Code Section 168
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 168(l) | ***12/31/2012 | The American Taxpayer Relief Act of 2012 | Extension of special depreciation allowance for cellulosic biofuel plant property | Loss of less than 0.5 |
| 168(k) | 12/31/2012 | The American Taxpayer Relief Act of 2012 | Bonus depreciation | -4,956 |
| 168(j) | 12/31/2011 | The American Taxpayer Relief Act of 2012 | Accelerated depreciation for business property on an Indian reservation | -222 |
| 168 | 12/31/2011 | The American Taxpayer Relief Act of 2012 | Seven-year recovery period for motorsports entertainment complexes | -78 |
| 168 | 12/31/2011 | The American Taxpayer Relief Act of 2012 | 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements | -3,717 |
| 168(k) | **12/31/2010 | The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 | Extension of Bonus Depreciation; Temporary 100 Percent Expensing for Certain Business Assets | -20,883 |
| 168 | 12/31/2009 | The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 | 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements | -3,629 |
| 168 | 12/31/2009 | The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 | 7-year recovery period for motorsports entertainment complexes | -36 |
| 168(j) | 12/31/2009 | The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 | Accelerated depreciation for business property on an Indian reservation | -41 |
| 168(k) | 12/31/2009 | The Small Business Jobs Act of 20101310 | Extend the additional first-year depreciation allowance | -5,454 |
| 168(k) | *12/31/2008 | The American Recovery and Reinvestment Act of 2009 | Special allowance for certain property acquired during 2009 and extension of election to accelerate AMT and research credits in lieu of bonus depreciation | -5,879 |
* Notes on Effective Date
The extension of the additional first-year depreciation deduction is generally effective for property placed in service after December 31, 2008.
The extension of the election to accelerate AMT and research credits in lieu of bonus depreciation is effective for taxable years ending after December 31, 2008.
** Notes on Effective Date
The provision generally applies to property placed in service by the taxpayer after December 31, 2010, in taxable years ending after such date. The provision expanding the additional first-year depreciation deduction to 100 percent of the basis of qualified property applies to property placed in service by the taxpayer after September 8, 2010, in taxable years ending after such date.
***Notes on Effective Date
The provision to extend the placed in service date is effective for property placed in service after December 31, 2012. The provision to expand the definition of qualified cellulosic biofuel plant property is effective for property placed in service after the date of enactment.
Extension of special depreciation allowance for cellulosic biofuel plant property
Explanation of Provision
The provision extends the present law special depreciation allowance for one year, to qualified cellulosic biofuel plant property placed in service prior to January 1, 2014. The provision expands the definition of qualified cellulosic biofuel plant property to include property used in the U.S. solely to produce algae-based fuel, including fuel derived from cultivated algae, cyanobacteria, or lemna.
Bonus depreciation
Explanation of Provision
The provision extends the 50-percent additional first-year depreciation deduction for one year, generally through 2013 (through 2014 for certain longer-lived and transportation property).
The provision provides that solely for purposes of determining the percentage of completion under section 460(b)(1)(A), the cost of qualified property with a MACRS recovery period of 7 years or less which is placed in service after December 31, 2012 and before January 1, 2014 (January 1, 2015, in the case of certain longer-lived and transportation property) is taken into account as a cost allocated to the contract as if bonus depreciation had not been enacted.
The provision also generally permits a corporation to increase the minimum tax credit limitation by the bonus depreciation amount with respect to certain property placed in service after December 31, 2012, and before January 1, 2014, (January 1, 2015 in the case of certain longer-lived and transportation property). The provision applies with respect to ‘‘round 3 extension property’’, which is defined as property that is eligible qualified property solely because it meets the requirements under the extension of the additional first-year depreciation deduction for certain property placed in service after December 31, 2012.560
Under the provision, a corporation that has previously made an election to claim credits in lieu of bonus depreciation may choose not to make this previous election apply for round 3 extension property. The provision also allows a corporation that has not made a previous election to claim credits in lieu of bonus deprecation to make the election for round 3 extension property for its first taxable year ending after December 31, 2012, and for each subsequent year. A separate bonus depreciation amount, maximum amount, and maximum increase amount is computed and applied to round 3 extension property.561
The provision clarifies that for public utility property elections, such as an election out of bonus depreciation, must be respected in determining when normalization accounting may be used.
