conditions as the Secretary deems necessary, to revoke such election. In the case of bonds held by a common trust fund, as defined in section 584(a), the election authorized under this subsection shall be exercisable with respect to such bonds only by the common trust fund. In case of bonds held by an estate or trust, the election authorized under this subsection shall be exercisable with respect to such bonds only by the fiduciary.
(d) Bond defined
For purposes of this section, the term "bond" means any bond, debenture, note, or certificate or other evidence of indebtedness, but does not include any such obligation which constitutes stock in trade of the taxpayer or any such obligation of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or any such obligation held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.
(e) Treatment as offset to interest payments
Except as provided in regulations, in the case of any taxable bond—
(1) the amount of any bond premium shall be allocated among the interest payments on the bond under rules similar to the rules of subsection (b)(3), and
(2) in lieu of any deduction under subsection (a), the amount of any premium so allocated to any interest payment shall be applied against (and operate to reduce) the amount of such interest payment.
For purposes of the preceding sentence, the term "taxable bond" means any bond the interest of which is not excludable from gross income.
(f) Dealers in tax-exempt securities
For special rules applicable, in the case of dealers in securities, with respect to premium attributable to certain wholly tax-exempt securities, see section 75.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2014—Subsec. (b)(1)(B).
"(i) with reference to the amount payable on maturity or on earlier call date, in the case of any bond other than a bond to which clause (ii) applies, or and
"(ii) with reference to the amount payable on maturity (or if it results in a smaller amortizable bond premium attributable to the period to earlier call date, with reference to the amount payable on earlier call date), in the case of any bond described in subsection (a)(1) which is acquired after December 31, 1957, and".
Subsec. (b)(2), (3)(B).
2004—Subsec. (c)(2).
1988—Subsec. (e).
1986—Subsec. (b)(3).
"(A) in accordance with the method of amortizing bond premium regularly employed by the holder of the bond, if such method is reasonable;
"(B) in all other cases, in accordance with regulations prescribing reasonable methods of amortizing bond premium prescribed by the Secretary."
Subsec. (b)(4).
Subsec. (d).
Subsecs. (e), (f).
1976—Subsec. (a)(1).
Subsec. (a)(2).
Subsec. (a)(3).
Subsec. (a)(4).
Subsec. (b)(1)(B)(i).
Subsec. (b)(1)(B)(ii).
Subsec. (b)(1)(B)(iii).
Subsec. (b)(2).
Subsec. (b)(3)(B).
Subsec. (c)(1).
Subsec. (c)(2).
1958—Subsec. (b)(1)(B).
Subsec. (b)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
"(1)
"(2)
"(i) The amendments made by this paragraph [amending this section] shall apply to obligations issued after September 27, 1985.
"(ii) In the case of a taxpayer with respect to whom an election is in effect on the date of the enactment of this Act [Oct. 22, 1986] under section 171(c) of the Internal Revenue Code of 1954 [now 1986], such election shall apply to obligations issued after September 27, 1985, only if the taxpayer chooses (at such time and in such manner as may be prescribed by the Secretary of the Treasury or his delegate) to have such election apply with respect to such obligations."
Effective Date of 1976 Amendment
Amendment by section 1901(b)(1)(E)(iii)–(v) of
Amendment by section 1951(b)(5)(A)(i) of
Effective Date of 1958 Amendment
Savings Provision
"(i) which was issued after January 22, 1951, with a call date not more than 3 years after the date of such issue, and
"(ii) which was acquired by the taxpayer after January 22, 1954, and before January 1, 1958,
the bond premium for a taxable year beginning after December 31, 1975, shall not be determined under section 171(b)(1)(B)(i) but shall be determined with reference to the amount payable on maturity, and if the bond is called before its maturity, the bond premium for the year in which the bond is called shall be determined in accordance with the provisions of section 171(b)(2)."
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§172. Net operating loss deduction
(a) Deduction allowed
There shall be allowed as a deduction for the taxable year an amount equal to—
(1) in the case of a taxable year beginning before January 1, 2021, the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and
(2) in the case of a taxable year beginning after December 31, 2020, the sum of—
(A) the aggregate amount of net operating losses arising in taxable years beginning before January 1, 2018, carried to such taxable year, plus
(B) the lesser of—
(i) the aggregate amount of net operating losses arising in taxable years beginning after December 31, 2017, carried to such taxable year, or
(ii) 80 percent of the excess (if any) of—
(I) taxable income computed without regard to the deductions under this section and sections 199A and 250, over
(II) the amount determined under subparagraph (A).
For purposes of this subtitle, the term "net operating loss deduction" means the deduction allowed by this subsection.
(b) Net operating loss carrybacks and carryovers
(1) Years to which loss may be carried
(A) General rule
A net operating loss for any taxable year—
(i) shall be a net operating loss carryback to the extent provided in subparagraphs (B), (C)(i), and (D), and
(ii) except as provided in subparagraph (C)(ii), shall be a net operating loss carryover—
(I) in the case of a net operating loss arising in a taxable year beginning before January 1, 2018, to each of the 20 taxable years following the taxable year of the loss, and
(II) in the case of a net operating loss arising in a taxable year beginning after December 31, 2017, to each taxable year following the taxable year of the loss.
(B) Farming losses
(i) In general
In the case of any portion of a net operating loss for the taxable year which is a farming loss with respect to the taxpayer, such loss shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss.
(ii) Farming loss
For purposes of this section, the term "farming loss" means the lesser of—
(I) the amount which would be the net operating loss for the taxable year if only income and deductions attributable to farming businesses (as defined in section 263A(e)(4)) are taken into account, or
(II) the amount of the net operating loss for such taxable year.
(iii) Coordination with paragraph (2)
For purposes of applying paragraph (2), a farming loss for any taxable year shall be treated as a separate net operating loss for such taxable year to be taken into account after the remaining portion of the net operating loss for such taxable year.
(iv) Election
Any taxpayer entitled to a 2-year carryback under clause (i) from any loss year may elect not to have such clause apply to such loss year. Such election shall be made in such manner as prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for such taxable year.
(C) Insurance companies
In the case of an insurance company (as defined in section 816(a)) other than a life insurance company, the net operating loss for any taxable year—
(i) shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and
(ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss.
(D) Special rule for losses arising in 2018, 2019, and 2020
(i) In general
In the case of any net operating loss arising in a taxable year beginning after December 31, 2017, and before January 1, 2021—
(I) such loss shall be a net operating loss carryback to each of the 5 taxable years preceding the taxable year of such loss, and
(II) subparagraphs (B) and (C)(i) shall not apply.
(ii) Special rules for REITs
For purposes of this subparagraph—
(I) In general
A net operating loss for a REIT year shall not be a net operating loss carryback to any taxable year preceding the taxable year of such loss.
(II) Special rule
In the case of any net operating loss for a taxable year which is not a REIT year, such loss shall not be carried to any preceding taxable year which is a REIT year.
(III) REIT year
For purposes of this subparagraph, the term "REIT year" means any taxable year for which the provisions of part II of subchapter M (relating to real estate investment trusts) apply to the taxpayer.
(iii) Special rule for life insurance companies
In the case of a life insurance company, if a net operating loss is carried pursuant to clause (i)(I) to a life insurance company taxable year beginning before January 1, 2018, such net operating loss carryback shall be treated in the same manner as an operations loss carryback (within the meaning of section 810 as in effect before its repeal) of such company to such taxable year.
(iv) Rule relating to carrybacks to years to which section 965 applies
If a net operating loss of a taxpayer is carried pursuant to clause (i)(I) to any taxable year in which an amount is includible in gross income by reason of section 965(a), the taxpayer shall be treated as having made the election under section 965(n) with respect to each such taxable year.
(v) Special rules for elections under paragraph (3)
(I) Special election to exclude section 965 years
If the 5-year carryback period under clause (i)(I) with respect to any net operating loss of a taxpayer includes 1 or more taxable years in which an amount is includible in gross income by reason of section 965(a), the taxpayer may, in lieu of the election otherwise available under paragraph (3), elect under such paragraph to exclude all such taxable years from such carryback period.
(II) Time of elections
An election under paragraph (3) (including an election described in subclause (I)) with respect to a net operating loss arising in a taxable year beginning in 2018 or 2019 shall be made by the due date (including extensions of time) for filing the taxpayer's return for the first taxable year ending after the date of the enactment of this subparagraph.
(2) Amount of carrybacks and carryovers
The entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the "loss year") shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the taxable income for any such prior taxable year shall—
(A) be computed with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter,
(B) not be considered to be less than zero, and
(C) for taxable years beginning after December 31, 2020, be reduced by 20 percent of the excess (if any) described in subsection (a)(2)(B)(ii) for such taxable year.
(3) Election to waive carryback
Any taxpayer entitled to a carryback period under paragraph (1) may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year. Such election shall be made in such manner as may be prescribed by the Secretary, and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss for which the election is to be in effect. Such election, once made for any taxable year, shall be irrevocable for such taxable year.
(c) Net operating loss defined
For purposes of this section, the term "net operating loss" means the excess of the deductions allowed by this chapter over the gross income. Such excess shall be computed with the modifications specified in subsection (d).
(d) Modifications
The modifications referred to in this section are as follows:
(1) Net operating loss deduction
No net operating loss deduction shall be allowed.
(2) Capital gains and losses of taxpayers other than corporations
In the case of a taxpayer other than a corporation—
(A) the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includable on account of gains from sales or exchanges of capital assets; and
(B) the exclusion provided by section 1202 shall not be allowed.
(3) Deduction for personal exemptions
No deduction shall be allowed under section 151 (relating to personal exemptions). No deduction in lieu of any such deduction shall be allowed.
(4) Nonbusiness deductions of taxpayers other than corporations
In the case of a taxpayer other than a corporation, the deductions allowable by this chapter which are not attributable to a taxpayer's trade or business shall be allowed only to the extent of the amount of the gross income not derived from such trade or business. For purposes of the preceding sentence—
(A) any gain or loss from the sale or other disposition of—
(i) property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or
(ii) real property used in the trade or business,
shall be treated as attributable to the trade or business;
(B) the modifications specified in paragraphs (1), (2)(B), and (3) shall be taken into account;
(C) any deduction for casualty or theft losses allowable under paragraph (2) or (3) of section 165(c) shall be treated as attributable to the trade or business; and
(D) any deduction allowed under section 404 to the extent attributable to contributions which are made on behalf of an individual who is an employee within the meaning of section 401(c)(1) shall not be treated as attributable to the trade or business of such individual.
(5) Computation of deduction for dividends received
The deductions allowed by sections 243 (relating to dividends received by corporations) and 245 (relating to dividends received from certain foreign corporations) shall be computed without regard to section 246(b) (relating to limitation on aggregate amount of deductions).
(6) Modifications related to real estate investment trusts
In the case of any taxable year for which part II of subchapter M (relating to real estate investment trusts) applies to the taxpayer—
(A) the net operating loss for such taxable year shall be computed by taking into account the adjustments described in section 857(b)(2) (other than the deduction for dividends paid described in section 857(b)(2)(B));
(B) where such taxable year is a "prior taxable year" referred to in paragraph (2) of subsection (b), the term "taxable income" in such paragraph shall mean "real estate investment trust taxable income" (as defined in section 857(b)(2)); and
(C) subsection (a)(2)(B)(ii)(I) shall be applied by substituting "real estate investment trust taxable income (as defined in section 857(b)(2) but without regard to the deduction for dividends paid (as defined in section 561))" for "taxable income".
[(7) Repealed. Pub. L. 115–97, title I, §13305(b)(3), Dec. 22, 2017, 131 Stat. 2126 ]
(8) Qualified business income deduction
Any deduction under section 199A shall not be allowed.
(9) Deduction for foreign-derived intangible income
The deduction under section 250 shall not be allowed.
(e) Law applicable to computations
In determining the amount of any net operating loss carryback or carryover to any taxable year, the necessary computations involving any other taxable year shall be made under the law applicable to such other taxable year.
(f) Special rule for insurance companies
In the case of an insurance company (as defined in section 816(a)) other than a life insurance company—
(1) the amount of the deduction allowed under subsection (a) shall be the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and
(2) subparagraph (C) of subsection (b)(2) shall not apply.
(g) Cross references
(1) For treatment of net operating loss carryovers in certain corporate acquisitions, see section 381.
(2) For special limitation on net operating loss carryovers in case of a corporate change of ownership, see section 382.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The date of the enactment of this subparagraph, referred to in subsec. (b)(1)(D)(v)(II), is the date of enactment of
Amendments
2020—Subsec. (a).
"(1) the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, or
"(2) 80 percent of taxable income computed without regard to the deduction allowable under this section."
Subsec. (b)(1)(A).
"(i) except as otherwise provided in this paragraph, shall not be a net operating loss carryback to any taxable year preceding the taxable year of such loss, and
"(ii) shall be a net operating loss carryover to each taxable year following the taxable year of the loss."
Subsec. (b)(1)(A)(i).
Subsec. (b)(1)(D).
Subsec. (b)(2)(C).
Subsec. (d)(6)(C).
2018—Subsec. (d)(5).
Subsec. (d)(8).
2017—Subsec. (a).
Subsec. (b)(1)(A)(i).
Subsec. (b)(1)(A)(ii).
Subsec. (b)(1)(B).
"(i)
"(ii)
"(iii)
Subsec. (b)(1)(C).
Subsec. (b)(1)(D) to (F).
Subsec. (b)(2).
"(A) with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and
"(B) by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter,
and the taxable income so computed shall not be considered to be less than zero."
Subsec. (d)(6)(C).
Subsec. (d)(7).
Subsec. (d)(8).
Subsec. (d)(9).
Subsecs. (f), (g).
Subsecs. (h), (i).
2014—Subsec. (b)(1)(D).
Subsec. (b)(1)(D)(i)(II).
Subsec. (b)(1)(D)(ii).
Subsec. (b)(1)(E).
Subsec. (b)(1)(E)(ii).
Subsec. (b)(1)(E)(ii)(II).
Subsec. (b)(1)(F).
Subsec. (b)(1)(F)(ii)(II).
Subsec. (b)(1)(G) to (J).
Subsec. (d)(5).
Subsec. (g).
Subsec. (g)(2)(F).
Subsec. (g)(4)(B)(ii), (C).
Subsec. (h).
Subsec. (h)(1).
Subsec. (h)(3).
Subsecs. (i) to (k).
2009—Subsec. (b)(1)(H).
Subsecs. (k), (l).
2008—Subsec. (b)(1)(F)(ii).
Subsec. (b)(1)(F)(ii)(II).
Subsec. (b)(1)(F)(ii)(III).
Subsec. (b)(1)(J).
Subsec. (i)(1).
Subsecs. (j) to (l).
2005—Subsec. (b)(1)(I).
Subsec. (b)(1)(I)(i).
Subsec. (b)(1)(I)(ii)(I).
Subsec. (b)(1)(I)(iv) to (vi).
"(iv)
"(v)
Subsec. (d)(7).
2004—Subsec. (b)(1)(H).
2002—Subsec. (b)(1)(F)(i).
Subsec. (b)(1)(H).
Subsecs. (j), (k).
1998—Subsec. (b)(1)(F)(ii).
Subsec. (b)(1)(F)(iv).
Subsec. (b)(1)(G).
Subsec. (d)(4)(C).
Subsec. (f)(1)(B).
"(i) in the case of a liability arising out of a Federal or State law, the act (or failure to act) giving rise to such liability occurs at least 3 years before the beginning of the taxable year, or
"(ii) in the case of a liability arising out of a tort, such liability arises out of a series of actions (or failures to act) over an extended period of time a substantial portion of which occurs at least 3 years before the beginning of the taxable year.
A liability shall not be taken into account under subparagraph (B) unless the taxpayer used an accrual method of accounting throughout the period or periods during which the acts or failures to act giving rise to such liability occurred."
Subsecs. (i), (j).
1997—Subsec. (b)(1)(A)(i).
Subsec. (b)(1)(A)(ii).
Subsec. (b)(1)(F).
1996—Subsec. (b)(1)(E)(ii).
Subsec. (h)(3)(B)(i).
Subsec. (h)(4)(B).
Subsec. (h)(4)(C).
1993—Subsec. (d)(2).
Subsec. (d)(4)(B).
1990—Subsec. (b).
Subsec. (b)(1)(M)(iii).
Subsec. (f).
Subsec. (g).
Subsec. (g)(2).
Subsec. (h).
Subsec. (h)(3)(B)(ii).
"(I) a qualified stock purchase (within the meaning of section 338) to which an election under section 338 applies, or
"(II) except as provided in regulations, an acquisition in which a corporation acquires stock of another corporation which, immediately before the acquisition, was a member of an affiliated group (within the meaning of section 1504(a)) other than the common parent of such group."
Subsec. (h)(4)(B).
Subsec. (i).
Subsec. (j).
Subsec. (k).
Subsecs. (l) to (n).
1989—Subsec. (b)(1)(M).
Subsecs. (m), (n).
1988—Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (b)(1)(K) to (M).
Subsec. (d)(4)(B).
1986—Subsec. (b)(1)(A), (B).
Subsec. (b)(1)(F).
Subsec. (b)(1)(G).
Subsec. (b)(1)(H).
Subsec. (b)(1)(J), (K).
Subsec. (b)(1)(L), (M).
Subsec. (d)(2).
"(A) the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includible on account of gains from sales or exchanges of capital assets; and
"(B) the deduction for long-term capital gains provided by section 1202 shall not be allowed."
Subsec. (d)(6).
Subsec. (d)(7).
"(A) the deduction provided by the preceding sentence shall be in lieu of any itemized deductions of the taxpayer, and
"(B) such sentence shall not apply to an individual who elects to itemize deductions."
Subsec. (k)(2), (4).
Subsecs. (l), (m).
1984—Subsec. (b)(1)(A).
Subsec. (b)(1)(H).
Subsec. (b)(1)(H)(i), (ii).
Subsec. (b)(1)(K).
Subsec. (b)(2)(A).
Subsec. (d)(4)(D).
Subsec. (d)(6) to (8).
Subsec. (h).
Subsec. (i).
Subsec. (j).
Subsecs. (k), (l).
