Special depreciation allowance for certain property acquired after August 28, 2005, and before December 31, 2008

(a)

In general

Section 168 of the Internal Revenue Code of 1986 (relating to accelerated cost recovery system) is amended by adding at the end the following new subsection:

(l)

Special allowance for certain property acquired after august 28, 2005, and before december 31, 2008

(1)

Additional allowance

In the case of any qualified property— (A)the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to 30 percent of the adjusted basis of the qualified property, and (B)the adjusted basis of the qualified property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year. (2)

Qualified property

For purposes of this subsection— (A)

In general

The term qualified property means property— (i)(I)to which this section applies which has a recovery period of 20 years or less, (II)which is water utility property, or (III)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, (ii)the original use of which commences with the taxpayer after August 28, 2005, (iii)which is— (I)acquired by the taxpayer after August 28, 2005, and before December 31, 2008, but only if no written binding contract for the acquisition was in effect before August 29, 2005, or (II)acquired by the taxpayer pursuant to a written binding contract which was entered into after August 28, 2005, and before December 31, 2008, and (iv)which is placed in service by the taxpayer before January 1, 2009, or, in the case of property described in subparagraph (B), before January 1, 2010. (B)

Certain property having longer depreciation periods treated as qualified property

(i)

In general

The term qualified property includes property— (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, (III)which is subject to section 263A, and (IV)meets the requirements of clause (ii) or (iii) of subsection (f)(1)(B) (determined as if such clauses also apply to property which has a long useful life (within the meaning of section 263A(f))). (ii)

Only pre-december 31, 2008, 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 December 31, 2008. (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. (C)

Exceptions

(i)

Alternative depreciation property

The term qualified property shall not include any property to which the alternative depreciation system under subsection (g) applies, determined— (I)without regard to paragraph (7) of subsection (g) (relating to election to have system apply), and (II)after application of section 280F(b) (relating to listed property with limited business use). (ii)

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. (iii)

Qualified leasehold improvement property

The term qualified property shall not include any qualified leasehold improvement property (as defined in section 168(e)(6)). (D)

Special rules

(i)

Self-constructed property

In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer's own use, the requirements of clause (iii) of subparagraph (A) shall be treated as met if the taxpayer begins manufacturing, constructing, or producing the property after August 28, 2005, and before December 31, 2008. (ii)

Sale-leasebacks

For purposes of subparagraph (A)(ii), if property— (I)is originally placed in service after August 28, 2005, 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).

(E)

Coordination with section 280F

For purposes of section 280F— (i)

Automobiles

In the case of a passenger automobile (as defined in section 280F(d)(5)) which is qualified property, the Secretary shall increase the limitation under section 280F(a)(1)(A)(i) by $4,600. (ii)

Listed property

The deduction allowable under paragraph (1) shall be taken into account in computing any recapture amount under section 280F(b)(2). (F)

Deduction allowed in computing minimum tax

For purposes of determining alternative minimum taxable income under section 55, the deduction under subsection (a) for qualified property shall be determined under this section without regard to any adjustment under section 56.

(b)

Effective date

The amendments made by this section shall apply to property placed in service after August 28, 2005, in taxable years ending after such date.