1. U.S. Code
  2. title 26
  3. subtitle A
  4. chapter 1
  5. subchapter B
  6. part VI
  7. § 181

Collapse to view only § 181. Treatment of certain qualified film and television and live theatrical productions

§ 161. Allowance of deductions

In computing taxable income under section 63, there shall be allowed as deductions the items specified in this part, subject to the exceptions provided in part IX (sec. 261 and following, relating to items not deductible).

(Aug. 16, 1954, ch. 736, 68A Stat. 45; Pub. L. 95–30, title I, § 102(b)(1), May 23, 1977, 91 Stat. 137.)

CITE AS: 26 USC 161

§ 162. Trade or business expenses
(a) In generalThere shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including—
(1) a reasonable allowance for salaries or other compensation for personal services actually rendered;
(2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business; and
(3) rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.
For purposes of the preceding sentence, the place of residence of a Member of Congress (including any Delegate and Resident Commissioner) within the State, congressional district, or possession which he represents in Congress shall be considered his home, but amounts expended by such Members within each taxable year for living expenses shall not be deduc
(b) Charitable contributions and gifts excepted
(c) Illegal bribes, kickbacks, and other payments
(1) Illegal payments to government officials or employees
(2) Other illegal payments
(3) Kickbacks, rebates, and bribes under medicare and medicaid
(d) Capital contributions to Federal National Mortgage Association
(e) Denial of deduction for certain lobbying and political expenditures
(1) In generalNo deduction shall be allowed under subsection (a) for any amount paid or incurred in connection with—
(A) influencing legislation,
(B) participation in, or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office,
(C) any attempt to influence the general public, or segments thereof, with respect to elections, legislative matters, or referendums, or
(D) any direct communication with a covered executive branch official in an attempt to influence the official actions or positions of such official.
(2) Application to dues of tax-exempt organizations
(3) Influencing legislationFor purposes of this subsection—
(A) In general
(B) Legislation
(4) Other special rules
(A) Exception for certain taxpayers
(B) De minimis exception
(i) In general
(ii) In-house expendituresFor purposes of clause (i), the term “in-house expenditures” means expenditures described in paragraphs (1)(A) and (D) other than—(I) payments by the taxpayer to a person engaged in the trade or business of conducting activities described in paragraph (1) for the conduct of such activities on behalf of the taxpayer, or(II) dues or other similar amounts paid or incurred by the taxpayer which are allocable to activities described in paragraph (1).
(C) Expenses incurred in connection with lobbying and political activities
(5) Covered executive branch officialFor purposes of this subsection, the term “covered executive branch official” means—
(A) the President,
(B) the Vice President,
(C) any officer or employee of the White House Office of the Executive Office of the President, and the 2 most senior level officers of each of the other agencies in such Executive Office, and
(D)
(i) any individual serving in a position in level I of the Executive Schedule under section 5312 of title 5, United States Code, (ii) any other individual designated by the President as having Cabinet level status, and (iii) any immediate deputy of an individual described in clause (i) or (ii).
(6) Cross reference
(f) Fines, penalties, and other amounts
(1) In general
(2) Exception for amounts constituting restitution or paid to come into compliance with law
(A) In generalParagraph (1) shall not apply to any amount that—
(i) the taxpayer establishes—(I) constitutes restitution (including remediation of property) for damage or harm which was or may be caused by the violation of any law or the potential violation of any law, or(II) is paid to come into compliance with any law which was violated or otherwise involved in the investigation or inquiry described in paragraph (1),
(ii) is identified as restitution or as an amount paid to come into compliance with such law, as the case may be, in the court order or settlement agreement, and
(iii) in the case of any amount of restitution for failure to pay any tax imposed under this title in the same manner as if such amount were such tax, would have been allowed as a deduction under this chapter if it had been timely paid.
The identification under clause (ii) alone shall not be sufficient to make the establishment required under clause (i).
(B) Limitation
(3) Exception for amounts paid or incurred as the result of certain court orders
(4) Exception for taxes due
(5) Treatment of certain nongovernmental regulatory entitiesFor purposes of this subsection, the following nongovernmental entities shall be treated as governmental entities:
(A) Any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) in connection with a qualified board or exchange (as defined in section 1256(g)(7)).
(B) To the extent provided in regulations, any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) as part of performing an essential governmental function.