1982—Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (b)(1)(H).
Subsec. (b)(1)(I).
Subsec. (b)(1)(J).
Subsec. (f).
Subsec. (i).
Subsec. (j).
Subsec. (k).
1981—Subsec. (b)(1)(B).
Subsec. (b)(1)(C).
Subsec. (b)(1)(E)(i)(II).
Subsec. (b)(1)(E)(ii).
Subsec. (g)(3)(C).
1980—Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (b)(1)(E).
Subsec. (b)(1)(I).
1978—Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (b)(1)(H).
Subsec. (b)(3)(A).
Subsec. (b)(3)(B).
Subsec. (b)(3)(C).
Subsec. (b)(3)(D), (E).
Subsecs. (i), (j).
1977—Subsec. (d)(8).
1976—Subsec. (b)(1)(B).
Subsec. (b)(1)(C).
Subsec. (b)(1)(D).
Subsec. (b)(1)(E).
Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (b)(3)(A)(i), (ii).
Subsec. (b)(3)(C)(i).
Subsec. (b)(3)(C)(ii), (iii).
Subsec. (b)(3)(E).
Subsec. (b)(3)(F).
Subsec. (c).
Subsec. (d)(5), (6).
Subsec. (d)(7).
Subsec. (e).
Subsec. (f).
Subsec. (g).
Subsec. (g)(3)(C).
Subsec. (g)(4).
Subsec. (h).
Subsec. (i).
Subsecs. (j) to (l).
1971—Subsec. (b)(1)(D).
Subsec. (b)(2).
Subsec. (k)(3).
1969—Subsec. (b)(1).
1967—Subsec. (b)(1).
Subsec. (b)(3)(E), (F).
1964—Subsec. (b).
Subsec. (j)(1), (2),
Subsecs. (k), (l).
1962—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (d)(4)(D).
Subsecs. (j), (k).
1958—Subsec. (b).
Subsecs. (f)(3), (4).
Subsec. (g)(3), (4).
Subsecs. (h) to (j).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
"(1)
"(A) to taxable years beginning after December 31, 2017, and
"(B) to taxable years beginning on or before December 31, 2017, to which net operating losses arising in taxable years beginning after December 31, 2017, are carried.
"(2)
"(A) net operating losses arising in taxable years beginning after December 31, 2017, and
"(B) taxable years beginning before, on, or after such date to which such net operating losses are carried.
"(3)
"(4)
"(A) an application under section 6411(a) of the Internal Revenue Code of 1986 with respect to the carryback of such net operating loss shall not fail to be treated as timely filed if filed not later than the date which is 120 days after the date of the enactment of this Act [Mar. 27, 2020], and
"(B) an election to—
"(i) forgo any carryback of such net operating loss,
"(ii) reduce any period to which such net operating loss may be carried back, or
"(iii) revoke any election made under section 172(b) to forgo any carryback of such net operating loss,
shall not fail to be treated as timely made if made not later than the date which is 120 days after the date of the enactment of this Act."
Effective Date of 2018 Amendment
Amendment by section 101(a)(2)(B) of
Effective Date of 2017 Amendment
Amendment by section 11011(d)(1) of
"(1)
"(A) taxable years beginning after December 31, 2017, and
"(B) taxable years beginning on or before such date to which net operating losses arising in taxable years beginning after such date are carried.
"(2)
Amendment by section 13305(b)(3) of
Effective Date of 2014 Amendment
Amendment by section 211(c)(1)(B) of
Except as otherwise provided in section 221(a) of
Effective Date of 2009 Amendment
Amendment by
"(1)
"(2)
"(A) any election made under section 172(b)(3) of the Internal Revenue Code of 1986 with respect to such loss may (notwithstanding such section) be revoked before the applicable date,
"(B) any election made under [former] section 172(b)(1)(H) of such Code with respect to such loss shall (notwithstanding such section) be treated as timely made if made before the applicable date, and
"(C) any application under section 6411(a) of such Code with respect to such loss shall be treated as timely filed if filed before the applicable date.
For purposes of this paragraph, the term 'applicable date' means the date which is 60 days after the date of the enactment of this Act [Feb. 17, 2009]."
Effective Date of 2008 Amendment
Amendment by section 706(a)(2)(D)(v), (vi) of
Amendment by section 708(a), (b), (d) of
Effective Date of 2005 Amendment
Amendment by 402(f) of
Amendment by section 403(a)(17) of
Effective Date of 2004 Amendment
Amendment by
Effective Date of 2002 Amendment
Effective Date of 1998 Amendment
Amendment by section 4003(h) of
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Amendment by section 1702(h)(2), (16) of
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1990 Amendment
"(1)
"(2)
Amendment by section 11701(d) of
Effective Date of 1989 Amendment
"(1)
"(2)
"(A) acquisitions or redemptions of stock, or distributions with respect to stock, occurring on or before August 2, 1989,
"(B) acquisitions or redemptions of stock after August 2, 1989, pursuant to a binding written contract (or tender offer filed with the Securities and Exchange Commission) in effect on August 2, 1989, and at all times thereafter before such acquisition or redemption, or
"(C) any distribution with respect to stock after August 2, 1989, which was declared on or before August 2, 1989.
Any distribution to which the preceding sentence applies shall be taken into account under section 172(m)(3)(C)(ii)(I) of the Internal Revenue Code of 1986 (relating to base period for distributions)."
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 104(b)(4) of
Amendment by section 301(b)(3) of
Amendment by section 901(d)(4)(B) of
"(1)
"(2)
Amendment by section 1303(b)(1), (2) of
Effective Date of 1984 Amendment
Amendment by section 91(d) of
"(1)
"(2)
"(A)
"(i) for purposes of determining any loss, be equal to the lesser of the adjusted basis of such asset or the fair market value of such asset as of such date, and
"(ii) for purposes of determining any gain, be equal to the higher of the adjusted basis of such asset or the fair market value of such asset as of such date.
"(B)
"(i) is of a character subject to the allowance for depreciation provided by section 167 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], and
"(ii) is held by the Federal Home Loan Mortgage Corporation on January 1, 1985,
the adjusted basis of such property shall be equal to the lesser of the basis of such property or the fair market value of such property as of such date.
"(3)
"(A)
"(B)
"(4)
"(A)
"(B)
"(5)
"(6)
"(7)
"(A)
"(B)
Amendment by section 491(d)(5) of
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Effective Date of 1977 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1052(c)(3) of
Amendment by section 1606(b), (c) of
Amendment by section 1901(a)(29) of
Effective Date of 1971 Amendment
Effective Date of 1967 Amendment
Effective Date of 1964 Amendment
Amendment by section 234(b)(5) of
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1958 Amendment
Amendment by section 14(a), (b) of
Anti-Abuse Rules
Savings Provision
For provisions that nothing in amendment by section 11811 of
Special Rules With Respect to Farming Losses
"(1)
"(A)
"(i) the amendments made by subsection (a) [amending this section and
"(ii) the amendments made by subsection (b) [amending this section] shall not apply to any net operating loss arising in any taxable year beginning in 2018, 2019, or 2020.
"(B)
"(i)
"(ii)
"(I)
"(II)
"(C)
"(2)
"(A) which was made before the date of the enactment of the COVID-related Tax Relief Act of 2020, and
"(B) which relates to the carryback period provided under section 172(b)(1)(B) of such Code with respect to any net operating loss arising in taxable years beginning in 2018 or 2019."
[
Net Operating Loss Carryback for Taxable Year Ending During 2001 or 2002
"(A) an application under section 6411(a) of the Internal Revenue Code of 1986 with respect to such loss shall not fail to be treated as timely filed if filed before November 1, 2002,
"(B) any election made under section 172(b)(3) of such Code may (notwithstanding such section) be revoked before November 1, 2002, and
"(C) any election made under [former] section 172(j) of such Code shall (notwithstanding such section) be treated as timely made if made before November 1, 2002."
Amtrak Reform Legislation
Elective Carryback of Existing Carryovers of National Railroad Passenger Corporation
"(a)
"(1)
"(A) makes an election under this section for its first taxable year ending after September 30, 1997, and
"(B) agrees to the conditions specified in paragraph (2),
then the Corporation shall be treated as having made a payment of the tax imposed by
"(2)
"(A)
"(i) except as provided in clause (ii), use any refund of the payment described in paragraph (1) (and any interest thereon) solely to finance qualified expenses of the Corporation, and
"(ii) make the payments to non-Amtrak States as described in subsection (c).
"(B)
"(i)
"(ii)
"(I) no amount shall be treated as remaining unused as of January 1, 2010, if it is obligated as of such date for a qualified expense, and
"(II) the Corporation shall not be treated as failing to meet the requirements of clause (i) by reason of investing any amount for a temporary period.
"(3)
"(A)
"(i) 35 percent of the Corporation's existing qualified carryovers, or
"(ii) the Corporation's net tax liability for the carryback period.
"(B)
"(b)
"(1)
"(2)
"(A)
"(B)
"(C)
"(i) which begins with the first taxable year of any railroad predecessor beginning before January 1, 1971, for which there is a net tax liability, and
"(ii) which ends with the last taxable year of any railroad predecessor beginning before January 1, 1971.
"(3)
"(A)
"(i) any railroad which entered into a contract under section 401 or 404(a) of the Rail Passenger Service Act of 1970 [former
"(ii) any predecessor thereof.
"(B)
"(c)
"(1)
"(2)
"(3)
"(A) any portion of the payment received by the State under paragraph (1) (and any interest thereon) which is used for a purpose other than to finance qualified expenses of the State or which remains unused as of January 1, 2010, or
"(B) if such State ceases to be a non-Amtrak State, the portion of such payment (and any interest thereon) remaining as of the date of the cessation.
Rules similar to the rules of subsection (a)(2)(B) shall apply for purposes of this paragraph.
"(d)
"(1)
"(2)
"(A)
"(B)
"(C)
"(D)
"(3)
"(A) no deduction shall be allowed to the Corporation with respect to any amount paid or incurred which is attributable to such amount, and
"(B) the basis of any property shall be reduced by the portion of the cost of such property which is attributable to such amount.
"(4)
"(e)
"(1)
"(A) in the case of the Corporation—
"(i) the acquisition of equipment, rolling stock, and other capital improvements, the upgrading of maintenance facilities, and the maintenance of existing equipment, in intercity passenger rail service, and
"(ii) the payment of interest and principal on obligations incurred for such acquisition, upgrading, and maintenance, and
"(B) in the case of a non-Amtrak State—
"(i) the acquisition of equipment, rolling stock, and other capital improvements, the upgrading of maintenance facilities, and the maintenance of existing equipment, in intercity passenger rail service,
"(ii) the acquisition of equipment, rolling stock, and other capital improvements, the upgrading of maintenance facilities, and the maintenance of existing equipment, in intercity bus service,
"(iii) the purchase of intercity passenger rail services from the Corporation,
"(iv) capital expenditures related to State-owned rail operations in the State,
"(v) any project that is eligible to receive funding under
"(vi) any project that is eligible to receive funding under
"(vii) the upgrading and maintenance of intercity primary and rural air service facilities, and the purchase of intercity air service between primary and rural airports and regional hubs,
"(viii) the provision of passenger ferryboat service within the State,
"(ix) the provision of harbor improvements within the State, and
"(x) the payment of interest and principal on obligations incurred for such acquisition, upgrading, maintenance, purchase, expenditures, provision, and projects.
In the case of a non-Amtrak State which provides its own intercity passenger rail service on the date of the enactment of this paragraph [Aug. 5, 1997], subparagraph (B) shall be applied by only taking into account clauses (i) and (iv).
"(2)
"(f)
"(1)
"(2)
"(3)
[
Deduction for Special Assessments
Subsec. (f) of this section not applicable to deduction for special assessments, see section 2711(2) of
Carryback of Deferred Statutory or Tort Liability Loss to Taxable Year Beginning Before January 1, 1984
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Refund or Credit of Overpayment; Limitations; Interest
Interest Attributable to Net Operating Loss Carryback for Certain Taxable Years Ending in 1954
For payment of interest attributable to net operating loss carryback, see section 83(e) of
§173. Circulation expenditures
(a) General rule
Notwithstanding section 263, all expenditures (other than expenditures for the purchase of land or depreciable property or for the acquisition of circulation through the purchase of any part of the business of another publisher of a newspaper, magazine, or other periodical) to establish, maintain, or increase the circulation of a newspaper, magazine, or other periodical shall be allowed as a deduction; except that the deduction shall not be allowed with respect to the portion of such expenditures as, under regulations prescribed by the Secretary, is chargeable to capital account if the taxpayer elects, in accordance with such regulations, to treat such portion as so chargeable. Such election, if made, must be for the total amount of such portion of the expenditures which is so chargeable to capital account, and shall be binding for all subsequent taxable years unless, upon application by the taxpayer, the Secretary permits a revocation of such election subject to such conditions as he deems necessary.
(b) Cross reference
For election of 3-year amortization of expenditures allowable as a deduction under subsection (a), see section 59(e).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1988—Subsec. (b).
1986—Subsec. (b).
1984—Subsec. (b).
1982—
1976—
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by
§174. Amortization of research and experimental expenditures
(a) In general
In the case of a taxpayer's specified research or experimental expenditures for any taxable year—
(1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and
(2) the taxpayer shall—
(A) charge such expenditures to capital account, and
(B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred.
(b) Specified research or experimental expenditures
For purposes of this section, the term "specified research or experimental expenditures" means, with respect to any taxable year, research or experimental expenditures which are paid or incurred by the taxpayer during such taxable year in connection with the taxpayer's trade or business.
(c) Special rules
(1) Land and other property
This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures.
(2) Exploration expenditures
This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas).
(3) Software development
For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.
(d) Treatment upon disposition, retirement, or abandonment
If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2017—
2014—Subsec. (a)(2)(A).
"(i) which begins after December 31, 1953, and ends after August 16, 1954, and
"(ii) for which expenditures described in paragraph (1) are paid or incurred."
Subsec. (b)(2).
1989—Subsecs. (e), (f).
1988—Subsec. (e)(2).
1986—Subsec. (e)(2).
1982—Subsec. (e).
1976—Subsec. (a)(2)(A).
Subsec. (a)(2)(A)(i).
Subsecs. (a)(3), (b)(1), (2).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment; Applicability of Change in Method of Accounting
"(1) such change shall be treated as initiated by the taxpayer,
"(2) such change shall be treated as made with the consent of the Secretary, and
"(3) such change shall be applied only on a cut-off basis for any research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2021, and no adjustments under section 481(a) shall be made."
Amendment by
Effective Date of 2014 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by
Allocation or Apportionment to Sources Within United States of Research and Experimental Expenditures Paid or Incurred for Research Activities Conducted in United States; 2-Year Program
§175. Soil and water conservation expenditures; endangered species recovery expenditures
(a) In general
A taxpayer engaged in the business of farming may treat expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention of erosion of land used in farming, or for endangered species recovery, as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction.
(b) Limitation
The amount deductible under subsection (a) for any taxable year shall not exceed 25 percent of the gross income derived from farming during the taxable year. If for any taxable year the total of the expenditures treated as expenses which are not chargeable to capital account exceeds 25 percent of the gross income derived from farming during the taxable year, such excess shall be deductible for succeeding taxable years in order of time; but the amount deductible under this section for any one such succeeding taxable year (including the expenditures actually paid or incurred during the taxable year) shall not exceed 25 percent of the gross income derived from farming during the taxable year.
(c) Definitions
For purposes of subsection (a)—
(1) The term "expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention of erosion of land used in farming, or for endangered species recovery" means expenditures paid or incurred for the treatment or moving of earth, including (but not limited to) leveling, grading and terracing, contour furrowing, the construction, control, and protection of diversion channels, drainage ditches, earthen dams, watercourses, outlets, and ponds, the eradication of brush, and the planting of windbreaks. Such term shall include expenditures paid or incurred for the purpose of achieving site-specific management actions recommended in recovery plans approved pursuant to the Endangered Species Act of 1973. Such term does not include—
(A) the purchase, construction, installation, or improvement of structures, appliances, or facilities which are of a character which is subject to the allowance for depreciation provided in section 167, or
(B) any amount paid or incurred which is allowable as a deduction without regard to this section.
Notwithstanding the preceding sentences, such term also includes any amount, not otherwise allowable as a deduction, paid or incurred to satisfy any part of an assessment levied by a soil or water conservation or drainage district to defray expenditures made by such district (i) which, if paid or incurred by the taxpayer, would without regard to this sentence constitute expenditures deductible under this section, or (ii) for property of a character subject to the allowance for depreciation provided in section 167 and used in the soil or water conservation or drainage district's business as such (to the extent that the taxpayer's share of the assessment levied on the members of the district for such property does not exceed 10 percent of such assessment).
(2) The term "land used in farming" means land used (before or simultaneously with the expenditures described in paragraph (1)) by the taxpayer or his tenant for the production of crops, fruits, or other agricultural products or for the sustenance of livestock.
(3)
(A)
(i) the plan (if any) approved by the Soil Conservation Service of the Department of Agriculture or the recovery plan approved pursuant to the Endangered Species Act of 1973 for the area in which the land is located, or
(ii) if there is no plan described in clause (i), any soil conservation plan of a comparable State agency.
(B)
(d) When method may be adopted
(1) Without consent
A taxpayer may, without the consent of the Secretary, adopt the method provided in this section for the taxpayer's first taxable year for which expenditures described in subsection (a) are paid or incurred.
(2) With consent
A taxpayer may, with the consent of the Secretary, adopt at any time the method provided in this section.
(e) Scope
The method adopted under this section shall apply to all expenditures described in subsection (a). The method adopted shall be adhered to in computing taxable income for the taxable year and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method is authorized with respect to part or all of such expenditures.
(f) Rules applicable to assessments for depreciable property
(1) Amounts treated as paid or incurred over 9-year period
In the case of an assessment levied to defray expenditures for property described in clause (ii) of the last sentence of subsection (c)(1), if the amount of such assessment paid or incurred by the taxpayer during the taxable year (determined without the application of this paragraph) is in excess of an amount equal to 10 percent of the aggregate amounts which have been and will be assessed as the taxpayer's share of the expenditures by the district for such property, and if such excess is more than $500, the entire excess shall be treated as paid or incurred ratably over each of the 9 succeeding taxable years.
