Sec. 3104. Reform of accelerated cost recovery system
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Subsection
(b)of section 168 is amended to read as follows: For purposes of this section— The applicable depreciation method is the straight line method. Salvage value shall be treated as zero. . Subsection
(c)of section 168 is amended to read as follows: For purposes of this section— Except as provided in paragraph (2), the applicable recovery period for any property is the class life of such property. In the case of personal property with no class life, the recovery period is 12 years. In the case of any race horse, and any horse other than a race horse which is more than 12 years old at the time it is placed in service, 3 years. In the case of any semi-conductor manufacturing equipment, the recovery period is 5 years. In the case of any qualified technological equipment, the recovery period is 5 years. In the case of any automobile or light general purpose truck, the recovery period is 5 years. In the case of any qualified rent-to-own property, the recovery period is 9 years. In the case of any computer-based telephone central office switching equipment, the recovery period is 9.5 years. In the case of any railroad track, the recovery period is 10 years. In the case of qualified smart electric meters and qualified smart electric grid systems, the recovery period is 10 years. In the case of any fixed-wing aircraft (including any fixed-wing airframe or engine), the recovery period is 12 years. In the case of any natural gas gathering line, the recovery period is 14 years. In the case of any tree or vine bearing fruit or nuts, the recovery period is 20 years. In the case of any telephone distribution plant and comparable equipment used for 2-way exchange of voice and data communications by cable, the recovery period is 24 years. In the case of nonresidential real property, residential rental property, and any section 1245 property (as defined in section 1245(a)(3)) which is real property with no class life, the recovery period is 40 years. In the case of any municipal wastewater treatment plant or water utility property, the recovery period is 50 years. In the case of any clearing and grading land improvements or tunnel bore, the recovery period is 50 years. 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. . Section 168, as amended by subsection (f), is amended by adding at the end the following new subsection: In the case of any property (to which this section applies) placed in service by the taxpayer in a taxable year for which such taxpayer has elected the application of this subsection, the deduction determined under subsection
(a)with respect to such property for any taxable year shall be increased by an amount equal to the product of— the modified adjusted basis of such property determined as of the close of such taxable year (determined without regard to this subsection but after taking all other adjustments for such taxable year into account), multiplied by the inflation adjustment percentage for the calendar year in which such taxable year begins. For purposes of this subsection, the term modified adjusted basis means, with respect to any property, the adjusted basis which would be determined with respect to such property if this subsection never applied to such property. For purposes of this subsection, the term inflation adjustment percentage means, with respect to any calendar year, the cost-of-living adjustment which would be determined under section 1(c)(2)(A) for such calendar year if clause
(ii)thereof were applied by substituting the C-CPI-U for the calendar year preceding the calendar year referred to in clause
(i)for the normalized CPI for calendar year 2012 . In the case of the taxable year in which any property is placed in service, the increase determined under paragraph
(1)with respect to such property shall be equal to— in the case of any property to which subsection (d)(3) applies, 1/8 of the amount of such increase determined without regard to this paragraph, and in the case of any other property, 1/2 of the amount of such increase determined without regard to this paragraph. The deduction determined under subsection
(a)(after any increase determined under this subsection) with respect to any property for any taxable year shall not exceed the adjusted basis of such property determined as of the beginning of such taxable year. Paragraph
(1)shall not apply to any specified property used outside the United States or to any property described in subsection (d)(2). An election under paragraph
(1)for any taxable year shall be made not later than the due date (including extensions) for the return of tax for such taxable year. Such election, once made, shall be irrevocable. Such election shall apply with respect to all property placed in service during the taxable for which made (and shall apply for subsequent taxable years but only with respect to such property). A taxpayer engaged in more than one trade or business may make separate elections under paragraph
(1)with respect to each such trade or business. . Subparagraphs (A),
(B)and
(C)of section 168(d)(2) are amended to read as follows: real property, water treatment and utility property, and any clearing and grading land improvements or tunnel bore, . Clause
(i)of section 168(d)(3)(B) is amended to read as follows: any property described in paragraph (2), . Subsection
