Short title

This Act may be cited as the

Small Business Tax Modernization Act of 2008

Standard deduction for business use of home

(a)

In general

Subsection (c) of section 280A of the Internal Revenue Code of 1986 (relating to disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc.) is amended by adding at the end the following new paragraph:

(7)

Standard home office deduction

(A)

In general

In the case of an individual who is allowed a deduction for the use of a home office because of a use described in paragraphs (1), (2), or (4) of this subsection, notwithstanding the limitations of paragraph (5), if such individual elects the application of this paragraph for the taxable year, such individual shall be allowed a deduction equal to the standard home office deduction for the taxable year in lieu of the deductions otherwise allowable under this chapter for such taxable year by reason of being attributed to such use. (B)

Standard home office deduction

For purposes of this paragraph, the standard home office deduction is the lesser of— (i)$2,000, or (ii)the gross income derived from the individual’s trade or business for which such use occurs. (C)

Inflation adjustment

In the case of any taxable year beginning in a calendar year after 2008, the dollar amount in subparagraph (B)(i) 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 2007 for 1992 in subparagraph (B) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $100.

(b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2007.

De minimis exception to exclusive use requirement

(a)

In general

(5)

De minimis nonbusiness use

In applying paragraph (1), personal use shall not be taken into account if such use is so small as to make accounting for it unreasonable or administratively impracticable.

(b)

Conforming amendment

Subparagraph (A) of section 280A(d)(4) of such Code is amended by striking subsection (c)(5) and inserting subsection (c)(6). (c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2007.

Removal of cellular telephones and similar telecommunications equipment from listed property

(a)

In general

Subparagraph (A) of section 280F(d)(4) of the Internal Revenue Code of 1986 (defining listed property) is amended by adding and at the end of clause (iv), by striking clause (v), and by redesignating clause (vi) as clause (v). (b)

Effective date

The amendment made by this section shall apply to property placed in service after December 31, 2007.

Nonresident aliens permitted to be S corporation shareholders

(a)

In general

Paragraph (1) of section 1361(b) of the Internal Revenue Code of 1986 (defining an S corporation) is amended by adding and at the end of subparagraph (B), by striking subparagraph (C), and by redesignating subparagraph (D) as subparagraph (C). (b)

Effective date

The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

Increased deduction of business meals and entertainment expenses for qualified small businesses

(a)

In general

Subsection (n) of section 274 of the Internal Revenue Code of 1986 (relating to only 50 percent of meal and entertainment expenses allowed as deduction) is amended by adding at the end the following new paragraph:

(4)

Special rule for small businesses

(A)

In general

In the case of a qualified small business, paragraph (1) shall be applied— (i)by substituting 75 percent for 50 percent in the case of taxable years beginning in 2008, and (ii)by substituting 80 percent for 50 percent in the case of taxable years beginning after 2008. (B)

Qualified small business

For purposes of subparagraph (A), the term qualified small business means, with respect to any taxable year— (i)any corporation or partnership which meets the gross receipts test of section 448(c) for the preceding taxable year, and (ii)any sole proprietorship which would meet such test if such proprietorship were a corporation.

(b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2007.

Recovery period for depreciation of certain systems installed in nonresidential and residential rental buildings

(a)

20-year recovery period for highly efficient HVAC&R equipment

Subparagraph (F) of section 168(e)(3) of the Internal Revenue Code of 1986 (relating to 20-year property) is amended to read as follows:

(F)

20-year property

The term 20-year property means— (i)initial clearing and grading land improvements with respect to any electric utility transmission and distribution plant, and (ii)any property— (I)which is part of a heating, ventilation, air conditioning, or commercial refrigeration system, (II)which exceeds by at least 10 percent the applicable minimum performance standard for such system or component under the National Appliance Energy Conservation Act of 1987, the Energy Policy Act of 2005, or the American Society of Heating, Refrigerating and Air-conditioning Engineers Standard 90.1, (III)which is installed on or in a building which is nonresidential real property or residential rental property, (IV)the original use of which commences with the taxpayer (the owner or lessor in the case of residential rental property), and (V)which is placed in service before January 1, 2012.

(b)

25-year recovery period for certain other HVAC&R equipment

Section 168(e)(3) of such Code is amended by inserting after subparagraph (F) the following new subparagraph:

(G)

25-year property

The term 25-year property means any property— (i)which is part of a heating, ventilation, air conditioning, or commercial refrigeration system, (ii)which is not described in subparagraph (F), (iii)which is installed on or in a building which is nonresidential real property or residential rental property, (iv)the original use of which commences with the taxpayer (the owner or lessor in the case of residential rental property), and (v)which is placed in service before January 1, 2012.

(c)

Conforming amendments

(1)The table contained in section 168(c) of such Code is amended by inserting after the item relating to 20-year property the following new item:

25-year property25 years

(2)The table contained in section 467(e)(3)(A) of such Code is amended by inserting after the item relating to residential rental property and nonresidential real property the following new item:

25-year property25 years

(d)

Requirement To use straight line method

Paragraph (3) of section 168(b) of such Code (relating to property to which straight line method applies) is amended by redesignating subparagraphs (F), (G), and (H) as subparagraphs (G), (H), and (I), respectively, and by inserting after subparagraph (E) the following new subparagraph:

(F)Property described in subsection (e)(3)(F)(ii) and subsection (e)(3)(G).

(e)

Alternative system

The table contained in section 168(g)(3)(B) of such Code is amended by striking the item relating to subparagraph (F) and inserting the following new items:

(F)(i)25(F)(ii)20(G)25

(f)

Effective Date

The amendments made by this section shall apply to property placed in service after December 31, 2007.