(2) Disposition of land during 9-year period
If paragraph (1) applies to an assessment and the land with respect to which such assessment was made is sold or otherwise disposed of by the taxpayer (other than by the reason of his death) during the 9 succeeding taxable years, any amount of the excess described in paragraph (1) which has not been treated as paid or incurred for a taxable year ending on or before the sale or other disposition shall be added to the adjusted basis of such land immediately prior to its sale or other disposition and shall not thereafter be treated as paid or incurred ratably under paragraph (1).
(3) Disposition by reason of death
If paragraph (1) applies to an assessment and the taxpayer dies during the 9 succeeding taxable years, any amount of the excess described in paragraph (1) which has not been treated as paid or incurred for a taxable year ending before his death shall be treated as paid or incurred in the taxable year in which he dies.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
The Endangered Species Act of 1973, referred to in subsec. (c)(1), (3)(A)(i), is
Codification
Amendments
2014—Subsec. (d)(1).
"(A) which begins after December 31, 1953, and ends after August 16, 1954, and
"(B) for which expenditures described in subsection (a) are paid or incurred."
2008—
Subsec. (a).
Subsec. (c)(1).
Subsec. (c)(3)(A).
Subsec. (c)(3)(A)(i).
1986—Subsec. (c)(3).
1976—Subsec. (d)(1).
Subsec. (d)(1)(A).
Subsecs. (d)(2), (e).
1968—Subsec. (c)(1).
Subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2008 Amendment
Amendment of this section and repeal of
[
Effective Date of 1986 Amendment
Effective Date of 1976 Amendment
Amendment by section 1901(a)(30) of
Effective Date of 1968 Amendment
§176. Payments with respect to employees of certain foreign corporations
In the case of a domestic corporation, there shall be allowed as a deduction amounts (to the extent not compensated for) paid or incurred pursuant to an agreement entered into under section 3121(l) with respect to services performed by United States citizens employed by foreign subsidiary corporations. Any reimbursement of any amount previously allowed as a deduction under this section shall be included in gross income for the taxable year in which received.
(Added Sept. 1, 1954, ch. 1206, title II, §210(a),
[§177. Repealed. Pub. L. 99–514, title II, §241(a), Oct. 22, 1986, 100 Stat. 2181 ]
Section, added June 29, 1956, ch. 464, §4(a),
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
"(1)
"(2)
"(A) pursuant to a binding contract entered into before March 2, 1986, or
"(B) with respect to the development, protection, expansion, registration, or defense of a trademark or trade name commenced before March 2, 1986, but only if not less than the lesser of $1,000,000 or 5 percent of the aggregate cost of such development, protection, expansion, registration, or defense has been incurred or committed before such date.
The preceding sentence shall not apply to any expenditure with respect to a trademark or trade name placed in service after December 31, 1987."
§178. Amortization of cost of acquiring a lease
(a) General rule
In determining the amount of the deduction allowable to a lessee for exhaustion, wear and tear, obsolescence, or amortization in respect of any cost of acquiring the lease, the term of the lease shall be treated as including all renewal options (and any other period for which the parties reasonably expect the lease to be renewed) if less than 75 percent of such cost is attributable to the period of the term of the lease remaining on the date of its acquisition.
(b) Certain periods excluded
For purposes of subsection (a), in determining the period of the term of the lease remaining on the date of acquisition, there shall not be taken into account any period for which the lease may subsequently be renewed, extended, or continued pursuant to an option exercisable by the lessee.
(Added
Editorial Notes
Amendments
1988—Subsec. (a).
1986—
Subsec. (b)(2)(B).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 201(d)(2)(A) of
Amendment by section 201(d)(2)(A) of
Amendment by section 1812(c)(4)(B) of
Effective Date
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§179. Election to expense certain depreciable business assets
(a) Treatment as expenses
A taxpayer may elect to treat the cost of any section 179 property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the section 179 property is placed in service.
(b) Limitations
(1) Dollar limitation
The aggregate cost which may be taken into account under subsection (a) for any taxable year shall not exceed $1,000,000.
(2) Reduction in limitation
The limitation under paragraph (1) for any taxable year shall be reduced (but not below zero) by the amount by which the cost of section 179 property placed in service during such taxable year exceeds $2,500,000.
(3) Limitation based on income from trade or business
(A) In general
The amount allowed as a deduction under subsection (a) for any taxable year (determined after the application of paragraphs (1) and (2)) shall not exceed the aggregate amount of taxable income of the taxpayer for such taxable year which is derived from the active conduct by the taxpayer of any trade or business during such taxable year.
(B) Carryover of disallowed deduction
The amount allowable as a deduction under subsection (a) for any taxable year shall be increased by the lesser of—
(i) the aggregate amount disallowed under subparagraph (A) for all prior taxable years (to the extent not previously allowed as a deduction by reason of this subparagraph), or
(ii) the excess (if any) of—
(I) the limitation of paragraphs (1) and (2) (or if lesser, the aggregate amount of taxable income referred to in subparagraph (A)), over
(II) the amount allowable as a deduction under subsection (a) for such taxable year without regard to this subparagraph.
(C) Computation of taxable income
For purposes of this paragraph, taxable income derived from the conduct of a trade or business shall be computed without regard to the deduction allowable under this section.
(4) Married individuals filing separately
In the case of a husband and wife filing separate returns for the taxable year—
(A) such individuals shall be treated as 1 taxpayer for purposes of paragraphs (1) and (2), and
(B) unless such individuals elect otherwise, 50 percent of the cost which may be taken into account under subsection (a) for such taxable year (before application of paragraph (3)) shall be allocated to each such individual.
(5) Limitation on cost taken into account for certain passenger vehicles
(A) In general
The cost of any sport utility vehicle for any taxable year which may be taken into account under this section shall not exceed $25,000.
(B) Sport utility vehicle
For purposes of subparagraph (A)—
(i) In general
The term "sport utility vehicle" means any 4-wheeled vehicle—
(I) which is primarily designed or which can be used to carry passengers over public streets, roads, or highways (except any vehicle operated exclusively on a rail or rails),
(II) which is not subject to section 280F, and
(III) which is rated at not more than 14,000 pounds gross vehicle weight.
(ii) Certain vehicles excluded
Such term does not include any vehicle which—
(I) is designed to have a seating capacity of more than 9 persons behind the driver's seat,
(II) is equipped with a cargo area of at least 6 feet in interior length which is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or
(III) has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.
(6) Inflation adjustment
(A) In general
In the case of any taxable year beginning after 2018, the dollar amounts in paragraphs (1), (2), and (5)(A) shall each be increased by an amount equal to—
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2017" for "calendar year 2016" in subparagraph (A)(ii) thereof.
(B) Rounding
The amount of any increase under subparagraph (A) shall be rounded to the nearest multiple of $10,000 ($100 in the case of any increase in the amount under paragraph (5)(A)).
(c) Election
(1) In general
An election under this section for any taxable year shall—
(A) specify the items of section 179 property to which the election applies and the portion of the cost of each of such items which is to be taken into account under subsection (a), and
(B) be made on the taxpayer's return of the tax imposed by this chapter for the taxable year.
Such election shall be made in such manner as the Secretary may by regulations prescribe.
(2) Election
Any election made under this section, and any specification contained in any such election, may be revoked by the taxpayer with respect to any property, and such revocation, once made, shall be irrevocable.
(d) Definitions and special rules
(1) Section 179 property
For purposes of this section, the term "section 179 property" means property—
(A) which is—
(i) tangible property (to which section 168 applies), or
(ii) computer software (as defined in section 197(e)(3)(B)) which is described in section 197(e)(3)(A)(i) and to which section 167 applies,
(B) which is—
(i) section 1245 property (as defined in section 1245(a)(3)), or
(ii) at the election of the taxpayer, qualified real property (as defined in subsection (e)), and
(C) which is acquired by purchase for use in the active conduct of a trade or business.
Such term shall not include any property described in section 50(b) (other than paragraph (2) thereof).
(2) Purchase defined
For purposes of paragraph (1), the term "purchase" means any acquisition of property, but only if—
(A) the property is not acquired from a person whose relationship to the person acquiring it would result in the disallowance of losses under section 267 or 707(b) (but, in applying section 267(b) and (c) for purposes of this section, paragraph (4) of section 267(c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, and lineal descendants),
(B) the property is not acquired by one component member of a controlled group from another component member of the same controlled group, and
(C) the basis of the property in the hands of the person acquiring it is not determined—
(i) in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or
(ii) under section 1014(a) (relating to property acquired from a decedent).
(3) Cost
For purposes of this section, the cost of property does not include so much of the basis of such property as is determined by reference to the basis of other property held at any time by the person acquiring such property.
(4) Section not to apply to estates and trusts
This section shall not apply to estates and trusts.
(5) Section not to apply to certain noncorporate lessors
This section shall not apply to any section 179 property which is purchased by a person who is not a corporation and with respect to which such person is the lessor unless—
(A) the property subject to the lease has been manufactured or produced by the lessor, or
(B) the term of the lease (taking into account options to renew) is less than 50 percent of the class life of the property (as defined in section 168(i)(1)), and for the period consisting of the first 12 months after the date on which the property is transferred to the lessee the sum of the deductions with respect to such property which are allowable to the lessor solely by reason of section 162 (other than rents and reimbursed amounts with respect to such property) exceeds 15 percent of the rental income produced by such property.
(6) Dollar limitation of controlled group
For purposes of subsection (b) of this section—
(A) all component members of a controlled group shall be treated as one taxpayer, and
(B) the Secretary shall apportion the dollar limitation contained in subsection (b)(1) among the component members of such controlled group in such manner as he shall by regulations prescribe.
(7) Controlled group defined
For purposes of paragraphs (2) and (6), the term "controlled group" has the meaning assigned to it by section 1563(a), except that, for such purposes, the phrase "more than 50 percent" shall be substituted for the phrase "at least 80 percent" each place it appears in section 1563(a)(1).
(8) Treatment of partnerships and S corporations
In the case of a partnership, the limitations of subsection (b) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders.
(9) Coordination with section 38
No credit shall be allowed under section 38 with respect to any amount for which a deduction is allowed under subsection (a).
(10) Recapture in certain cases
The Secretary shall, by regulations, provide for recapturing the benefit under any deduction allowable under subsection (a) with respect to any property which is not used predominantly in a trade or business at any time.
(e) Qualified real property
For purposes of this section, the term "qualified real property" means—
(1) any qualified improvement property described in section 168(e)(6), and
(2) any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service:
(A) Roofs.
(B) Heating, ventilation, and air-conditioning property.
(C) Fire protection and alarm systems.
(D) Security systems.
(Added
Editorial Notes
Amendments
2018—Subsec. (d)(1)(B)(ii).
Subsecs. (e), (f).
2017—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(6)(A).
Subsec. (b)(6)(A)(ii).
Subsec. (b)(6)(B).
Subsec. (d)(1).
Subsec. (d)(1)(B).
Subsec. (f).
2015—Subsec. (b)(1).
"(A) $250,000 in the case of taxable years beginning after 2007 and before 2010,
"(B) $500,000 in the case of taxable years beginning after 2009 and before 2015, and
"(C) $25,000 in the case of taxable years beginning after 2014."
Subsec. (b)(2).
"(A) $800,000 in the case of taxable years beginning after 2007 and before 2010,
"(B) $2,000,000 in the case of taxable years beginning after 2009 and before 2015, and
"(C) $200,000 in the case of taxable years beginning after 2014."
Subsec. (b)(6).
Subsec. (c)(2).
Subsec. (d)(1).
Subsec. (d)(1)(A)(ii).
Subsec. (f)(1).
Subsec. (f)(3).
Subsec. (f)(4).
Subsec. (f)(4)(C).
2014—Subsec. (b)(1)(B).
Subsec. (b)(1)(C).
Subsec. (b)(2)(B).
Subsec. (b)(2)(C).
Subsec. (c)(2).
Subsec. (d)(1)(A)(ii).
Subsec. (f)(1).
Subsec. (f)(4).
Subsec. (f)(4)(C).
2013—Subsec. (b)(1)(B).
Subsec. (b)(1)(C), (D).
Subsec. (b)(2)(B).
Subsec. (b)(2)(C), (D).
Subsec. (b)(6).
Subsec. (c)(2).
Subsec. (d)(1)(A)(ii).
Subsec. (f)(1).
Subsec. (f)(4)(A), (B).
Subsec. (f)(4)(C).
2010—Subsec. (b)(1).
Subsec. (b)(1)(C), (D).
Subsec. (b)(2).
Subsec. (b)(2)(C), (D).
Subsec. (b)(5).
Subsec. (b)(6).
Subsec. (b)(7).
Subsec. (c)(2).
Subsec. (d)(1)(A)(ii).
Subsec. (f).
Subsec. (f)(2)(B).
Subsec. (f)(2)(C).
2009—Subsec. (b)(7).
2008—Subsec. (b)(7).
Subsec. (e).
2007—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(5)(A).
Subsec. (b)(5)(A)(ii).
Subsecs. (c)(2), (d)(1)(A)(ii).
2006—Subsecs. (b)(1), (2), (5)(A), (c)(2), (d)(1)(A)(ii).
2004—Subsec. (b)(1), (2), (5)(A).
Subsec. (b)(6).
Subsecs. (c)(2), (d)(1)(A)(ii).
2003—Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(5).
Subsec. (c)(2).
Subsec. (d)(1).
1996—Subsec. (b)(1).
Subsec. (d)(1).
1993—Subsec. (b)(1).
1990—Subsec. (d)(1).
Subsec. (d)(5).
1988—Subsec. (b)(3).
"(A)
"(B)
"(C)
Subsec. (d)(1).
1986—Subsec. (b).
Subsec. (d)(1).
Subsec. (d)(8).
Subsec. (d)(10).
1984—Subsec. (b)(1).
1983—Subsec. (d)(10).
1982—Subsec. (d)(8).
1981—
1976—Subsecs. (c)(1), (2), (d)(6)(B).
Subsec. (d)(8), (9).
Subsec. (e).
1969—Subsec. (d).
1962—Subsec. (d)(5).
Subsec. (d)(8).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(R) of
Effective Date of 2015 Amendment
"(1)
"(2)
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Amendment by section 737(b)(3) of
"(1)
"(2)
Effective Date of 2009 Amendment
Effective Date of 2008 Amendment
Effective Date of 2007 Amendment
Effective Date of 2004 Amendment
Effective Date of 2003 Amendment
Effective Date of 1996 Amendment
Amendment by section 1702(h)(10), (19) of
Effective Date of 1993 Amendment
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 201(d)(3) of
Amendment by section 201(d)(3) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 213(a) of
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by
Effective Date
Savings Provision
For provisions that nothing in amendment by
For provisions that nothing in amendment by
[§179A. Repealed. Pub. L. 113–295, div. A, title II, §221(a)(34)(A), Dec. 19, 2014, 128 Stat. 4042 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of
§179B. Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations
(a) Allowance of deduction
In the case of a small business refiner (as defined in section 45H(c)(1)) which elects the application of this section, there shall be allowed as a deduction an amount equal to 75 percent of qualified costs (as defined in section 45H(c)(2)) which are paid or incurred by the taxpayer during the taxable year and which are properly chargeable to capital account.
(b) Reduced percentage
In the case of a small business refiner with average daily domestic refinery runs for the 1-year period ending on December 31, 2002, in excess of 155,000 barrels, the number of percentage points described in subsection (a) shall be reduced (not below zero) by the product of such number (before the application of this subsection) and the ratio of such excess to 50,000 barrels.
(c) Basis reduction
(1) In general
For purposes of this title, the basis of any property shall be reduced by the portion of the cost of such property taken into account under subsection (a).
(2) Ordinary income recapture
For purposes of section 1245, the amount of the deduction allowable under subsection (a) with respect to any property which is of a character subject to the allowance for depreciation shall be treated as a deduction allowed for depreciation under section 167.
(d) Coordination with other provisions
Section 280B shall not apply to amounts which are treated as expenses under this section.
(e) Election to allocate deduction to cooperative owner
(1) In general
If—
(A) a small business refiner to which subsection (a) applies is an organization to which part I of subchapter T applies, and
(B) one or more persons directly holding an ownership interest in the refiner are organizations to which part I of subchapter T apply,
the refiner may elect to allocate all or a portion of the deduction allowable under subsection (a) to such persons. Such allocation shall be equal to the person's ratable share of the total amount allocated, determined on the basis of the person's ownership interest in the taxpayer. The taxable income of the refiner shall not be reduced under section 1382 by reason of any amount to which the preceding sentence applies.
(2) Form and effect of election
An election under paragraph (1) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year.
(3) Written notice to owners
If any portion of the deduction available under subsection (a) is allocated to owners under paragraph (1), the cooperative shall provide any owner receiving an allocation written notice of the amount of the allocation. Such notice shall be provided before the date on which the return described in paragraph (2) is due.
(Added
Editorial Notes
Amendments
2007—Subsec. (a).
2005—Subsec. (e).
Statutory Notes and Related Subsidiaries
Effective Date of 2007 Amendment
Amendment by
Effective Date of 2005 Amendment
Effective Date
§179C. Election to expense certain refineries
(a) Treatment as expenses
A taxpayer may elect to treat 50 percent of the cost of any qualified refinery property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the qualified refinery property is placed in service.
(b) Election
(1) In general
An election under this section for any taxable year shall be made on the taxpayer's return of the tax imposed by this chapter for the taxable year. Such election shall be made in such manner as the Secretary may by regulations prescribe.
(2) Election irrevocable
Any election made under this section may not be revoked except with the consent of the Secretary.
(c) Qualified refinery property
(1) In general
The term "qualified refinery property" means any portion of a qualified refinery—
(A) the original use of which commences with the taxpayer,
(B) which is placed in service by the taxpayer after the date of the enactment of this section and before January 1, 2014,
(C) in the case any portion of a qualified refinery (other than a qualified refinery which is separate from any existing refinery), which meets the requirements of subsection (e),
(D) which meets all applicable environmental laws in effect on the date such portion was placed in service,
(E) no written binding contract for the construction of which was in effect on or before June 14, 2005, and
(F)(i) the construction of which is subject to a written binding construction contract entered into before January 1, 2010,
(ii) which is placed in service before January 1, 2010, or
(iii) in the case of self-constructed property, the construction of which began after June 14, 2005, and before January 1, 2010.