(e)of section 168 is amended to read as follows: For purposes of this section— 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 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. The Secretary, through the Office of Tax Analysis and in consultation with the Bureau of Economic Analysis of the Department of Commerce, shall— determine, and develop a schedule of, the economic depreciation of the major categories of depreciable property (other than property with a specified class life under subsection (c)(2)) to approximate constant straight-line depreciation, and develop recommendations regarding the proper economic depreciation for property with a specified class life under subsection (c)(2). Not later than December 31, 2017, the Secretary shall submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate— the schedule developed under clause (i)(I), and the recommendations developed under clause (i)(II). The schedule developed under clause (i)(I) shall take effect with respect to property placed in service after the later of December 31, 2017, or the end of the first calendar year ending after the calendar year during which such schedule is submitted. 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. For purposes of subparagraph (A)— 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 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. The term nonresidential real property means section 1250 property which is not— residential rental property, or property with a class life of less than 27.5 years. The term water utility property means property— which is an integral part of the gathering, treatment, or commercial distribution of water, and any municipal sewer. The term qualified rent-to-own property means any property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. 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. The term consumer property means tangible personal property of a type generally used within the home for personal use. 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— is titled Rent-to-Own Agreement or Lease Agreement with Ownership Option , or uses other similar language, 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), 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, 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), 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, provides for payments under the contract that, in the aggregate, do not exceed $10,000 per item of consumer property, 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 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. The term qualified technological equipment means— any computer or peripheral equipment, any high technology telephone station equipment installed on the customer’s premises, and any high technology medical equipment. For purposes of this paragraph— The term computer or peripheral equipment means— any computer, and any related peripheral equipment. The term computer means a programmable electronically activated device which— is capable of accepting information, applying prescribed processes to the information, and supplying the results of these processes with or without human intervention, and consists of a central processing unit containing extensive storage, logic, arithmetic, and control capabilities. 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. The term natural gas gathering line means— the pipe, equipment, and appurtenances determined to be a gathering line by the Federal Energy Regulatory Commission, and 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— a gas processing plant, an interconnection with a transmission pipeline for which a certificate as an interstate transmission pipeline has been issued by the Federal Energy Regulatory Commission, an interconnection with an intrastate transmission pipeline, or a direct interconnection with a local distribution company, a gas storage facility, or an industrial consumer. The term qualified smart electric meter means any smart electric meter which— is placed in service by a taxpayer that is a supplier of electric energy or a provider of electric energy services, and does not have a class life (determined without regard to subsection (c)) of less than 10 years. 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— measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day, 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, provides data to such supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and provides net metering. The term qualified smart electric grid system means any smart grid property which— 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 does not have a class life (determined without regard to subsection (c)) of less than 10 years. For the purposes of subparagraph (A), the term smart grid property means electronics and related equipment that is capable of— sensing, collecting, and monitoring data of or from all portions of a utility’s electric distribution grid, providing real-time, two-way communications to monitor or manage such grid, and 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. The term specified property used outside the United States means— 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, rolling stock which is used within and without the United States and which is— of a rail carrier subject to part A of subtitle IV of title 49, or of a United States person (other than a corporation described in subclause (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, any vessel documented under the laws of the United States which is operated in the foreign or domestic commerce of the United States, any motor vehicle of a United States person (as defined in section 7701(a)(30)) which is operated to and from the United States, any container of a United States person which is used in the transportation of property to and from the United States, any property (other than a vessel or an aircraft) of a United States person which is used for the purpose of exploring for, developing, removing, or transporting resources from the outer Continental Shelf (within the meaning of section 2 of the Outer Continental Shelf Lands Act, as amended and supplemented (43 U.S.C. 1331)), 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, any communications satellite (as defined in section 103(3) of the Communications Satellite Act of 1962, 47 U.S.C. 702(3) ), or any interest therein, of a United States person, any cable, or any interest therein, of a domestic corporation engaged in furnishing telephone service to which section 168(e)(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, 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, 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 any satellite (not described in clause (viii)) 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 (A)(x), 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. . 168 Section 168 is amended by striking subsections (g), (j), (k), (l), (m), and (n), and by redesignating subsections