Accelerated depreciation for business property on an Indian reservation
Explanation of Provision
The provision extends for two years the present-law accelerated MACRS recovery periods for qualified Indian reservation property to apply to property placed in service before January 1, 2014.
Seven-year recovery period for motorsports entertainment complexes
Explanation of Provision
The provision extends the present-law seven-year recovery period for motorsports entertainment complexes for two years to apply to property placed in service before January 1, 2014.
15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
Explanation of Provision
The present law provisions for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property are extended for two years to apply to property placed in service on or before December 31, 2013.
Extension of Bonus Depreciation; Temporary 100 Percent Expensing for Certain Business Assets
Explanation of Provision
The provision extends and expands the additional first-year depreciation to equal 100 percent of the cost of qualified property placed in service after September 8, 2010, and before January 1, 2012, (before January 1, 2013, for certain longer-lived and transportation property),1597 and provides for a 50 percent first-year additional depreciation deduction for qualified property placed in service after December 31, 2011, and before January 1, 2013, (after December 31, 2012, and before January 1, 2014, for certain longer lived and transportation property). Rules similar to those in section 168(k)(2)(A)(ii) and (iii), which provide that qualified property does not include property acquired pursuant to a written binding contract that was in effect prior to January 1, 2008, apply for purposes of determining whether property is eligible for the temporary 100 percent additional first-year depreciation deduction. Thus under the provision, property acquired pursuant to a written binding contract entered into after December 31, 2007, is qualified property for purposes of the 100 percent additional first-year depreciation deduction assuming all other requirements of section 168(k)(2) are met.
The provision also generally permits a corporation to increase the minimum tax credit limitation by the bonus depreciation amount with respect to certain property placed in service after December 31, 2010, and before January 1, 2013, (January 1, 2014 in the case of certain longer-lived and transportation property).1598 The provision applies with respect to round 2 extension property, which is defined as property that is eligible qualified property solely because it meets the requirements under the extension of the additional first-year depreciation deduction for certain property placed in service after December 31, 2010.1599
Under the provision, a taxpayer that has made an election to increase the research credit or minimum tax credit limitation for eligible qualified property for its first taxable year ending after March 31, 2008 or for extension property may choose not to make this election for round 2 extension property. Further, the provision allows a taxpayer that has not made an election for eligible qualified property for its first taxable year ending after March 31, 2008, or for extension property, to make the election for round 2 extension property for its first taxable year ending after December 31, 2010, and for each subsequent year. In the case of a taxpayer electing to increase the research or minimum tax credit for eligible qualified property and/or extension property and the minimum tax credit for round 2 extension property, a separate bonus depreciation amount, maximum amount, and maximum increase amount is computed and applied to each group of property.1600
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15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
Explanation of Provision
The present law provisions for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property are extended for two years to apply to property placed in service on or before December 31, 2011.
7-year recovery period for motorsports entertainment complexes
Explanation of Provision
The provision extends the present law seven-year recovery period for motorsports entertainment complexes two years to apply to property placed in service before January 1, 2012.
Accelerated depreciation for business property on an Indian reservation
Explanation of Provision
The provision extends for two years the present-law accelerated MACRS recovery periods for qualified Indian reservation property to apply to property placed in service before January 1, 2012.
Extend the additional first-year depreciation allowance
Explanation of Provision
The provision extends the additional first-year depreciation deduction for one year to apply to qualified property acquired and placed in service during 2010 (or placed in service during 2011 for certain long-lived property and transportation property).1346
Special allowance for certain property acquired during 2009 and extension of election to accelerate AMT and research credits in lieu of bonus depreciation
Explanation of Provision74
The provision extends the additional first-year depreciation deduction for one year, generally through 2009 (through 2010 for certain longer-lived and transportation property).
The provision generally permits corporations to increase the research credit or minimum tax credit limitation by the bonus depreciation amount with respect to certain property placed in service in 2009 (2010 in the case of certain longer-lived and transportation property).75 The provision applies with respect to extension property, which is defined as property that is eligible qualified property solely because it meets the requirements under the extension of the special allowance for certain property acquired during 2009.