(2) Special rule for sale-leasebacks
For purposes of paragraph (1)(A), if property is—
(A) originally placed in service after the date of the enactment of this section by a person, and
(B) 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 subparagraph (B).
(3) Effect of waiver under Clean Air Act
A waiver under the Clean Air Act shall not be taken into account in determining whether the requirements of paragraph (1)(D) are met.
(d) Qualified refinery
For purposes of this section, the term "qualified refinery" means any refinery located in the United States which is designed to serve the primary purpose of processing liquid fuel from crude oil or qualified fuels (as defined in section 45K(c)), or directly from shale or tar sands.
(e) Production capacity
The requirements of this subsection are met if the portion of the qualified refinery—
(1) enables the existing qualified refinery to increase total volume output (determined without regard to asphalt or lube oil) by 5 percent or more on an average daily basis, or
(2) enables the existing qualified refinery to process shale, tar sands, or qualified fuels (as defined in section 45K(c)) at a rate which is equal to or greater than 25 percent of the total throughput of such qualified refinery on an average daily basis.
(f) Ineligible refinery property
No deduction shall be allowed under subsection (a) for any qualified refinery property—
(1) the primary purpose of which is for use as a topping plant, asphalt plant, lube oil facility, crude or product terminal, or blending facility, or
(2) which is built solely to comply with consent decrees or projects mandated by Federal, State, or local governments.
(g) Election to allocate deduction to cooperative owner
(1) In general
If—
(A) a taxpayer to which subsection (a) applies is an organization to which part I of subchapter T applies, and
(B) one or more persons directly holding an ownership interest in the taxpayer are organizations to which part I of subchapter T apply,
the taxpayer may elect to allocate all or a portion of the deduction allowable under subsection (a) to such persons. Such allocation shall be equal to the person's ratable share of the total amount allocated, determined on the basis of the person's ownership interest in the taxpayer. The taxable income of the taxpayer shall not be reduced under section 1382 by reason of any amount to which the preceding sentence applies.
(2) Form and effect of election
An election under paragraph (1) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year.
(3) Written notice to owners
If any portion of the deduction available under subsection (a) is allocated to owners under paragraph (1), the cooperative shall provide any owner receiving an allocation written notice of the amount of the allocation. Such notice shall be provided before the date on which the return described in paragraph (2) is due.
(h) Reporting
No deduction shall be allowed under subsection (a) to any taxpayer for any taxable year unless such taxpayer files with the Secretary a report containing such information with respect to the operation of the refineries of the taxpayer as the Secretary shall require.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsec. (c)(1)(B), (2)(A), is the date of enactment of
The Clean Air Act, referred to in subsec. (c)(3), is act July 14, 1955, ch. 360,
Amendments
2008—Subsec. (c)(1)(B).
Subsec. (c)(1)(F).
Subsec. (d).
Subsec. (e)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 2008 Amendment
Effective Date
§179D. Energy efficient commercial buildings deduction
(a) In general
There shall be allowed as a deduction an amount equal to the cost of energy efficient commercial building property placed in service during the taxable year.
(b) Maximum amount of deduction
(1) In general
The deduction under subsection (a) with respect to any building for any taxable year shall not exceed the excess (if any) of—
(A) the product of—
(i) the applicable dollar value, and
(ii) the square footage of the building, over
(B) the aggregate amount of the deductions under subsections (a) and (f) with respect to the building for the 3 taxable years immediately preceding such taxable year (or, in the case of any such deduction allowable to a person other than the taxpayer, for any taxable year ending during the 4-taxable-year period ending with such taxable year).
(2) Applicable dollar value
For purposes of paragraph (1)(A)(i), the applicable dollar value shall be an amount equal to $0.50 increased (but not above $1.00) by $0.02 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent.
(3) Increased deduction amount for certain property
(A) In general
In the case of any property which satisfies the requirements of subparagraph (B), paragraph (2) shall be applied by substituting "$2.50" for "$0.50", "$.10" for "$.02", and "$5.00" for "$1.00".
(B) Property requirements
In the case of any energy efficient commercial building property, energy efficient building retrofit property, or property installed pursuant to a qualified retrofit plan, such property shall meet the requirements of this subparagraph if—
(i) installation of such property begins prior to the date that is 60 days after the Secretary publishes guidance with respect to the requirements of paragraphs (4)(A) and (5), or
(ii) installation of such property satisfies the requirements of paragraphs (4)(A) and (5).
(4) Prevailing wage requirements
(A) In general
The requirements described in this subparagraph with respect to any property are that the taxpayer shall ensure that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in the installation of any property shall be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such property is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of
(B) Correction and penalty related to failure to satisfy wage requirements
Rules similar to the rules of section 45(b)(7)(B) shall apply.
(5) Apprenticeship requirements
Rules similar to the rules of section 45(b)(8) shall apply.
(6) Regulations
The Secretary shall issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of this subsection, including regulations or other guidance which provides for requirements for recordkeeping or information reporting for purposes of administering the requirements of this subsection.
(c) Definitions
For purposes of this section—
(1) Energy efficient commercial building property
The term "energy efficient commercial building property" means property—
(A) with respect to which depreciation (or amortization in lieu of depreciation) is allowable,
(B) which is installed on or in any building which is—
(i) located in the United States, and
(ii) within the scope of Reference Standard 90.1,
(C) which is installed as part of—
(i) the interior lighting systems,
(ii) the heating, cooling, ventilation, and hot water systems, or
(iii) the building envelope, and
(D) which is certified in accordance with subsection (d)(5) as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the interior lighting systems, heating, cooling, ventilation, and hot water systems of the building by 25 percent or more in comparison to a reference building which meets the minimum requirements of Reference Standard 90.1 using methods of calculation under subsection (d)(1).
(2) Reference Standard 90.1
The term "Reference Standard 90.1" means, with respect to any property, the more recent of—
(A) Standard 90.1-2007 published by the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America, or
(B) the most recent Standard 90.1 published by the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America for which the Department of Energy has issued a final determination and which has been affirmed by the Secretary, after consultation with the Secretary of Energy, for purposes of this section not later than the date that is 4 years before the date such property is placed in service.
(d) Special rules
(1) Methods of calculation
The Secretary, after consultation with the Secretary of Energy, shall promulgate regulations which describe in detail methods for calculating and verifying energy and power consumption and cost with respect to any property, based on the provisions of the most recent California Nonresidential Alternative Calculation Method Approval Manual which has been affirmed by the Secretary, after consultation with the Secretary of Energy, for purposes of this section not later than the date that is 4 years before the date such property is placed in service.
(2) Computer software
(A) In general
Any calculation under paragraph (1) shall be prepared by qualified computer software.
(B) Qualified computer software
For purposes of this paragraph, the term "qualified computer software" means software—
(i) for which the software designer has certified that the software meets all procedures and detailed methods for calculating energy and power consumption and costs as required by the Secretary,
(ii) which provides such forms as required to be filed by the Secretary in connection with energy efficiency of property and the deduction allowed under this section, and
(iii) which provides a notice form which documents the energy efficiency features of the building and its projected annual energy costs.
(3) Allocation of deduction by certain tax-exempt entities
(A) In general
In the case of energy efficient commercial building property installed on or in property owned by a specified tax-exempt entity, the Secretary shall promulgate regulations or guidance to allow the allocation of the deduction to the person primarily responsible for designing the property in lieu of the owner of such property. Such person shall be treated as the taxpayer for purposes of this section.
(B) Specified tax-exempt entity
For purposes of this paragraph, the term "specified 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 Indian tribal government (as defined in section 30D(g)(9)) or Alaska Native Corporation (as defined in section 3 of the Alaska Native Claims Settlement Act (
(iii) any organization exempt from tax imposed by this chapter.
(4) Notice to owner
Each certification required under this section shall include an explanation to the building owner regarding the energy efficiency features of the building and its projected annual energy costs as provided in the notice under paragraph (2)(B)(iii).
(5) Certification
(A) In general
The Secretary shall prescribe the manner and method for the making of certifications under this section.
(B) Procedures
The Secretary shall include as part of the certification process procedures for inspection and testing by qualified individuals described in subparagraph (C) to ensure compliance of buildings with energy-savings plans and targets. Such procedures shall be comparable, given the difference between commercial and residential buildings, to the requirements in the Mortgage Industry National Accreditation Procedures for Home Energy Rating Systems.
(C) Qualified individuals
Individuals qualified to determine compliance shall be only those individuals who are recognized by an organization certified by the Secretary for such purposes.
(e) Basis reduction
For purposes of this subtitle, if a deduction is allowed under this section with respect to any energy efficient commercial building property, the basis of such property shall be reduced by the amount of the deduction so allowed.
(f) Alternative deduction for energy efficient building retrofit property
(1) In general
In the case of a taxpayer which elects (at such time and in such manner as the Secretary may provide) the application of this subsection with respect to any qualified building, there shall be allowed as a deduction for the taxable year which includes the date of the qualifying final certification with respect to the qualified retrofit plan of such building, an amount equal to the lesser of—
(A) the excess described in subsection (b) (determined by substituting "energy use intensity" for "total annual energy and power costs" in paragraph (2) thereof), or
(B) the aggregate adjusted basis (determined after taking into account all adjustments with respect to such taxable year other than the reduction under subsection (e)) of energy efficient building retrofit property placed in service by the taxpayer pursuant to such qualified retrofit plan.
(2) Qualified retrofit plan
For purposes of this subsection, the term "qualified retrofit plan" means a written plan prepared by a qualified professional which specifies modifications to a building which, in the aggregate, are expected to reduce such building's energy use intensity by 25 percent or more in comparison to the baseline energy use intensity of such building. Such plan shall provide for a qualified professional to—
(A) as of any date during the 1-year period ending on the date on which the property installed pursuant to such plan is placed in service, certify the energy use intensity of such building as of such date,
(B) certify the status of property installed pursuant to such plan as meeting the requirements of subparagraphs (B) and (C) of paragraph (3), and
(C) as of any date that is more than 1 year after the date on which the property installed pursuant to such plan is placed in service, certify the energy use intensity of such building as of such date.
(3) Energy efficient building retrofit property
For purposes of this subsection, the term "energy efficient building retrofit property" means property—
(A) with respect to which depreciation (or amortization in lieu of depreciation) is allowable,
(B) which is installed on or in any qualified building,
(C) which is installed as part of—
(i) the interior lighting systems,
(ii) the heating, cooling, ventilation, and hot water systems, or
(iii) the building envelope, and
(D) which is certified in accordance with paragraph (2)(B) as meeting the requirements of subparagraphs (B) and (C).
(4) Qualified building
For purposes of this subsection, the term "qualified building" means any building which—
(A) is located in the United States, and
(B) was originally placed in service not less than 5 years before the establishment of the qualified retrofit plan with respect to such building.
(5) Qualifying final certification
For purposes of this subsection, the term "qualifying final certification" means, with respect to any qualified retrofit plan, the certification described in paragraph (2)(C) if the energy use intensity certified in such certification is not more than 75 percent of the baseline energy use intensity of the building.
(6) Baseline energy use intensity
(A) In general
For purposes of this subsection, the term "baseline energy use intensity" means the energy use intensity certified under paragraph (2)(A), as adjusted to take into account weather.
(B) Determination of adjustment
For purposes of subparagraph (A), the adjustments described in such subparagraph shall be determined in such manner as the Secretary may provide.
(7) Other definitions
For purposes of this subsection—
(A) Energy use intensity
The term "energy use intensity" means the annualized, measured site energy use intensity determined in accordance with such regulations or other guidance as the Secretary may provide and measured in British thermal units.
(B) Qualified professional
The term "qualified professional" means an individual who is a licensed architect or a licensed engineer and meets such other requirements as the Secretary may provide.
(8) Coordination with deduction otherwise allowed under subsection (a)
(A) In general
In the case of any building with respect to which an election is made under paragraph (1), the term "energy efficient commercial building property" shall not include any energy efficient building retrofit property with respect to which a deduction is allowable under this subsection.
(B) Certain rules not applicable
(i) In general
Except as provided in clause (ii), subsection (d) shall not apply for purposes of this subsection.
(ii) Allocation of deduction by certain tax-exempt entities
Rules similar to subsection (d)(3) shall apply for purposes of this subsection.
(g) Inflation adjustment
In the case of a taxable year beginning after 2022, each dollar amount in subsection (b) shall be increased by an amount equal to—
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2021" for "calendar year 2016" in subparagraph (A)(ii) thereof.
Any increase determined under the preceding sentence which is not a multiple of 1 cent shall be rounded to the nearest cent.
(h) Regulations
The Secretary shall promulgate such regulations as necessary—
(1) to take into account new technologies regarding energy efficiency and renewable energy for purposes of determining energy efficiency and savings under this section, and
(2) to provide for a recapture of the deduction allowed under this section if the plan described in subsection (c)(1)(D) is not fully implemented.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
Amendments
2022—Subsec. (b).
"(1) the product of—
"(A) $1.80, and
"(B) the square footage of the building, over
"(2) the aggregate amount of the deductions under subsection (a) with respect to the building for all prior taxable years."
Subsec. (c)(1)(D).
Subsec. (c)(2).
"(A) Standard 90.1-2007 published by the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America, or
"(B) the most recent"
for "the most recent".
Subsec. (c)(2)(B).
Subsec. (d).
Subsec. (d)(1).
Subsec. (d)(2)(A).
Subsec. (d)(3).
Subsec. (d)(4).
Subsec. (f).
Subsec. (g).
Subsec. (g)(2).
Subsec. (h)(2).
2020—Subsec. (c)(1)(B)(ii), (D).
Subsec. (c)(2).
Subsec. (d)(2).
Subsecs. (g), (h).
2019—Subsec. (h).
2018—Subsec. (d)(1)(B).
Subsec. (h).
2015—Subsec. (c)(1)(B)(ii), (D).
Subsec. (c)(2).
Subsec. (f)(1).
Subsec. (f)(2)(C)(i).
Subsec. (h).
2014—Subsec. (h).
2008—Subsec. (h).
2006—Subsec. (h).
Statutory Notes and Related Subsidiaries
Effective Date of 2022 Amendment
"(1)
"(2)
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2018 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Effective Date
1 So in original. Another closing parenthesis probably should precede the comma.
§179E. Election to expense advanced mine safety equipment
(a) Treatment as expenses
A taxpayer may elect to treat 50 percent of the cost of any qualified advanced mine safety equipment property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the qualified advanced mine safety equipment property is placed in service.
(b) Election
(1) In general
An election under this section for any taxable year shall be made on the taxpayer's return of the tax imposed by this chapter for the taxable year. Such election shall specify the advanced mine safety equipment property to which the election applies and shall be made in such manner as the Secretary may by regulations prescribe.
(2) Election irrevocable
Any election made under this section may not be revoked except with the consent of the Secretary.
(c) Qualified advanced mine safety equipment property
For purposes of this section, the term "qualified advanced mine safety equipment property" means any advanced mine safety equipment property for use in any underground mine located in the United States—
(1) the original use of which commences with the taxpayer, and
(2) which is placed in service by the taxpayer after the date of the enactment of this section.
(d) Advanced mine safety equipment property
For purposes of this section, the term "advanced mine safety equipment property" means any of the following:
(1) Emergency communication technology or device which is used to allow a miner to maintain constant communication with an individual who is not in the mine.
(2) Electronic identification and location device which allows an individual who is not in the mine to track at all times the movements and location of miners working in or at the mine.
(3) Emergency oxygen-generating, self-rescue device which provides oxygen for at least 90 minutes.
(4) Pre-positioned supplies of oxygen which (in combination with self-rescue devices) can be used to provide each miner on a shift, in the event of an accident or other event which traps the miner in the mine or otherwise necessitates the use of such a self-rescue device, the ability to survive for at least 48 hours.
(5) Comprehensive atmospheric monitoring system which monitors the levels of carbon monoxide, methane, and oxygen that are present in all areas of the mine and which can detect smoke in the case of a fire in a mine.
(e) Coordination with section 179
No expenditures shall be taken into account under subsection (a) with respect to the portion of the cost of any property specified in an election under section 179.
(f) Reporting
No deduction shall be allowed under subsection (a) to any taxpayer for any taxable year unless such taxpayer files with the Secretary a report containing such information with respect to the operation of the mines of the taxpayer as the Secretary shall require.
(g) Termination
This section shall not apply to property placed in service after December 31, 2017.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsec. (c)(2), is the date of enactment of
Amendments
2018—Subsec. (g).
2015—Subsec. (g).
2014—Subsec. (g).
2013—Subsec. (g).
2010—Subsec. (g).
2008—Subsec. (g).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date
§180. Expenditures by farmers for fertilizer, etc.
(a) In general
A taxpayer engaged in the business of farming may elect to treat as expenses which are not chargeable to capital account expenditures (otherwise chargeable to capital account) which are paid or incurred by him during the taxable year for the purchase or acquisition of fertilizer, lime, ground limestone, marl, or other materials to enrich, neutralize, or condition land used in farming, or for the application of such materials to such land. The expenditures so treated shall be allowed as a deduction.
(b) Land used in farming
For purposes of subsection (a), the term "land used in farming" means land used (before or simultaneously with the expenditures described in subsection (a)) by the taxpayer or his tenant for the production of crops, fruits, or other agricultural products or for the sustenance of livestock.
(c) Election
The election under subsection (a) for any taxable year shall be made within the time prescribed by law (including extensions thereof) for filing the return for such taxable year. Such election shall be made in such manner as the Secretary may by regulations prescribe. Such election may not be revoked except with the consent of the Secretary.
(Added
Editorial Notes
Amendments
1976—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date
§181. Treatment of certain qualified film and television and live theatrical productions
(a) Election to treat costs as expenses
(1) In general
A taxpayer may elect to treat the cost of any qualified film or television production, and any qualified live theatrical production, as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction.