(h)and
(i)as subsections
(g)and (h), respectively. Section 168(h), as redesignated by subparagraph (A), is amended— by striking paragraphs (1), (2), (11), (12), (13), (14), (15), (16), (17), (18), and
(19)and by redesignating paragraphs
(3)through
(10)as paragraphs
(1)through (8), respectively, and by striking in the heading thereof. Definitions and Section 168(h)(8), as redesignated by subparagraphs
(A)and (B), is moved to the end of section 168(e) (as amended by subsection (e)) and redesignated as paragraph (11). Section 50(b)(4) is amended— in subparagraph (A)(ii)— by striking section 168(h)(2)(C) and inserting section 168(g)(2)(C) , by striking section 168(h)(2)(A)(iii) and inserting section 168(g)(2)(A)(iii) , and by striking section 168(h)(2)(B) and inserting section 168(g)(2)(B) , in subparagraph (B), by striking section 168(i)(3) and inserting section 168(h)(1) , and in subparagraphs
(D)and (E), by striking section 168(h) each place it appears and inserting section 168(g) . Section 50(b)(1)(B) is amended by striking any property described in section 168(g)(4) and inserting any specified property used outside the United States (as defined in section 168(e)(10) . Section 865(c)(3)(B) is amended by striking property of a kind described in section 168(g)(4) and inserting specified property used outside the United States (as defined in section 168(e)(10) . Section 179(e)(2) is amended by inserting as in effect before its repeal by the after Tax Reform Act of 2014 section 168(n)(2) . Section 179(f), as amended by section 3111, is amended— by striking paragraph (2), and by inserting after paragraph
(1)the following new paragraphs: For purposes of this subsection, the term qualified real property means qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. For purposes of this subsection— The term qualified leasehold improvement property means any improvement to an interior portion of a building which is nonresidential real property if— such improvement is made under or pursuant to a lease (as defined in section 168(g)(7))— by the lessee (or any sublessee) of such portion, or by the lessor of such portion, such portion is to be occupied exclusively by the lessee (or any sublessee) of such portion, and such improvement is placed in service more than 3 years after the date the building was first placed in service. Such term shall not include any improvement for which the expenditure is attributable to— the enlargement of the building, any elevator or escalator, any structural component benefitting a common area, and the internal structural framework of the building. For purposes of this paragraph— A commitment to enter into a lease shall be treated as a lease, and the parties to such commitment shall be treated as lessor and lessee, respectively. A lease between related persons shall not be considered a lease. For purposes of the preceding sentence, the term related persons means— members of an affiliated group (as defined in section 1504), and persons having a relationship described in subsection
(b)of section 267; except that, for purposes of this subclause, the phrase 80 percent or more shall be substituted for the phrase more than 50 percent each place it appears in such subsection. In the case of an improvement made by the person who was the lessor of such improvement when such improvement was placed in service, such improvement shall be qualified leasehold improvement property (if at all) only so long as such improvement is held by such person. Property shall not cease to be qualified leasehold improvement property by reason of— death, a transaction to which section 381(a) applies, a mere change in the form of conducting the trade or business so long as the property is retained in such trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in such trade or business, the acquisition of such property in an exchange described in section 1031 (as in effect before its repeal by the Tax Reform Act of 2014 ), 1033, or 1038 to the extent that the basis of such property includes an amount representing the adjusted basis of other property owned by the taxpayer or a related person, or the acquisition of such property by the taxpayer in a transaction described in section 332, 351, 361, 721, or 731 (or the acquisition of such property by the taxpayer from the transferee or acquiring corporation in a transaction described in such section), to the extent that the basis of the property in the hands of the taxpayer is determined by reference to its basis in the hands of the transferor or distributor. For purposes of this subsection, the term qualified restaurant property means any section 1250 property which is— a building, or an improvement to a building, if more than 50 percent of the building’s square footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals. The term qualified retail improvement property means any improvement to an interior portion of a building which is nonresidential real property if— such portion is open to the general public and is used in the retail trade or business of selling tangible personal property to the general public, and such improvement is placed in service more than 3 years after the date the building was first placed in service. In the case of an improvement made by the owner of such improvement, such improvement shall be qualified retail improvement property (if at all) only so long as such improvement is held by such owner. Rules similar to the rules under paragraph (3)(E) shall apply for purposes of the preceding sentence. Such term shall not include any improvement for which the expenditure is attributable to— the enlargement of the building, any elevator or escalator, any structural component benefitting a common area, or the internal structural framework of the building. . Section 280F(b) is amended— by striking paragraph
(1)and by redesignating paragraphs
(2)and
(3)as paragraphs
(1)and (2), respectively, and by striking , and the depreciation deduction and all that follows through alternative depreciation system) in paragraph