Under the provision, a taxpayer that has made an election to increase the research credit or minimum tax credit limitation for eligible qualified property for its first taxable year ending after March 31, 2008, may choose not to make this election for extension property. Further, the provision allows a taxpayer that has not made an election for eligible qualified property for its first taxable year ending after March 31, 2008, to make the election for extension property for its first taxable year ending after December 31, 2008, and for each subsequent year. In the case of a taxpayer electing to increase the research or minimum tax credit for both eligible qualified property and extension property, a separate bonus depreciation amount, maximum amount, and maximum increase amount is computed and applied to each group of property.76
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560- An election under new section 168(k)(4)(J) with respect to round 3 extension property is binding for any property that is eligible qualified property solely by reason of the amendments made by section 331(a) of the Act (and the application of such extension to this paragraph pursuant to the amendment made by section 331(c)(1) of the Act), even if such property is placed in service in 2014.
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561- In computing the maximum amount, the maximum increase amount for round 3 extension property is reduced by bonus depreciation amounts for preceding taxable years only with respect to round 3 extension property.
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74- The additional first year depreciation deduction was subsequently extended for one year generally through 2010 (through 2011 for certain longer-lived and transportation property) by section 2022 of the Small Business Jobs Act of 2010, Pub. L. No. 111–240, described in Part Fourteen. The provision was temporarily expanded and extended generally through 2012 (through 2013 for certain longer-lived and transportation property) by section 401 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111–312, described in Part Sixteen of this document.
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75- The provision allowing a taxpayer to claim certain credits in lieu of bonus depreciation was subsequently modified and extended generally through 2012 by section 401 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111–312, described in Part Sixteen of this document.
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76- In computing the maximum amount, the maximum increase amount for extension property is reduced by bonus depreciation amounts for preceding taxable years only with respect to extension property.
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1310- H.R. 5297. The House Committee on Ways and Means reported H.R. 4849 on March 19, 2010 (H.R. Rep. 111–447). The House passed H.R. 4849 on March 24, 2010. The House passed H.R. 5297 on June 17, 2010. The Senate passed H.R. 5297 with an amendment on September 16, 2010. On September 23, 2010, the House agreed to the Senate amendment. The President signed the bill on September 27, 2010. For a technical explanation of the bill prepared by the staff of the Joint Committee on Taxation, see Technical Explanation of the Tax Provisions in Senate Amendment 4594 to H.R. 5297, the ‘‘Small Business Jobs Act of 2010,’’ Scheduled for Consideration by the United States Senate on September 16, 2010 (JCX–47–10), September 16, 2010.
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1346- The provision was temporarily expanded and extended for two years generally through 2012 (through 2013 for certain longer-lived and transportation property) by section 401 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111–312, described in Part Sixteen of this document.
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1597- It is intended that, in the case of qualified property that is acquired by the taxpayer after September 8, 2010 and placed in service by the taxpayer in 2012 and that is eligible for 100 percent bonus depreciation by reason of the extended placed in service date provided in section 168(k)(5), the 100 percent bonus deprecation applies only to the extent of the adjusted basis of the property attributable to manufacture, construction, or production before January 1, 2012. It is also intended that a taxpayer may elect 50 percent (rather than 100 percent) bonus depreciation with respect to all property in any class of property placed in service during a taxable year. Finally, it is intended that section 168(k)(5) does not apply to passenger automobiles subject to the limitations on depreciation provided in section 280F, but that such property continues to be eligible for 50-percent bonus depreciation. Technical corrections may be necessary so that the statute reflects this intent.
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1598- An electing taxpayer does not compute a bonus depreciation amount under section 168(k)(4)(C) for any bonus depreciation allowable with respect to property placed in service during 2010 except long-production period property (or certain transportation property) placed in service in 2010 that is extension property. For example, assume in its taxable year beginning October 1, 2010, and ending September 30, 2011, a corporation places into service qualified property with a total cost of $1,000,000, of which $250,000 was placed in service before December 31, 2010. The corporation computes its bonus depreciation amount under section 168(k)(4)(C) taking into account only the bonus depreciation computed with respect to the $750,000 of property placed in service after December 31, 2010.
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1599- An election under new section 168(k)(4)(I) with respect to round 2 extension property is binding for any property that is eligible qualified property solely by reason of the amendments made by section 401(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (and the application of such extension to this paragraph pursuant to the amendment made by section 401(c)(1) of such Act), Pub. L. No. 111–312, even if such property is placed in service in 2012.
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1600- In computing the maximum amount, the maximum increase amount for extension property or for round 2 extension property is reduced by bonus depreciation amounts for preceding taxable years only with respect to extension property or round 2 extension property, respectively.
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