(2) Dollar limitation
(A) In general
Paragraph (1) shall not apply to so much of the aggregate cost of any qualified film or television production or any qualified live theatrical production as exceeds $15,000,000.
(B) Higher dollar limitation for productions in certain areas
In the case of any qualified film or television production or any qualified live theatrical production the aggregate cost of which is significantly incurred in an area eligible for designation as—
(i) a low-income community under section 45D, or
(ii) a distressed county or isolated area of distress by the Delta Regional Authority established under
subparagraph (A) shall be applied by substituting "$20,000,000" for "$15,000,000".
(b) No other deduction or amortization deduction allowable
With respect to the basis of any qualified film or television production or any qualified live theatrical production to which an election is made under subsection (a), no other depreciation or amortization deduction shall be allowable.
(c) Election
(1) In general
An election under this section with respect to any qualified film or television production or any qualified live theatrical production shall be made in such manner as prescribed by the Secretary and by the due date (including extensions) for filing the taxpayer's return of tax under this chapter for the taxable year in which costs of the production are first incurred.
(2) Revocation of election
Any election made under this section may not be revoked without the consent of the Secretary.
(d) Qualified film or television production
For purposes of this section—
(1) In general
The term "qualified film or television production" means any production described in paragraph (2) if 75 percent of the total compensation of the production is qualified compensation.
(2) Production
(A) In general
A production is described in this paragraph if such production is property described in section 168(f)(3).
(B) Special rules for television series
In the case of a television series—
(i) each episode of such series shall be treated as a separate production, and
(ii) only the first 44 episodes of such series shall be taken into account.
(C) Exception
A production is not described in this paragraph if records are required under
(3) Qualified compensation
For purposes of paragraph (1)—
(A) In general
The term "qualified compensation" means compensation for services performed in the United States by actors, production personnel, directors, and producers.
(B) Participations and residuals excluded
The term "compensation" does not include participations and residuals (as defined in section 167(g)(7)(B)).
(e) Qualified live theatrical production
For purposes of this section—
(1) In general
The term "qualified live theatrical production" means any production described in paragraph (2) if 75 percent of the total compensation of the production is qualified compensation (as defined in subsection (d)(3)).
(2) Production
(A) In general
A production is described in this paragraph if such production is a live staged production of a play (with or without music) which is derived from a written book or script and is produced or presented by a taxable entity in any venue which has an audience capacity of not more than 3,000 or a series of venues the majority of which have an audience capacity of not more than 3,000.
(B) Touring companies, etc.
In the case of multiple live staged productions—
(i) for which the election under this section would be allowable to the same taxpayer, and
(ii) which are—
(I) separate phases of a production, or
(II) separate simultaneous stagings of the same production in different geographical locations (not including multiple performance locations of any one touring production),
each such live staged production shall be treated as a separate production.
(C) Phase
For purposes of subparagraph (B), the term "phase" with respect to any qualified live theatrical production refers to each of the following, but only if each of the following is treated by the taxpayer as a separate activity for all purposes of this title:
(i) The initial staging of a live theatrical production.
(ii) Subsequent additional stagings or touring of such production which are produced by the same producer as the initial staging.
(D) Seasonal productions
(i) In general
In the case of a live staged production not described in subparagraph (B) which is produced or presented by a taxable entity for not more than 10 weeks of the taxable year, subparagraph (A) shall be applied by substituting "6,500" for "3,000".
(ii) Short taxable years
For purposes of clause (i), in the case of any taxable year of less than 12 months, the number of weeks for which a production is produced or presented shall be annualized by multiplying the number of weeks the production is produced or presented during such taxable year by 12 and dividing the result by the number of months in such taxable year.
(E) Exception
A production is not described in this paragraph if such production includes or consists of any performance of conduct described in
(f) Application of certain other rules
For purposes of this section, rules similar to the rules of subsections (b)(2) and (c)(4) of section 194 shall apply.
(g) Termination
This section shall not apply to qualified film and television productions or qualified live theatrical productions commencing after December 31, 2025.
(Added
Editorial Notes
Prior Provisions
A prior section 181,
Amendments
2020—Subsec. (g).
2019—Subsec. (g).
2018—Subsec. (g).
2015—
Subsec. (a)(1).
Subsecs. (a)(2)(A), (B), (b), (c)(1).
Subsec. (e).
Subsec. (f).
Subsec. (g).
2014—Subsec. (f).
2013—Subsec. (f).
2010—Subsec. (f).
2008—Subsec. (a)(2)(A).
Subsec. (d)(3)(A).
Subsec. (f).
2005—Subsec. (d)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2018 Amendment
Effective Date of 2015 Amendment
"(1)
"(2)
"(A)
"(B)
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
"(1)
"(2)
Effective Date of 2005 Amendment
Amendment by
Effective Date
[§182. Repealed. Pub. L. 99–514, title IV, §402(a), Oct. 22, 1986, 100 Stat. 2221 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
§183. Activities not engaged in for profit
(a) General rule
In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.
(b) Deductions allowable
In the case of an activity not engaged in for profit to which subsection (a) applies, there shall be allowed—
(1) the deductions which would be allowable under this chapter for the taxable year without regard to whether or not such activity is engaged in for profit, and
(2) a deduction equal to the amount of the deductions which would be allowable under this chapter for the taxable year only if such activity were engaged in for profit, but only to the extent that the gross income derived from such activity for the taxable year exceeds the deductions allowable by reason of paragraph (1).
(c) Activity not engaged in for profit defined
For purposes of this section, the term "activity not engaged in for profit" means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.
(d) Presumption
If the gross income derived from an activity for 3 or more of the taxable years in the period of 5 consecutive taxable years which ends with the taxable year exceeds the deductions attributable to such activity (determined without regard to whether or not such activity is engaged in for profit), then, unless the Secretary establishes to the contrary, such activity shall be presumed for purposes of this chapter for such taxable year to be an activity engaged in for profit. In the case of an activity which consists in major part of the breeding, training, showing, or racing of horses, the preceding sentence shall be applied by substituting "2" for "3" and "7" for "5".
(e) Special rule
(1) In general
A determination as to whether the presumption provided by subsection (d) applies with respect to any activity shall, if the taxpayer so elects, not be made before the close of the fourth taxable year (sixth taxable year, in the case of an activity described in the last sentence of such subsection) following the taxable year in which the taxpayer first engages in the activity.
(2) Initial period
If the taxpayer makes an election under paragraph (1), the presumption provided by subsection (d) shall apply to each taxable year in the 5-taxable year (or 7-taxable year) period beginning with the taxable year in which the taxpayer first engages in the activity, if the gross income derived from the activity for 3 (or 2 if applicable) or more of the taxable years in such period exceeds the deductions attributable to the activity (determined without regard to whether or not the activity is engaged in for profit).
(3) Election
An election under paragraph (1) shall be made at such time and manner, and subject to such terms and conditions, as the Secretary may prescribe.
(4) Time for assessing deficiency attributable to activity
If a taxpayer makes an election under paragraph (1) with respect to an activity, the statutory period for the assessment of any deficiency attributable to such activity shall not expire before the expiration of 2 years after the date prescribed by law (determined without extensions) for filing the return of tax under
(Added
Editorial Notes
Amendments
2014—Subsec. (e)(1).
1988—Subsec. (e)(2).
1986—Subsec. (d).
1982—Subsec. (a).
1976—Subsecs. (d), (e)(3).
Subsec. (e)(4).
1971—Subsec. (e).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1976 Amendment
Effective Date of 1971 Amendment
Effective Date
[§184. Repealed. Pub. L. 101–508, title XI, §11801(a)(12), Nov. 5, 1990, 104 Stat. 1388–520 ]
Section, added
Statutory Notes and Related Subsidiaries
Savings Provision
For provisions that nothing in repeal by
[§185. Repealed. Pub. L. 99–514, title II, §242(a), Oct. 22, 1986, 100 Stat. 2181 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
"(1)
"(2)
"(A) pursuant to a binding contract entered into before March 2, 1986, or
"(B) with respect to any improvement commenced before March 2, 1986, but only if not less than the lesser of $1,000,000 or 5 percent of the aggregate cost of such improvement has been incurred or committed before such date.
The preceding sentence shall not apply to any expenditure with respect to an improvement placed in service after December 31, 1987."
§186. Recoveries of damages for antitrust violations, etc.
(a) Allowance of deduction
If a compensatory amount which is included in gross income is received or accrued during the taxable year for a compensable injury, there shall be allowed as a deduction for the taxable year an amount equal to the lesser of—
(1) the amount of such compensatory amount, or
(2) the amount of the unrecovered losses sustained as a result of such compensable injury.
(b) Compensable injury
For purposes of this section, the term "compensable injury" means—
(1) injuries sustained as a result of an infringement of a patent issued by the United States,
(2) injuries sustained as a result of a breach of contract or a breach of fiduciary duty or relationship, or
(3) injuries sustained in business, or to property, by reason of any conduct forbidden in the antitrust laws for which a civil action may be brought under section 4 of the Act entitled "An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes", approved October 15, 1914 (commonly known as the Clayton Act).
(c) Compensatory amount
For purposes of this section, the term "compensatory amount" means the amount received or accrued during the taxable year as damages as a result of an award in, or in settlement of, a civil action for recovery for a compensable injury, reduced by any amounts paid or incurred in the taxable year in securing such award or settlement.
(d) Unrecovered losses
(1) In general
For purposes of this section, the amount of any unrecovered loss sustained as a result of any compensable injury is—
(A) the sum of the amount of the net operating losses (as determined under section 172) for each taxable year in whole or in part within the injury period, to the extent that such net operating losses are attributable to such compensable injury, reduced by
(B) the sum of—
(i) the amount of the net operating losses described in subparagraph (A) which were allowed for any prior taxable year as a deduction under section 172 as a net operating loss carryback or carryover to such taxable year, and
(ii) the amounts allowed as a deduction under subsection (a) for any prior taxable year for prior recoveries of compensatory amounts for such compensable injury.
(2) Injury period
For purposes of paragraph (1), the injury period is—
(A) with respect to any infringement of a patent, the period in which such infringement occurred,
(B) with respect to a breach of contract or breach of fiduciary duty or relationship, the period during which amounts would have been received or accrued but for the breach of contract or breach of fiduciary duty or relationship, and
(C) with respect to injuries sustained by reason of any conduct forbidden in the antitrust laws, the period in which such injuries were sustained.
(3) Net operating losses attributable to compensable injuries
For purposes of paragraph (1)—
(A) a net operating loss for any taxable year shall be treated as attributable to a compensable injury to the extent of the compensable injury sustained during such taxable year, and
(B) if only a portion of a net operating loss for any taxable year is attributable to a compensable injury, such portion shall (in applying section 172 for purposes of this section) be considered to be a separate net operating loss for such year to be applied after the other portion of such net operating loss.
(e) Effect on net operating loss carryovers
If for the taxable year in which a compensatory amount is received or accrued any portion of a net operating loss carryover to such year is attributable to the compensable injury for which such amount is received or accrued, such portion of such net operating loss carryover shall be reduced by an amount equal to—
(1) the deduction allowed under subsection (a) with respect to such compensatory amount, reduced by
(2) any portion of the unrecovered losses sustained as a result of the compensable injury with respect to which the period for carryover under section 172 has expired.
(Added
Editorial Notes
References in Text
Section 4 of the Clayton Act, referred to in subsec. (b)(3), is classified to
Statutory Notes and Related Subsidiaries
Effective Date
[§187. Repealed. Pub. L. 94–455, title XIX, §1901(a)(31), Oct. 4, 1976, 90 Stat. 1769 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of
[§188. Repealed. Pub. L. 101–508, title XI, §11801(a)(13), Nov. 5, 1990, 104 Stat. 1388–520 ]
Section, added
Statutory Notes and Related Subsidiaries
Savings Provision
For provisions that nothing in repeal by
[§189. Repealed. Pub. L. 99–514, title VIII, §803(b)(1), Oct. 22, 1986, 100 Stat. 2355 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
If any interest costs incurred after Dec. 31, 1986, are attributable to costs incurred before Jan. 1, 1987, the repeal of this section is applicable to such interest costs only to the extent such interest costs are attributable to costs which were required to be capitalized under section 263 of the Internal Revenue Code of 1954 and which would have been taken into account in applying this section (as in effect before its repeal) or, if applicable, section 266 of such Code, see section 7831(d)(2) of
Repeal applicable to costs incurred after Dec. 31, 1986, in taxable years ending after such date, except as otherwise provided, see section 803(d) of
§190. Expenditures to remove architectural and transportation barriers to the handicapped and elderly
(a) Treatment as expenses
(1) In general
A taxpayer may elect to treat qualified architectural and transportation barrier removal expenses which are paid or incurred by him during the taxable year as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction.
(2) Election
An election under paragraph (1) shall be made at such time and in such manner as the Secretary prescribes by regulations.
(b) Definitions
For purposes of this section—
(1) Architectural and transportation barrier removal expenses
The term "architectural and transportation barrier removal expenses" means an expenditure for the purpose of making any facility or public transportation vehicle owned or leased by the taxpayer for use in connection with his trade or business more accessible to, and usable by, handicapped and elderly individuals.
(2) Qualified architectural and transportation barrier removal expenses
The term "qualified architectural and transportation barrier removal expense" means, with respect to any such facility or public transportation vehicle, an architectural or transportation barrier removal expense with respect to which the taxpayer establishes, to the satisfaction of the Secretary, that the resulting removal of any such barrier meets the standards promulgated by the Secretary with the concurrence of the Architectural and Transportation Barriers Compliance Board and set forth in regulations prescribed by the Secretary.
(3) Handicapped individual
The term "handicapped individual" means any individual who has a physical or mental disability (including, but not limited to, blindness or deafness) which for such individual constitutes or results in a functional limitation to employment, or who has any physical or mental impairment (including, but not limited to, a sight or hearing impairment) which substantially limits one or more major life activities of such individual.
(c) Limitation
The deduction allowed by subsection (a) for any taxable year shall not exceed $15,000.
(Added
Editorial Notes
Amendments
1990—Subsec. (c).
Subsec. (d).
1986—Subsec. (d)(2).
1984—Subsec. (c).
Subsec. (d).
Statutory Notes and Related Subsidiaries
Effective Date of 1990 Amendment
Amendment by section 11611(c) of
Effective Date of 1984 Amendment
Effective Date
Savings Provision
For provisions that nothing in amendment by section 11801(a)(14) of
[§191. Repealed. Pub. L. 97–34, title II, §212(d)(1), Aug. 13, 1981, 95 Stat. 239 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to expenditures incurred after Dec. 31, 1981, in taxable years ending after such date, with exceptions, see section 212(e) of
§192. Contributions to black lung benefit trust
(a) Allowance of deduction
There is allowed as a deduction for the taxable year an amount equal to the sum of the amounts contributed by the taxpayer during the taxable year to or under a trust or trusts described in section 501(c)(21).
(b) Limitation
The maximum amount of the deduction allowed by subsection (a) for any taxpayer for any taxable year shall not exceed the greater of—
(1) the amount necessary to fund (with level funding) the remaining unfunded liability of the taxpayer for black lung claims filed (or expected to be filed) by (or with respect to) past or present employees of the taxpayer, or
(2) the aggregate amount necessary to increase each trust described in section 501(c)(21) to the amount required to pay all amounts payable out of such trust for the taxable year.
(c) Special rules
(1) Method of determining amounts referred to in subsection (b)
(A) In general
The amounts described in subsection (b) shall be determined by using reasonable actuarial methods and assumptions which are not inconsistent with regulations prescribed by the Secretary.
(B) Funding period
Except as provided in subparagraph (C), the funding period for purposes of subsection (b)(1) shall be the greater of—
(i) the average remaining working life of miners who are present employees of the taxpayer, or
(ii) 10 taxable years.
For purposes of the preceding sentence, the term "miner" has the same meaning as such term has when used in section 402(d) of the Black Lung Benefits Act (
(C) Different funding periods
To the extent that—
(i) regulations prescribed by the Secretary provide for a different period, or
(ii) the Secretary consents to a different period proposed by the taxpayer,
such different period shall be substituted for the funding period provided in subparagraph (B).
(2) Benefit payments taken into account
In determining the amounts described in subsection (b), only those black lung benefit claims the payment of which is expected to be made from the trust shall be taken into account.
(3) Time when contributions deemed made
For purposes of this section, a taxpayer shall be deemed to have made a payment of a contribution on the last day of a taxable year if the payment is on account of that taxable year and is made not later than the time prescribed by law for filing the return for that taxable year (including extensions thereof).
(4) Contributions to be in cash or certain other items
No deduction shall be allowed under subsection (a) with respect to any contribution to a trust described in section 501(c)(21) other than a contribution in cash or in items in which such trust may invest under subclause (II) of section 501(c)(21)(A)(ii).
(5) Denial of section 162 deduction with respect to liability
No deduction shall be allowed under section 162(a) with respect to any liability taken into account in determining the deduction under subsection (a) of this section of the taxpayer (or a predecessor).
(d) Carryover of excess contributions
If the amount of the deduction determined under subsection (a) for the taxable year (without regard to the limitation imposed by subsection (b)) with respect to a trust exceeds the limitation imposed by subsection (b) for the taxable year, the excess shall be carried over to the succeeding taxable year and treated as contributed to the trust during that year.
(e) Definition of black lung benefit claim
For purposes of this section, the term "black lung benefit claim" means a claim for compensation for disability or death due to pneumoconiosis under part C of title IV of the Federal Mine Safety and Health Act of 1977 or under any State law providing for such compensation.
(Added
Editorial Notes
References in Text
The Federal Mine Safety and Health Act of 1977, referred to in subsec. (e), is
Amendments
1992—Subsec. (c)(4).
1980—Subsec. (e).
1978—Subsec. (b).
Subsec. (c)(1).
Subsec. (c)(5).
Statutory Notes and Related Subsidiaries
Effective Date of 1992 Amendment
Effective Date of 1980 Amendment
Effective Date of 1978 Amendment
Effective Date
§193. Tertiary injectants
(a) Allowance of deduction
There shall be allowed as a deduction for the taxable year an amount equal to the qualified tertiary injectant expenses of the taxpayer for tertiary injectants injected during such taxable year.