(1)(as redesignated by clause (i)). Section 280F(d)(4)(A)(iv) is amended by striking section 168(i)(2)(B) and inserting section 168(e)(6)(B) . Section 312(k)(3) is amended by striking and all that follows through Exception for tangible property For purposes of computing the earnings and profits and inserting . Exception for certain tangible property.— For purposes of computing the earnings and profits Section 460(c) is amended by striking paragraph (6). Section 460(d)(2) is amended by striking section 168(h)(2)(D) and inserting section 168(g)(2)(D) . Section 460(e)(6) is amended by striking section 168(e)(2)(A)(ii) each place it appears and inserting section 168(e)(2)(B) . Subparagraphs
(A)and
(C)of section 470(c)(2) are each amended by striking section 168(h) and inserting section 168(g). Section 470(c)(2)(B) is amended by striking section 168(h)(6) and inserting section 168(g)(6) . Section 512(b)(17)(B)(ii)(I) is amended by striking section 168(h)(4)(B) and inserting section 168(g)(4)(B) . Section 514(c)(9)(B)(vi)(II) is amended by striking section 168(h)(6) and inserting section 168(g)(6) . Section 527(i)(3)(D) is amended by striking section 168(h)(4) and inserting section 168(g)(4) . The second sentence of section 860E(e)(5) is amended by striking section 168(h)(2)(D) and inserting section 168(g)(2)(D) . Section 1245(a) is amended— in paragraph (3)(D), by striking section 168(i)(13) and inserting paragraph
(4), and by adding at the end the following new paragraph: For purposes of this subsection— The term single purpose agricultural or horticultural structure means— a single purpose livestock structure, and a single purpose horticultural structure. For purposes of this paragraph— The term single purpose livestock structure means any enclosure or structure specifically designed, constructed, and used— for housing, raising, and feeding a particular type of livestock and their produce, and for housing the equipment (including any replacements) necessary for the housing, raising, and feeding referred to in subclause (I). The term single purpose horticultural structure means— a greenhouse specifically designed, constructed, and used for the commercial production of plants, and a structure specifically designed, constructed, and used for the commercial production of mushrooms. 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— the stocking, caring for, or collecting of livestock or plants (as the case may be) or their produce, the maintenance of the enclosure or structure, and the maintenance or replacement of the equipment or stock enclosed or housed therein. The term “livestock” includes poultry. . Section 1245(a)(3)(F) is amended to read as follows: any clearing and grading land improvements or tunnel bore (within the meaning of section 168(c)(2)(P)). . Section 6050V(d)(3) is amended by striking section 168(h)(2)(A)(iv) and inserting section 168(g)(2)(A)(iv) . Section 6211(b)(4)(A) is amended by striking 168(k)(4), . The second sentence of section 7701(e)(4)(A) is amended by striking section 168(h) and inserting section 168(g) . Section 7871(f)(3) is amended— by striking (as defined in section 168(j)(6)) in subparagraph (B)(ii), and by adding at the end the following new subparagraph: For purposes of this paragraph, the term Indian reservation means a reservation, as defined in— section 3(d) of the Indian Financing Act of 1974 ( 25 U.S.C. 1452(d) ), or section 4(10) of the Indian Child Welfare Act of 1978 ( 25 U.S.C. 1903(10) ). For purposes of the preceding sentence, such section 3(d) shall be applied by treating the term former Indian reservations in Oklahoma as including only lands which are within the jurisdictional area of an Oklahoma Indian tribe (as determined by the Secretary of the Interior) and are recognized by such Secretary as eligible for trust land status under 25 CFR Part 151 (as in effect on August 5, 1997). . A normalization method of accounting shall not be treated as being used with respect to any public utility property for purposes of section 167 or 168 of the Internal Revenue Code of 1986 if the taxpayer, in computing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account, reduces the excess tax reserve more rapidly or to a greater extent than such reserve would be reduced under the average rate assumption method. If, as of the first day of the taxable year that includes the date of enactment of this Act— 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 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. For purposes of this subsection— The term excess tax reserve means the excess of— the reserve for deferred taxes (as described in section 168(i)(9)(A)(ii) of the Internal Revenue Code of 1986 as in effect on the day before the date of the enactment of this Act), over 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 were in effect for all prior periods. The average rate assumption method is the method under which the excess in the reserve for deferred taxes is reduced over the remaining lives of the property as used in its regulated books of account which gave rise to the reserve for deferred taxes. Under such method, if timing differences for the property reverse, the amount of the adjustment to the reserve for the deferred taxes is calculated by multiplying— 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 the amount of the timing differences which reverse during such period. The alternative method is the method in which the taxpayer— 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 reduces the excess tax reserve ratably over the remaining regulatory life of the property. If, for any taxable year ending after the date of the enactment of this Act, the taxpayer does not use a normalization method of accounting, 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. The amendments made by this section shall apply to property placed in service after December 31, 2016.
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Sec. 3104
Reform of accelerated cost recovery system
Cite25 CFR 151
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