Code Section 460

Code Section	Effective Date	Name of Act	Name of Provision	10yr Revenue Estimate($millions)
460(c)(6)	12/31/2009	The Small Business Jobs Act of 2010¹³¹⁰	Disregard bonus depreciation in computing percentage completion	No Revenue effect

Disregard bonus depreciation in computing percentage completion

Explanation of Provision

The Act provides that solely for purposes of determining the percentage of completion under section 460(b)(1)(A), the cost of qualified property is taken into account as a cost allocated to the contract as if bonus depreciation had not been enacted.¹³⁵⁷ Qualified property is property otherwise eligible for bonus depreciation that has a MACRS recovery period of 7 years or less and that is placed in service after December 31, 2009, and before January 1, 2011 (January 1, 2012, in the case of property described in section 168(k)(2)(B) ¹³⁵⁸ ).

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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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1357- For example, assume a calendar year taxpayer is required to use the percentage-of-completion method to account for a long-term contract during 2010. Assume further that during 2010 the taxpayer purchases and places into service equipment with a cost basis of $500,000 and MACRS recovery period of 5 years. The taxpayer uses the equipment exclusively in performing its obligation under the contract. In computing the percentage of completion under section 460(b)(1)(A), the depreciation on the equipment (assuming a half-year convention) taken into account as a cost allocated to the contract for 2010 is $100,000 [$500,000/5*200%*.5]. The amount of the depreciation deduction that may be claimed by the taxpayer in 2010 with respect to the equipment is $300,000 [($500,000 * 50%) + (($500,000¥(500,000*50%))/5*200%*.5)].
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1358- Sec. 168(k)(2)(B) generally applies to property having longer production periods.
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