(b) Qualified tertiary injectant expenses
For purposes of this section—
(1) In general
The term "qualified tertiary injectant expenses" means any cost paid or incurred (whether or not chargeable to capital account) for any tertiary injectant (other than a hydrocarbon injectant which is recoverable) which is used as a part of a tertiary recovery method.
(2) Hydrocarbon injectant
The term "hydrocarbon injectant" includes natural gas, crude oil, and any other injectant which is comprised of more than an insignificant amount of natural gas or crude oil. The term does not include any tertiary injectant which is hydrocarbon-based, or a hydrocarbon-derivative, and which is comprised of no more than an insignificant amount of natural gas or crude oil. For purposes of this paragraph, that portion of a hydrocarbon injectant which is not a hydrocarbon shall not be treated as a hydrocarbon injectant.
(3) Tertiary recovery method
The term "tertiary recovery method" means—
(A) any method which is described in subparagraphs (1) through (9) of section 212.78(c) of the June 1979 energy regulations (as defined by section 4996(b)(8)(C) as in effect before its repeal), or
(B) any other method to provide tertiary enhanced recovery which is approved by the Secretary for purposes of this section.
(c) Application with other deductions
No deduction shall be allowed under subsection (a) with respect to any expenditure—
(1) with respect to which the taxpayer has made an election under section 263(c), or
(2) with respect to which a deduction is allowed or allowable to the taxpayer under any other provision of this chapter.
(Added
Editorial Notes
References in Text
Section 4996(b)(8)(C), referred to in subsec. (b)(3)(A), was repealed by
Amendments
1988—Subsec. (b)(3)(A).
1983—Subsec. (b)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1983 Amendment
Amendment by
Effective Date
§194. Treatment of reforestation expenditures
(a) Allowance of deduction
In the case of any qualified timber property with respect to which the taxpayer has made (in accordance with regulations prescribed by the Secretary) an election under this subsection, the taxpayer shall be entitled to a deduction with respect to the amortization of the amortizable basis of qualified timber property based on a period of 84 months. Such amortization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the amortizable basis at the end of such month divided by the number of months (including the month for which the deduction is computed) remaining in the period. Such amortizable basis at the end of the month shall be computed without regard to the amortization deduction for such month. The 84-month period shall begin on the first day of the first month of the second half of the taxable year in which the amortizable basis is acquired.
(b) Treatment as expenses
(1) Election to treat certain reforestation expenditures as expenses
(A) In general
In the case of any qualified timber property with respect to which the taxpayer has made (in accordance with regulations prescribed by the Secretary) an election under this subsection, the taxpayer shall treat reforestation expenditures which are paid or incurred during the taxable year with respect to such property as an expense which is not chargeable to capital account. The reforestation expenditures so treated shall be allowed as a deduction.
(B) Dollar limitation
The aggregate amount of reforestation expenditures which may be taken into account under subparagraph (A) with respect to each qualified timber property for any taxable year shall not exceed—
(i) except as provided in clause (ii) or (iii), $10,000,
(ii) in the case of a separate return by a married individual (as defined in section 7703), $5,000, and
(iii) in the case of a trust, zero.
(2) Allocation of dollar limit
(A) Controlled group
For purposes of applying the dollar limitation under paragraph (1)(B)—
(i) all component members of a controlled group shall be treated as one taxpayer, and
(ii) the Secretary shall, under regulations prescribed by him, apportion such dollar limitation among the component members of such controlled group.
For purposes of the preceding sentence, the term "controlled group" has the meaning assigned to it by section 1563(a), except that the phrase "more than 50 percent" shall be substituted for the phrase "at least 80 percent" each place it appears in section 1563(a)(1).
(B) Partnerships and S corporations
In the case of a partnership, the dollar limitation contained in paragraph (1)(B) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders.
(c) Definitions and special rule
For purposes of this section—
(1) Qualified timber property
The term "qualified timber property" means a woodlot or other site located in the United States which will contain trees in significant commercial quantities and which is held by the taxpayer for the planting, cultivating, caring for, and cutting of trees for sale or use in the commercial production of timber products.
(2) Amortizable basis
The term "amortizable basis" means that portion of the basis of the qualified timber property attributable to reforestation expenditures which have not been taken into account under subsection (b).
(3) Reforestation expenditures
(A) In general
The term "reforestation expenditures" means direct costs incurred in connection with forestation or reforestation by planting or artificial or natural seeding, including costs—
(i) for the preparation of the site;
(ii) of seeds or seedlings; and
(iii) for labor and tools, including depreciation of equipment such as tractors, trucks, tree planters, and similar machines used in planting or seeding.
(B) Cost-sharing programs
Reforestation expenditures shall not include any expenditures for which the taxpayer has been reimbursed under any governmental reforestation cost-sharing program unless the amounts reimbursed have been included in the gross income of the taxpayer.
(4) Treatment of trusts and estates
The aggregate amount of reforestation expenditures incurred by any trust or estate shall be apportioned between the income beneficiaries and the fiduciary under regulations prescribed by the Secretary. Any amount so apportioned to a beneficiary shall be taken into account as expenditures incurred by such beneficiary in applying this section to such beneficiary.
(5) Application with other deductions
No deduction shall be allowed under any other provision of this chapter with respect to any expenditure with respect to which a deduction is allowed or allowable under this section to the taxpayer.
(d) Life tenant and remainderman
In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant.
(Added
Editorial Notes
Prior Provisions
A prior section 194 was renumbered
Amendments
2005—Subsec. (b)(1)(B).
Subsec. (c)(4).
"(A)
"(B)
2004—
Subsec. (b).
Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(3), (4).
Subsec. (c)(2).
Subsec. (c)(4), (5).
1986—Subsec. (b)(1).
1982—Subsec. (b)(2)(B).
Statutory Notes and Related Subsidiaries
Effective Date of 2005 Amendment
Amendments by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date
§194A. Contributions to employer liability trusts
(a) Allowance of deduction
There shall be allowed as a deduction for the taxable year an amount equal to the amount—
(1) which is contributed by an employer to a trust described in section 501(c)(22) (relating to withdrawal liability payment fund) which meets the requirements of section 4223(h) of the Employee Retirement Income Security Act of 1974, and
(2) which is properly allocable to such taxable year.
(b) Allocation to taxable year
In the case of a contribution described in subsection (a) which relates to any specified period of time which includes more than one taxable year, the amount properly allocable to any taxable year in such period shall be determined by prorating such amounts to such taxable years under regulations prescribed by the Secretary.
(c) Disallowance of deduction
No deduction shall be allowed under subsection (a) with respect to any contribution described in subsection (a) which does not relate to any specified period of time.
(Added
Editorial Notes
References in Text
Section 4223(h) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (a), is classified to
Statutory Notes and Related Subsidiaries
Effective Date of 1983 Amendment
Effective Date
"(a) Except as otherwise provided in this section, the amendments made by this title [amending
"(b) Subpart C of part I of subchapter D of
"(1) the date on which the last collective-bargaining agreement providing for employer contributions under the plan, which was in effect on the date of the enactment of this Act [Sept. 26, 1980], expires, without regard to extensions agreed to after such date of enactment, or
"(2) 3 years after the date of the enactment of this Act [Sept. 26, 1980].
"(c) The amendments made by section 209 [enacting this section and amending
§195. Start-up expenditures
(a) Capitalization of expenditures
Except as otherwise provided in this section, no deduction shall be allowed for start-up expenditures.
(b) Election to deduct
(1) Allowance of deduction
If a taxpayer elects the application of this subsection with respect to any start-up expenditures—
(A) the taxpayer shall be allowed a deduction for the taxable year in which the active trade or business begins in an amount equal to the lesser of—
(i) the amount of start-up expenditures with respect to the active trade or business, or
(ii) $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, and
(B) the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins.
(2) Dispositions before close of amortization period
In any case in which a trade or business is completely disposed of by the taxpayer before the end of the period to which paragraph (1) applies, any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165.
(3) Special rule for taxable years beginning in 2010
In the case of a taxable year beginning in 2010, paragraph (1)(A)(ii) shall be applied—
(A) by substituting "$10,000" for "$5,000", and
(B) by substituting "$60,000" for "$50,000".
(c) Definitions
For purposes of this section—
(1) Start-up expenditures
The term "start-up expenditure" means any amount—
(A) paid or incurred in connection with—
(i) investigating the creation or acquisition of an active trade or business, or
(ii) creating an active trade or business, or
(iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and
(B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.
The term "start-up expenditure" does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174.
(2) Beginning of trade or business
(A) In general
Except as provided in subparagraph (B), the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe.
(B) Acquired trade or business
An acquired active trade or business shall be treated as beginning when the taxpayer acquires it.
(d) Election
(1) Time for making election
An election under subsection (b) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the trade or business begins (including extensions thereof).
(2) Scope of election
The period selected under subsection (b) shall be adhered to in computing taxable income for the taxable year for which the election is made and all subsequent taxable years.
(Added
Editorial Notes
Amendments
2010—Subsec. (b)(3).
2004—Subsec. (b).
Subsec. (b)(1).
1984—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2010 Amendment
Effective Date of 2004 Amendment
Effective Date of 1984 Amendment
Effective Date
§196. Deduction for certain unused business credits
(a) Allowance of deduction
If any portion of the qualified business credits determined for any taxable year has not, after the application of section 38(c), been allowed to the taxpayer as a credit under section 38 for any taxable year, an amount equal to the credit not so allowed shall be allowed to the taxpayer as a deduction for the first taxable year following the last taxable year for which such credit could, under section 39, have been allowed as a credit.
(b) Taxpayer's dying or ceasing to exist
If a taxpayer dies or ceases to exist before the first taxable year following the last taxable year for which the qualified business credits could, under section 39, have been allowed as a credit, the amount described in subsection (a) (or the proper portion thereof) shall, under regulations prescribed by the Secretary, be allowed to the taxpayer as a deduction for the taxable year in which such death or cessation occurs.
(c) Qualified business credits
For purposes of this section, the term "qualified business credits" means—
(1) the investment credit determined under section 46 (but only to the extent attributable to property the basis of which is reduced by section 50(c)),
(2) the work opportunity credit determined under section 51(a),
(3) the alcohol fuels credit determined under section 40(a),
(4) the research credit determined under section 41(a) (other than such credit determined under section 280C(c)(3)) 1 for taxable years beginning after December 31, 1988,
(5) the enhanced oil recovery credit determined under section 43(a),
(6) the empowerment zone employment credit determined under section 1396(a),
(7) the Indian employment credit determined under section 45A(a),
(8) the employer Social Security credit determined under section 45B(a),
(9) the new markets tax credit determined under section 45D(a),
(10) the small employer pension plan startup cost credit determined under section 45E(a),
(11) the biodiesel fuels credit determined under section 40A(a),
(12) the low sulfur diesel fuel production credit determined under section 45H(a),
(13) the new energy efficient home credit determined under section 45L(a), and
(14) the small employer health insurance credit determined under section 45R(a).
(d) Special rule for investment tax credit
Subsection (a) shall be applied by substituting "an amount equal to 50 percent of" for "an amount equal to" in the case of the investment credit determined under section 46 (other than the rehabilitation credit).
(Added
Editorial Notes
References in Text
Section 280C(c)(3), referred to in subsec. (c)(4), was redesignated section 280C(c)(2) by
Codification
Another section 339(e) of
Amendments
2018—Subsec. (d).
"(1) the investment credit determined under section 46 (other than the rehabilitation credit), and
"(2) the research credit determined under section 41(a) for a taxable year beginning before January 1, 1990."
2010—Subsec. (c)(14).
2005—Subsec. (c)(13).
2004—Subsec. (c)(11).
Subsec. (c)(12).
2001—Subsec. (c)(10).
2000—Subsec. (c)(9).
1998—Subsec. (c)(8).
1996—Subsec. (c)(2).
1993—Subsec. (c)(6).
Subsec. (c)(7).
1990—Subsec. (c)(1).
Subsec. (c)(5).
Subsec. (d)(1).
1989—Subsec. (c)(4).
Subsec. (d).
Subsec. (d)(2).
1988—Subsec. (c)(4).
Subsec. (d).
1984—
Statutory Notes and Related Subsidiaries
Effective Date of 2010 Amendment
Amendment by
Effective Date of 2005 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by section 302(c)(2) of
Amendment by section 339(e) of
Effective Date of 2001 Amendment
Amendment by
Effective Date of 2000 Amendment
Amendment by
Effective Date of 1998 Amendment
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by section 13322(c)(2) of
Effective Date of 1990 Amendment
Amendment by section 11511(b)(3) of
Amendment by section 11813(b)(12) of
Effective Date of 1989 Amendment
Amendment by section 7110(c)(2) of
Amendment by section 7814(e)(1), (2)(D) of
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date
"(A)
"(B)
"(i) is constructed, reconstructed, erected, or acquired pursuant to a contract which was entered into after August 13, 1981, and was, on July 1, 1982, and at all times thereafter, binding on the taxpayer,
"(ii) is placed in service after December 31, 1982, and before January 1, 1986,
"(iii) with respect to which an election under section 168(f)(8)(A) of such Code is not in effect at any time, and
"(iv) is not described in section 167(l)(3)(A) of such Code.
"(C)
"(i)
"(I) the on-site construction of the facility began before July 1, 1982, and
"(II) during the period beginning after August 13, 1981, and ending on July 1, 1982, the taxpayer constructed (or entered into binding contracts for the construction of) more than 20 percent of the cost of such facility.
"(ii)
"(I) located on a single site,
"(II) for the manufacture of 1 or more manufactured products from raw materials by the application of 2 or more integrated manufacturing processes.
"(D)
"(E)
"(i) if the rehabilitation begins after December 31, 1980, and before July 1, 1982, or
"(ii) if—
"(I) before July 1, 1982, a public offering with respect to interests in such property was registered with the Securities and Exchange Commission,
"(II) before such date an application with respect to such property was filed under section 8 of the United States Housing Act of 1937 [
"(III) such property is placed in service before July 1, 1984."
Savings Provision
For provisions that nothing in amendment by
For provisions that nothing in amendment by section 11813(b)(12) of
1 See References in Text note below.
§197. Amortization of goodwill and certain other intangibles
(a) General rule
A taxpayer shall be entitled to an amortization deduction with respect to any amortizable section 197 intangible. The amount of such deduction shall be determined by amortizing the adjusted basis (for purposes of determining gain) of such intangible ratably over the 15-year period beginning with the month in which such intangible was acquired.
(b) No other depreciation or amortization deduction allowable
Except as provided in subsection (a), no depreciation or amortization deduction shall be allowable with respect to any amortizable section 197 intangible.
(c) Amortizable section 197 intangible
For purposes of this section—
(1) In general
Except as otherwise provided in this section, the term "amortizable section 197 intangible" means any section 197 intangible—
(A) which is acquired by the taxpayer after the date of the enactment of this section, and
(B) which is held in connection with the conduct of a trade or business or an activity described in section 212.
(2) Exclusion of self-created intangibles, etc.
The term "amortizable section 197 intangible" shall not include any section 197 intangible—
(A) which is not described in subparagraph (D), (E), or (F) of subsection (d)(1), and
(B) which is created by the taxpayer.
This paragraph shall not apply if the intangible is created in connection with a transaction (or series of related transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof.
(3) Anti-churning rules
For exclusion of intangibles acquired in certain transactions, see subsection (f)(9).
(d) Section 197 intangible
For purposes of this section—
(1) In general
Except as otherwise provided in this section, the term "section 197 intangible" means—
(A) goodwill,
(B) going concern value,
(C) any of the following intangible items:
(i) workforce in place including its composition and terms and conditions (contractual or otherwise) of its employment,
(ii) business books and records, operating systems, or any other information base (including lists or other information with respect to current or prospective customers),
(iii) any patent, copyright, formula, process, design, pattern, knowhow, format, or other similar item,
(iv) any customer-based intangible,
(v) any supplier-based intangible, and
(vi) any other similar item,
(D) any license, permit, or other right granted by a governmental unit or an agency or instrumentality thereof,
(E) any covenant not to compete (or other arrangement to the extent such arrangement has substantially the same effect as a covenant not to compete) entered into in connection with an acquisition (directly or indirectly) of an interest in a trade or business or substantial portion thereof, and
(F) any franchise, trademark, or trade name.
(2) Customer-based intangible
(A) In general
The term "customer-based intangible" means—
(i) composition of market,
(ii) market share, and
(iii) any other value resulting from future provision of goods or services pursuant to relationships (contractual or otherwise) in the ordinary course of business with customers.
(B) Special rule for financial institutions
In the case of a financial institution, the term "customer-based intangible" includes deposit base and similar items.
(3) Supplier-based intangible
The term "supplier-based intangible" means any value resulting from future acquisitions of goods or services pursuant to relationships (contractual or otherwise) in the ordinary course of business with suppliers of goods or services to be used or sold by the taxpayer.
(e) Exceptions
For purposes of this section, the term "section 197 intangible" shall not include any of the following:
(1) Financial interests
Any interest—
(A) in a corporation, partnership, trust, or estate, or
(B) under an existing futures contract, foreign currency contract, notional principal contract, or other similar financial contract.
(2) Land
Any interest in land.
(3) Computer software
(A) In general
Any—
(i) computer software which is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified, and
(ii) other computer software which is not acquired in a transaction (or series of related transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof.
(B) Computer software defined
For purposes of subparagraph (A), the term "computer software" means any program designed to cause a computer to perform a desired function. Such term shall not include any data base or similar item unless the data base or item is in the public domain and is incidental to the operation of otherwise qualifying computer software.
(4) Certain interests or rights acquired separately
Any of the following not acquired in a transaction (or series of related transactions) involving the acquisition of assets constituting a trade business or substantial portion thereof:
(A) Any interest in a film, sound recording, video tape, book, or similar property.
(B) Any right to receive tangible property or services under a contract or granted by a governmental unit or agency or instrumentality thereof.
(C) Any interest in a patent or copyright.
(D) To the extent provided in regulations, any right under a contract (or granted by a governmental unit or an agency or instrumentality thereof) if such right—
(i) has a fixed duration of less than 15 years, or
(ii) is fixed as to amount and, without regard to this section, would be recoverable under a method similar to the unit-of-production method.
(5) Interests under leases and debt instruments
Any interest under—
(A) an existing lease of tangible property, or
(B) except as provided in subsection (d)(2)(B), any existing indebtedness.
(6) Mortgage servicing
Any right to service indebtedness which is secured by residential real property unless such right is acquired in a transaction (or series of related transactions) involving the acquisition of assets (other than rights described in this paragraph) constituting a trade or business or substantial portion thereof.
(7) Certain transaction costs
Any fees for professional services, and any transaction costs, incurred by parties to a transaction with respect to which any portion of the gain or loss is not recognized under part III of subchapter C.
(f) Special rules
(1) Treatment of certain dispositions, etc.
(A) In general
If there is a disposition of any amortizable section 197 intangible acquired in a transaction or series of related transactions (or any such intangible becomes worthless) and one or more other amortizable section 197 intangibles acquired in such transaction or series of related transactions are retained—
(i) no loss shall be recognized by reason of such disposition (or such worthlessness), and
(ii) appropriate adjustments to the adjusted bases of such retained intangibles shall be made for any loss not recognized under clause (i).
(B) Special rule for covenants not to compete
In the case of any section 197 intangible which is a covenant not to compete (or other arrangement) described in subsection (d)(1)(E), in no event shall such covenant or other arrangement be treated as disposed of (or becoming worthless) before the disposition of the entire interest described in such subsection in connection with which such covenant (or other arrangement) was entered into.
(C) Special rule
All persons treated as a single taxpayer under section 41(f)(1) shall be so treated for purposes of this paragraph.
(2) Treatment of certain transfers
(A) In general
In the case of any section 197 intangible transferred in a transaction described in subparagraph (B), the transferee shall be treated as the transferor for purposes of applying this section with respect to so much of the adjusted basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor.
(B) Transactions covered
The transactions described in this subparagraph are—
(i) any transaction described in section 332, 351, 361, 721, 731, 1031, or 1033, 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.
(3) Treatment of amounts paid pursuant to covenants not to compete, etc.
Any amount paid or incurred pursuant to a covenant or arrangement referred to in subsection (d)(1)(E) shall be treated as an amount chargeable to capital account.
(4) Treatment of franchises, etc.
(A) Franchise
The term "franchise" has the meaning given to such term by section 1253(b)(1).
(B) Treatment of renewals
Any renewal of a franchise, trademark, or trade name (or of a license, a permit, or other right referred to in subsection (d)(1)(D)) shall be treated as an acquisition. The preceding sentence shall only apply with respect to costs incurred in connection with such renewal.
(C) Certain amounts not taken into account
Any amount to which section 1253(d)(1) applies shall not be taken into account under this section.
(5) Treatment of certain reinsurance transactions
In the case of any amortizable section 197 intangible resulting from an assumption reinsurance transaction, the amount taken into account as the adjusted basis of such intangible under this section shall be the excess of—
(A) the amount paid or incurred by the acquirer under the assumption reinsurance transaction, over
(B) the amount required to be capitalized under section 848 in connection with such transaction.
Subsection (b) shall not apply to any amount required to be capitalized under section 848.
(6) Treatment of certain subleases
For purposes of this section, a sublease shall be treated in the same manner as a lease of the underlying property involved.
(7) Treatment as depreciable
For purposes of this chapter, any amortizable section 197 intangible shall be treated as property which is of a character subject to the allowance for depreciation provided in section 167.
(8) Treatment of certain increments in value
This section shall not apply to any increment in value if, without regard to this section, such increment is properly taken into account in determining the cost of property which is not a section 197 intangible.
(9) Anti-churning rules
For purposes of this section—
(A) In general
The term "amortizable section 197 intangible" shall not include any section 197 intangible which is described in subparagraph (A) or (B) of subsection (d)(1) (or for which depreciation or amortization would not have been allowable but for this section) and which is acquired by the taxpayer after the date of the enactment of this section, if—
(i) the intangible was held or used at any time on or after July 25, 1991, and on or before such date of enactment by the taxpayer or a related person,
(ii) the intangible was acquired from a person who held such intangible at any time on or after July 25, 1991, and on or before such date of enactment, and, as part of the transaction, the user of such intangible does not change, or
(iii) the taxpayer grants the right to use such intangible to a person (or a person related to such person) who held or used such intangible at any time on or after July 25, 1991, and on or before such date of enactment.
For purposes of this subparagraph, the determination of whether the user of property changes as part of a transaction shall be determined in accordance with regulations prescribed by the Secretary. For purposes of this subparagraph, deductions allowable under section 1253(d) shall be treated as deductions allowable for amortization.
(B) Exception where gain recognized
If—
(i) subparagraph (A) would not apply to an intangible acquired by the taxpayer but for the last sentence of subparagraph (C)(i), and
(ii) the person from whom the taxpayer acquired the intangible elects, notwithstanding any other provision of this title—
(I) to recognize gain on the disposition of the intangible, and
(II) to pay a tax on such gain which, when added to any other income tax on such gain under this title, equals such gain multiplied by the highest rate of income tax applicable to such person under this title,
then subparagraph (A) shall apply to the intangible only to the extent that the taxpayer's adjusted basis in the intangible exceeds the gain recognized under clause (ii)(I).
(C) Related person defined
For purposes of this paragraph—
(i) Related person
A person (hereinafter in this paragraph referred to as the "related person") is related to any person if—
(I) the related person bears a relationship to such person specified in section 267(b) or section 707(b)(1), or
(II) the related person and such person are engaged in trades or businesses under common control (within the meaning of subparagraphs (A) and (B) of section 41(f)(1)).
For purposes of subclause (I), in applying section 267(b) or 707(b)(1), "20 percent" shall be substituted for "50 percent".
(ii) Time for making determination
A person shall be treated as related to another person if such relationship exists immediately before or immediately after the acquisition of the intangible involved.
(D) Acquisitions by reason of death
Subparagraph (A) shall not apply to the acquisition of any property by the taxpayer if the basis of the property in the hands of the taxpayer is determined under section 1014(a).
(E) Special rule for partnerships
With respect to any increase in the basis of partnership property under section 732, 734, or 743, determinations under this paragraph shall be made at the partner level and each partner shall be treated as having owned and used such partner's proportionate share of the partnership assets.
(F) Anti-abuse rules
The term "amortizable section 197 intangible" does not include any section 197 intangible acquired in a transaction, one of the principal purposes of which is to avoid the requirement of subsection (c)(1) that the intangible be acquired after the date of the enactment of this section or to avoid the provisions of subparagraph (A).
(10) Tax-exempt use property subject to lease
In the case of any section 197 intangible which would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to such intangible, the amortization period under this section shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3)).
(g) Regulations
The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including such regulations as may be appropriate to prevent avoidance of the purposes of this section through related persons or otherwise.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsecs. (c)(1)(A) and (f)(9)(A), (F), is the date of enactment of
Amendments
2004—Subsec. (e)(6) to (8).
Subsec. (f)(10).
Statutory Notes and Related Subsidiaries
Effective Date of 2004 Amendment
Amendment by section 847(b)(3) of
"(1)
"(2)
Effective Date
"(1)
"(2)
"(A)
"(i) the amendments made by this section shall apply to property acquired by the taxpayer after July 25, 1991,
"(ii) subsection (c)(1)(A) of section 197 of the Internal Revenue Code of 1986 (as added by this section) (and so much of subsection (f)(9)(A) of such section 197 as precedes clause (i) thereof) shall be applied with respect to the taxpayer by treating July 25, 1991, as the date of the enactment of such section, and
"(iii) in applying subsection (f)(9) of such section, with respect to any property acquired by the taxpayer or a related person on or before the date of the enactment of this Act, only holding or use on July 25, 1991, shall be taken into account.
"(B)
"(i) may be revoked only with the consent of the Secretary, and
"(ii) shall apply to the taxpayer making such election and any other taxpayer under common control with the taxpayer (within the meaning of subparagraphs (A) and (B) of section 41(f)(1) of such Code) at any time after August 2, 1993, and on or before the date on which such election is made.
"(3)
"(A)
"(i) such acquisition is pursuant to a written binding contract in effect on the date of the enactment of this Act and at all times thereafter before such acquisition,
"(ii) an election under paragraph (2) does not apply to the taxpayer, and
"(iii) the taxpayer makes an election under this paragraph with respect to such contract.
"(B)
"(i) may be revoked only with the consent of the Secretary, and
"(ii) shall apply to all property acquired pursuant to the contract with respect to which such election was made."
§198. Expensing of environmental remediation costs
(a) In general
A taxpayer may elect to treat any qualified environmental remediation expenditure which is paid or incurred by the taxpayer as an expense which is not chargeable to capital account. Any expenditure which is so treated shall be allowed as a deduction for the taxable year in which it is paid or incurred.
(b) Qualified environmental remediation expenditure
For purposes of this section—
(1) In general
The term "qualified environmental remediation expenditure" means any expenditure—
(A) which is otherwise chargeable to capital account, and
(B) which is paid or incurred in connection with the abatement or control of hazardous substances at a qualified contaminated site.
(2) Special rule for expenditures for depreciable property
Such term shall not include any expenditure for the acquisition of property of a character subject to the allowance for depreciation which is used in connection with the abatement or control of hazardous substances at a qualified contaminated site; except that the portion of the allowance under section 167 for such property which is otherwise allocated to such site shall be treated as a qualified environmental remediation expenditure.
(c) Qualified contaminated site
For purposes of this section—
(1) In general
The term "qualified contaminated site" means any area—
(A) which is held by the taxpayer for use in a trade or business or for the production of income, or which is property described in section 1221(a)(1) in the hands of the taxpayer, and
(B) at or on which there has been a release (or threat of release) or disposal of any hazardous substance.
(2) National priorities listed sites not included
Such term shall not include any site which is on, or proposed for, the national priorities list under section 105(a)(8)(B) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (as in effect on the date of the enactment of this section).
(3) Taxpayer must receive statement from State environmental agency
An area shall be treated as a qualified contaminated site with respect to expenditures paid or incurred during any taxable year only if the taxpayer receives a statement from the appropriate agency of the State in which such area is located that such area meets the requirement of paragraph (1)(B).
(4) Appropriate State agency
For purposes of paragraph (3), the chief executive officer of each State may, in consultation with the Administrator of the Environmental Protection Agency, designate the appropriate State environmental agency within 60 days of the date of the enactment of this section. If the chief executive officer of a State has not designated an appropriate environmental agency within such 60-day period, the appropriate environmental agency for such State shall be designated by the Administrator of the Environmental Protection Agency.
(d) Hazardous substance
For purposes of this section—
(1) In general
The term "hazardous substance" means—
(A) any substance which is a hazardous substance as defined in section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
(B) any substance which is designated as a hazardous substance under section 102 of such Act, and
(C) any petroleum product (as defined in section 4612(a)(3)).
(2) Exception
Such term shall not include any substance with respect to which a removal or remedial action is not permitted under section 104 of such Act by reason of subsection (a)(3) thereof.
(e) Deduction recaptured as ordinary income on sale, etc.
Solely for purposes of section 1245, in the case of property to which a qualified environmental remediation expenditure would have been capitalized but for this section—
(1) the deduction allowed by this section for such expenditure shall be treated as a deduction for depreciation, and
(2) such property (if not otherwise section 1245 property) shall be treated as section 1245 property solely for purposes of applying section 1245 to such deduction.
(f) Coordination with other provisions
Sections 280B and 468 shall not apply to amounts which are treated as expenses under this section.
(g) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
(h) Termination
This section shall not apply to expenditures paid or incurred after December 31, 2011.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsec. (c)(2), (4), is the date of enactment of
Sections 101(14), 102, 104, and 105(a)(8)(B) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, referred to in subsecs. (c)(2) and (d), are classified to sections 9601(14), 9602, 9604, and 9605(a)(8)(B), respectively, of Title 42, The Public Health and Welfare.
Amendments
2010—Subsec. (h).
2008—Subsec. (h).
2006—Subsec. (d)(1)(C).
Subsec. (h).
2004—Subsec. (h).
2000—Subsec. (c).
Subsec. (h).
1999—Subsec. (c)(1)(A)(i).
Subsec. (h).
Statutory Notes and Related Subsidiaries
Effective Date of 2010 Amendment
Effective Date of 2008 Amendment
Effective Date of 2006 Amendment
Effective Date of 2004 Amendment
Effective Date of 2000 Amendment
Effective Date of 1999 Amendment
Amendment by section 532(c)(2)(A) of
Effective Date
[§198A. Repealed. Pub. L. 113–295, div. A, title II, §221(a)(35), Dec. 19, 2014, 128 Stat. 4042 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of
[§199. Repealed. Pub. L. 115–97, title I, §13305(a), Dec. 22, 2017, 131 Stat. 2126 ]
Section, added
Subsection (c)(3)(C) of this Section Prior to Repeal
Prior to repeal by section 13305(a) of
(c) Qualified production activities income
(3) Special rules for determining costs
(C) Transportation costs of independent refiners
(i) In general
In the case of any taxpayer who is in the trade or business of refining crude oil and who is not a major integrated oil company (as defined in section 167(h)(5)(B), determined without regard to clause (iii) thereof) for the taxable year, in computing oil related qualified production activities income under subsection (d)(9)(B), the amount allocated to domestic production gross receipts under paragraph (1)(B) for costs related to the transportation of oil shall be 25 percent of the amount properly allocable under such paragraph (determined without regard to this subparagraph).
(ii) Termination
Clause (i) shall not apply to any taxable year beginning after December 31, 2021.
See Amendment Relating to Consolidated Appropriations Act, 2016 note below.
Subsection (d)(8) of this Section Prior to Repeal
Prior to repeal by section 13305(a) of
(d) Definitions and special rules
(8) Treatment of activities in Puerto Rico
(A) In general
In the case of any taxpayer with gross receipts for any taxable year from sources within the Commonwealth of Puerto Rico, if all of such receipts are taxable under section 1 or 11 for such taxable year, then for purposes of determining the domestic production gross receipts of such taxpayer for such taxable year under subsection (c)(4), the term "United States" shall include the Commonwealth of Puerto Rico.
(B) Special rule for applying wage limitation
In the case of any taxpayer described in subparagraph (A), for purposes of applying the limitation under subsection (b) for any taxable year, the determination of W–2 wages of such taxpayer shall be made without regard to any exclusion under section 3401(a)(8) for remuneration paid for services performed in Puerto Rico.
(C) Termination
This paragraph shall apply only with respect to the first 11 taxable years of the taxpayer beginning after December 31, 2005, and before January 1, 2017.
See Extension of Deduction Allowable With Respect to Income Attributable to Domestic Production Activities in Puerto Rico note below.
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to taxable years beginning after Dec. 31, 2017, except as provided by transition rule, see section 13305(c) of
Amendment Relating to Consolidated Appropriations Act, 2016
"(a)
"(1) by inserting 'who elects the application of this clause for any taxable year,' after 'In the case of any taxpayer',
"(2) by substituting ', and who' for 'and who',
"(3) by substituting 'such taxable year' for 'the taxable year', and
"(4) by substituting '(as defined in subsection (d)(9)(B))' for 'under subsection (d)(9)(B)'.
"(b)
Extension of Deduction Allowable With Respect to Income Attributable to Domestic Production Activities in Puerto Rico
"(1) by substituting 'first 12 taxable years' for 'first 11 taxable years', and
"(2) by substituting 'January 1, 2018' for 'January 1, 2017'."
§199A. Qualified business income
(a) Allowance of deduction
In the case of a taxpayer other than a corporation, there shall be allowed as a deduction for any taxable year an amount equal to the lesser of—
(1) the combined qualified business income amount of the taxpayer, or
(2) an amount equal to 20 percent of the excess (if any) of—
(A) the taxable income of the taxpayer for the taxable year, over
(B) the net capital gain (as defined in section 1(h)) of the taxpayer for such taxable year.
(b) Combined qualified business income amount
For purposes of this section—
(1) In general
The term "combined qualified business income amount" means, with respect to any taxable year, an amount equal to—
(A) the sum of the amounts determined under paragraph (2) for each qualified trade or business carried on by the taxpayer, plus
(B) 20 percent of the aggregate amount of the qualified REIT dividends and qualified publicly traded partnership income of the taxpayer for the taxable year.
(2) Determination of deductible amount for each trade or business
The amount determined under this paragraph with respect to any qualified trade or business is the lesser of—
(A) 20 percent of the taxpayer's qualified business income with respect to the qualified trade or business, or
(B) the greater of—
(i) 50 percent of the W–2 wages with respect to the qualified trade or business, or
(ii) the sum of 25 percent of the W–2 wages with respect to the qualified trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property.
(3) Modifications to limit based on taxable income
(A) Exception from limit
In the case of any taxpayer whose taxable income for the taxable year does not exceed the threshold amount, paragraph (2) shall be applied without regard to subparagraph (B).
(B) Phase-in of limit for certain taxpayers
(i) In general
If—
(I) the taxable income of a taxpayer for any taxable year exceeds the threshold amount, but does not exceed the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), and
(II) the amount determined under paragraph (2)(B) (determined without regard to this subparagraph) with respect to any qualified trade or business carried on by the taxpayer is less than the amount determined under paragraph (2)(A) with respect such trade or business,
then paragraph (2) shall be applied with respect to such trade or business without regard to subparagraph (B) thereof and by reducing the amount determined under subparagraph (A) thereof by the amount determined under clause (ii).
(ii) Amount of reduction
The amount determined under this subparagraph is the amount which bears the same ratio to the excess amount as—
(I) the amount by which the taxpayer's taxable income for the taxable year exceeds the threshold amount, bears to
(II) $50,000 ($100,000 in the case of a joint return).
(iii) Excess amount
For purposes of clause (ii), the excess amount is the excess of—
(I) the amount determined under paragraph (2)(A) (determined without regard to this paragraph), over
(II) the amount determined under paragraph (2)(B) (determined without regard to this paragraph).
(4) Wages, etc.
(A) In general
The term "W–2 wages" means, with respect to any person for any taxable year of such person, the amounts described in paragraphs (3) and (8) of section 6051(a) paid by such person with respect to employment of employees by such person during the calendar year ending during such taxable year.
(B) Limitation to wages attributable to qualified business income
Such term shall not include any amount which is not properly allocable to qualified business income for purposes of subsection (c)(1).
(C) Return requirement
Such term shall not include any amount which is not properly included in a return filed with the Social Security Administration on or before the 60th day after the due date (including extensions) for such return.
(5) Acquisitions, dispositions, and short taxable years
The Secretary shall provide for the application of this subsection in cases of a short taxable year or where the taxpayer acquires, or disposes of, the major portion of a trade or business or the major portion of a separate unit of a trade or business during the taxable year.
(6) Qualified property
For purposes of this section:
(A) In general
The term "qualified property" means, with respect to any qualified trade or business for a taxable year, tangible property of a character subject to the allowance for depreciation under section 167—
(i) which is held by, and available for use in, the qualified trade or business at the close of the taxable year,
(ii) which is used at any point during the taxable year in the production of qualified business income, and
(iii) the depreciable period for which has not ended before the close of the taxable year.
(B) Depreciable period
The term "depreciable period" means, with respect to qualified property of a taxpayer, the period beginning on the date the property was first placed in service by the taxpayer and ending on the later of—
(i) the date that is 10 years after such date, or
(ii) the last day of the last full year in the applicable recovery period that would apply to the property under section 168 (determined without regard to subsection (g) thereof).
(7) Special rule with respect to income received from cooperatives
In the case of any qualified trade or business of a patron of a specified agricultural or horticultural cooperative, the amount determined under paragraph (2) with respect to such trade or business shall be reduced by the lesser of—
(A) 9 percent of so much of the qualified business income with respect to such trade or business as is properly allocable to qualified payments received from such cooperative, or
(B) 50 percent of so much of the W–2 wages with respect to such trade or business as are so allocable.
(c) Qualified business income
For purposes of this section—
(1) In general
The term "qualified business income" means, for any taxable year, the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. Such term shall not include any qualified REIT dividends or qualified publicly traded partnership income.
(2) Carryover of losses
If the net amount of qualified income, gain, deduction, and loss with respect to qualified trades or businesses of the taxpayer for any taxable year is less than zero, such amount shall be treated as a loss from a qualified trade or business in the succeeding taxable year.
(3) Qualified items of income, gain, deduction, and loss
For purposes of this subsection—
(A) In general
The term "qualified items of income, gain, deduction, and loss" means items of income, gain, deduction, and loss to the extent such items are—
(i) effectively connected with the conduct of a trade or business within the United States (within the meaning of section 864(c), determined by substituting "qualified trade or business (within the meaning of section 199A)" for "nonresident alien individual or a foreign corporation" or for "a 1 foreign corporation" each place it appears), and
(ii) included or allowed in determining taxable income for the taxable year.
(B) Exceptions
The following items shall not be taken into account as a qualified item of income, gain, deduction, or loss:
(i) Any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss.
(ii) Any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G). Any amount described in section 1385(a)(1) shall not be treated as described in this clause.
(iii) Any interest income other than interest income which is properly allocable to a trade or business.
(iv) Any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1) (applied by substituting "qualified trade or business" for "controlled foreign corporation").
(v) Any item of income, gain, deduction, or loss taken into account under section 954(c)(1)(F) (determined without regard to clause (ii) thereof and other than items attributable to notional principal contracts entered into in transactions qualifying under section 1221(a)(7)).
(vi) Any amount received from an annuity which is not received in connection with the trade or business.
(vii) Any item of deduction or loss properly allocable to an amount described in any of the preceding clauses.
(4) Treatment of reasonable compensation and guaranteed payments
Qualified business income shall not include—
(A) reasonable compensation paid to the taxpayer by any qualified trade or business of the taxpayer for services rendered with respect to the trade or business,
(B) any guaranteed payment described in section 707(c) paid to a partner for services rendered with respect to the trade or business, and
(C) to the extent provided in regulations, any payment described in section 707(a) to a partner for services rendered with respect to the trade or business.
(d) Qualified trade or business
For purposes of this section—
(1) In general
The term "qualified trade or business" means any trade or business other than—
(A) a specified service trade or business, or
(B) the trade or business of performing services as an employee.
(2) Specified service trade or business
The term "specified service trade or business" means any trade or business—
(A) which is described in section 1202(e)(3)(A) (applied without regard to the words "engineering, architecture,") or which would be so described if the term "employees or owners" were substituted for "employees" therein, or
(B) which involves the performance of services that consist of investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)).
(3) Exception for specified service businesses based on taxpayer's income
(A) In general
If, for any taxable year, the taxable income of any taxpayer is less than the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), then—
(i) any specified service trade or business of the taxpayer shall not fail to be treated as a qualified trade or business due to paragraph (1)(A), but
(ii) only the applicable percentage of qualified items of income, gain, deduction, or loss, and the W–2 wages and the unadjusted basis immediately after acquisition of qualified property, of the taxpayer allocable to such specified service trade or business shall be taken into account in computing the qualified business income, W–2 wages, and the unadjusted basis immediately after acquisition of qualified property of the taxpayer for the taxable year for purposes of applying this section.
(B) Applicable percentage
For purposes of subparagraph (A), the term "applicable percentage" means, with respect to any taxable year, 100 percent reduced (not below zero) by the percentage equal to the ratio of—
(i) the taxable income of the taxpayer for the taxable year in excess of the threshold amount, bears to
(ii) $50,000 ($100,000 in the case of a joint return).
(e) Other definitions
For purposes of this section—
(1) Taxable income
Except as otherwise provided in subsection (g)(2)(B), taxable income shall be computed without regard to any deduction allowable under this section.
(2) Threshold amount
(A) In general
The term "threshold amount" means $157,500 (200 percent of such amount in the case of a joint return).
(B) Inflation adjustment
In the case of any taxable year beginning after 2018, the dollar amount in subparagraph (A) shall be increased by an amount equal to—
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "calendar year 2017" for "calendar year 2016" in subparagraph (A)(ii) thereof.
The amount of any increase under the preceding sentence shall be rounded as provided in section 1(f)(7).
(3) Qualified REIT dividend
The term "qualified REIT dividend" means any dividend from a real estate investment trust received during the taxable year which—
(A) is not a capital gain dividend, as defined in section 857(b)(3), and
(B) is not qualified dividend income, as defined in section 1(h)(11).
(4) Qualified publicly traded partnership income
The term "qualified publicly traded partnership income" means, with respect to any qualified trade or business of a taxpayer, the sum of—
(A) the net amount of such taxpayer's allocable share of each qualified item of income, gain, deduction, and loss (as defined in subsection (c)(3) and determined after the application of subsection (c)(4)) from a publicly traded partnership (as defined in section 7704(a)) 2 which is not treated as a corporation under section 7704(c), plus
(B) any gain recognized by such taxpayer upon disposition of its interest in such partnership to the extent such gain is treated as an amount realized from the sale or exchange of property other than a capital asset under section 751(a).
(f) Special rules
(1) Application to partnerships and S corporations
(A) In general
In the case of a partnership or S corporation—
(i) this section shall be applied at the partner or shareholder level,
(ii) each partner or shareholder shall take into account such person's allocable share of each qualified item of income, gain, deduction, and loss, and
(iii) each partner or shareholder shall be treated for purposes of subsection (b) as having W–2 wages and unadjusted basis immediately after acquisition of qualified property for the taxable year in an amount equal to such person's allocable share of the W–2 wages and the unadjusted basis immediately after acquisition of qualified property of the partnership or S corporation for the taxable year (as determined under regulations prescribed by the Secretary).
For purposes of clause (iii), a partner's or shareholder's allocable share of W–2 wages shall be determined in the same manner as the partner's or shareholder's allocable share of wage expenses. For purposes of such clause, partner's or shareholder's allocable share of the unadjusted basis immediately after acquisition of qualified property shall be determined in the same manner as the partner's or shareholder's allocable share of depreciation. For purposes of this subparagraph, in the case of an S corporation, an allocable share shall be the shareholder's pro rata share of an item.
(B) Application to trusts and estates
Rules similar to the rules under section 199(d)(1)(B)(i) (as in effect on December 1, 2017) for the apportionment of W–2 wages shall apply to the apportionment of W–2 wages and the apportionment of unadjusted basis immediately after acquisition of qualified property under this section.
(C) Treatment of trades or business in Puerto Rico
(i) In general
In the case of any taxpayer with qualified business income from sources within the commonwealth of Puerto Rico, if all such income is taxable under section 1 for such taxable year, then for purposes of determining the qualified business income of such taxpayer for such taxable year, the term "United States" shall include the Commonwealth of Puerto Rico.
(ii) Special rule for applying limit
In the case of any taxpayer described in clause (i), the determination of W–2 wages of such taxpayer with respect to any qualified trade or business conducted in Puerto Rico shall be made without regard to any exclusion under section 3401(a)(8) for remuneration paid for services in Puerto Rico.
(2) Coordination with minimum tax
For purposes of determining alternative minimum taxable income under section 55, qualified business income shall be determined without regard to any adjustments under sections 56 through 59.
(3) Deduction limited to income taxes
The deduction under subsection (a) shall only be allowed for purposes of this chapter.
(4) Regulations
The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this section, including regulations—
(A) for requiring or restricting the allocation of items and wages under this section and such reporting requirements as the Secretary determines appropriate, and
(B) for the application of this section in the case of tiered entities.
(g) Deduction for income attributable to domestic production activities of specified agricultural or horticultural cooperatives
(1) Allowance of deduction
(A) In general
In the case of a taxpayer which is a specified agricultural or horticultural cooperative, there shall be allowed as a deduction an amount equal to 9 percent of the lesser of—
(i) the qualified production activities income of the taxpayer for the taxable year, or
(ii) the taxable income of the taxpayer for the taxable year.
(B) Limitation
(i) In general
The deduction allowable under subparagraph (A) for any taxable year shall not exceed 50 percent of the W–2 wages of the taxpayer for the taxable year.
(ii) W–2 wages
For purposes of this subparagraph, the W–2 wages of the taxpayer shall be determined in the same manner as under subsection (b)(4) (without regard to subparagraph (B) thereof and after application of subsection (b)(5)), except that such wages shall not include any amount which is not properly allocable to domestic production gross receipts for purposes of paragraph (3)(A).
(C) Taxable income of cooperatives determined without regard to certain deductions
For purposes of this subsection, the taxable income of a specified agricultural or horticultural cooperative shall be computed without regard to any deduction allowable under subsection (b) or (c) of section 1382 (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions).
(2) Deduction allowed to patrons
(A) In general
In the case of any eligible taxpayer who receives a qualified payment from a specified agricultural or horticultural cooperative, there shall be allowed as a deduction for the taxable year in which such payment is received an amount equal to the portion of the deduction allowed under paragraph (1) to such cooperative which is—
(i) allowed with respect to the portion of the qualified production activities income to which such payment is attributable, and
(ii) identified by such cooperative in a written notice mailed to such taxpayer during the payment period described in section 1382(d).
(B) Limitation based on taxable income
The deduction allowed to any taxpayer under this paragraph shall not exceed the taxable income of the taxpayer determined without regard to the deduction allowed under this paragraph and after taking into account any deduction allowed to the taxpayer under subsection (a) for the taxable year.
(C) Cooperative denied deduction for portion of qualified payments
The taxable income of a specified agricultural or horticultural cooperative shall not be reduced under section 1382 by reason of that portion of any qualified payment as does not exceed the deduction allowable under subparagraph (A) with respect to such payment.
(D) Eligible taxpayer
For purposes of this paragraph, the term "eligible taxpayer" means—
(i) a taxpayer other than a corporation, or
(ii) a specified agricultural or horticultural cooperative.
(E) Qualified payment
For purposes of this section, the term "qualified payment" means, with respect to any eligible taxpayer, any amount which—
(i) is described in paragraph (1) or (3) of section 1385(a),
(ii) is received by such taxpayer from a specified agricultural or horticultural cooperative, and
(iii) is attributable to qualified production activities income with respect to which a deduction is allowed to such cooperative under paragraph (1).
(3) Qualified production activities income
For purposes of this subsection—
(A) In general
The term "qualified production activities income" for any taxable year means an amount equal to the excess (if any) of—
(i) the taxpayer's domestic production gross receipts for such taxable year, over
(ii) the sum of—
(I) the cost of goods sold that are allocable to such receipts, and
(II) other expenses, losses, or deductions (other than the deduction allowed under this subsection), which are properly allocable to such receipts.
(B) Allocation method
The Secretary shall prescribe rules for the proper allocation of items described in subparagraph (A) for purposes of determining qualified production activities income. Such rules shall provide for the proper allocation of items whether or not such items are directly allocable to domestic production gross receipts.
(C) Special rules for determining costs
(i) In general
For purposes of determining costs under subclause (I) of subparagraph (A)(ii), any item or service brought into the United States shall be treated as acquired by purchase, and its cost shall be treated as not less than its value immediately after it entered the United States. A similar rule shall apply in determining the adjusted basis of leased or rented property where the lease or rental gives rise to domestic production gross receipts.
(ii) Exports for further manufacture
In the case of any property described in clause (i) that had been exported by the taxpayer for further manufacture, the increase in cost or adjusted basis under clause (i) shall not exceed the difference between the value of the property when exported and the value of the property when brought back into the United States after the further manufacture.
(D) Domestic production gross receipts
(i) In general
The term "domestic production gross receipts" means the gross receipts of the taxpayer which are derived from any lease, rental, license, sale, exchange, or other disposition of any agricultural or horticultural product which was manufactured, produced, grown, or extracted by the taxpayer (determined after the application of paragraph (4)(B)) in whole or significant part within the United States. Such term shall not include gross receipts of the taxpayer which are derived from the lease, rental, license, sale, exchange, or other disposition of land.
(ii) Related persons
(I) In general
The term "domestic production gross receipts" shall not include any gross receipts of the taxpayer derived from property leased, licensed, or rented by the taxpayer for use by any related person.
(II) Related person
For purposes of subclause (I), a person shall be treated as related to another person if such persons are treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414, except that determinations under subsections (a) and (b) of section 52 shall be made without regard to section 1563(b).
(4) Specified agricultural or horticultural cooperative
For purposes of this section—
(A) In general
The term "specified agricultural or horticultural cooperative" means an organization to which part I of subchapter T applies which is engaged—
(i) in the manufacturing, production, growth, or extraction in whole or significant part of any agricultural or horticultural product, or
(ii) in the marketing of agricultural or horticultural products.
(B) Application to marketing cooperatives
A specified agricultural or horticultural cooperative described in subparagraph (A)(ii) shall be treated as having manufactured, produced, grown, or extracted in whole or significant part any agricultural or horticultural product marketed by the specified agricultural or horticultural cooperative which its patrons have so manufactured, produced, grown, or extracted.
(5) Definitions and special rules
(A) Special rule for affiliated groups
(i) In general
All members of an expanded affiliated group shall be treated as a single corporation for purposes of this subsection.
(ii) Partnerships owned by expanded affiliated groups
For purposes of paragraph (3)(D), if all of the interests in the capital and profits of a partnership are owned by members of a single expanded affiliated group at all times during the taxable year of such partnership, the partnership and all members of such group shall be treated as a single taxpayer during such period.
(iii) Expanded affiliated group
For purposes of this subsection, the term "expanded affiliated group" means an affiliated group as defined in section 1504(a), determined—
(I) by substituting "more than 50 percent" for "at least 80 percent" each place it appears, and
(II) without regard to paragraphs (2) and (4) of section 1504(b).
(iv) Allocation of deduction
Except as provided in regulations, the deduction under paragraph (1) shall be allocated among the members of the expanded affiliated group in proportion to each member's respective amount (if any) of qualified production activities income.
(B) Special rule for cooperative partners
In the case of a specified agricultural or horticultural cooperative which is a partner in a partnership, rules similar to the rules of subsection (f)(1) shall apply for purposes of this subsection.
(C) Trade or business requirement
This subsection shall be applied by only taking into account items which are attributable to the actual conduct of a trade or business.
(D) Unrelated business taxable income
For purposes of determining the tax imposed by section 511, this section shall be applied by substituting "unrelated business taxable income" for "taxable income" each place it appears in this section (other than this subparagraph).
(E) Special rule for cooperative with oil related qualified production activities income
(i) In general
If a specified agricultural or horticultural cooperative has oil related qualified production activities income for any taxable year, the amount otherwise allowable as a deduction under paragraph (1) shall be reduced by 3 percent of the least of—
(I) the oil related qualified production activities income of the cooperative for the taxable year,
(II) the qualified production activities income of the cooperative for the taxable year, or
(III) taxable income.
(ii) Oil related qualified production activities income
For purposes of this subparagraph, the term "oil related qualified production activities income" means for any taxable year the qualified production activities income which is attributable to the production, refining, processing, transportation, or distribution of oil, gas, or any primary product thereof (within the meaning of section 927(a)(2)(C), as in effect before its repeal) during such taxable year.
(6) Regulations
The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this subsection, including regulations which prevent more than 1 taxpayer from being allowed a deduction under this subsection with respect to any activity described in paragraph (3)(D)(i). Such regulations shall be based on the regulations applicable to cooperatives and their patrons under section 199 (as in effect before its repeal).
(h) Anti-abuse rules
The Secretary shall—
(1) apply rules similar to the rules under section 179(d)(2) in order to prevent the manipulation of the depreciable period of qualified property using transactions between related parties, and
(2) prescribe rules for determining the unadjusted basis immediately after acquisition of qualified property acquired in like-kind exchanges or involuntary conversions.
(i) Termination
This section shall not apply to taxable years beginning after December 31, 2025.
(Added
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
References in Text
Section 199(d)(1)(B)(i) (as in effect on December 1, 2017), referred to in subsec. (f)(1)(B), means
Amendments
2018—Subsec. (a).
Subsec. (b)(7).
Subsec. (c)(1).
Subsec. (c)(3)(B).
Subsec. (c)(3)(B)(ii).
Subsec. (e)(1).
Subsec. (e)(4), (5).
Subsec. (g).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 2017, see section 11011(e) of
1 So in original. The word "a" probably should not appear within the quoted text.