(g) Treble damage payments under the antitrust lawsIf in a criminal proceeding a taxpayer is convicted of a violation of the antitrust laws, or his plea of guilty or nolo contendere to an indictment or information charging such a violation is entered or accepted in such a proceeding, no deduction shall be allowed under subsection (a) for two-thirds of any amount paid or incurred—
(1) on any judgment for damages entered against the taxpayer under section 4 of the Act entitled “An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes”, approved October 15, 1914 (commonly known as the Clayton Act), on account of such violation or any related violation of the antitrust laws which occurred prior to the date of the final judgment of such conviction, or
(2) in settlement of any action brought under such section 4 on account of such violation or related violation.
(h) State legislators’ travel expenses away from home
(1) In generalFor purposes of subsection (a), in the case of any individual who is a State legislator at any time during the taxable year and who makes an election under this subsection for the taxable year—
(A) the place of residence of such individual within the legislative district which he represented shall be considered his home,
(B) he shall be deemed to have expended for living expenses (in connection with his trade or business as a legislator) an amount equal to the sum of the amounts determined by multiplying each legislative day of such individual during the taxable year by the greater of—
(i) the amount generally allowable with respect to such day to employees of the State of which he is a legislator for per diem while away from home, to the extent such amount does not exceed 110 percent of the amount described in clause (ii) with respect to such day, or
(ii) the amount generally allowable with respect to such day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States, and
(C) he shall be deemed to be away from home in the pursuit of a trade or business on each legislative day.
(2) Legislative daysFor purposes of paragraph (1), a legislative day during any taxable year for any individual shall be any day during such year on which—
(A) the legislature was in session (including any day in which the legislature was not in session for a period of 4 consecutive days or less), or
(B) the legislature was not in session but the physical presence of the individual was formally recorded at a meeting of a committee of such legislature.
(3) Election
(4) Section not to apply to legislators who reside near capitol
[(i) Repealed. Pub. L. 101–239, title VI, § 6202(b)(3)(A), Dec. 19, 1989, 103 Stat. 2233]
(j) Certain foreign advertising expenses
(1) In general
(2) Broadcast undertaking
(k) Stock reacquisition expenses
(1) In general
(2) ExceptionsParagraph (1) shall not apply to—
(A) Certain specific deductionsAny—
(i) deduction allowable under section 163 (relating to interest),
(ii) deduction for amounts which are properly allocable to indebtedness and amortized over the term of such indebtedness, or
(iii) deduction for dividends paid (within the meaning of section 561).
(B) Stock of certain regulated investment companies
(l) Special rules for health insurance costs of self-employed individuals
(1)In the case of a taxpayer who is an employee within the meaning of section 401(c)(1), there shall be allowed as a deduction under this section an amount equal to the amount paid during the taxable year for insurance which constitutes medical care for—
(A) the taxpayer,
(B) the taxpayer’s spouse,
(C) the taxpayer’s dependents, and
(D) any child (as defined in section 152(f)(1)) of the taxpayer who as of the end of the taxable year has not attained age 27.
(2) Limitations
(A) Dollar amount
(B) Other coverageParagraph (1) shall not apply to any taxpayer for any calendar month for which the taxpayer is eligible to participate in any subsidized health plan maintained by any employer of the taxpayer or of the spouse of, or any dependent, or individual described in subparagraph (D) of paragraph (1) with respect to, the taxpayer. The preceding sentence shall be applied separately with respect to—
(i) plans which include coverage for qualified long-term care services (as defined in section 7702B(c)) or are qualified long-term care insurance contracts (as defined in section 7702B(b)), and
(ii) plans which do not include such coverage and are not such contracts.
(C) Long-term care premiums
(3) Coordination with medical deduction
(4) Deduction not allowed for self-employment tax purposes
(5) Treatment of certain S corporation shareholdersThis subsection shall apply in the case of any individual treated as a partner under section 1372(a), except that—
(A) for purposes of this subsection, such individual’s wages (as defined in section 3121) from the S corporation shall be treated as such individual’s earned income (within the meaning of section 401(c)(1)), and
(B) there shall be such adjustments in the application of this subsection as the Secretary may by regulations prescribe.
(m) Certain excessive employee remuneration
(1) In general
(2) Publicly held corporationFor purposes of this subsection, the term “publicly held corporation” means any corporation which is an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c))—
(A) the securities of which are required to be registered under section 12 of such Act (15 U.S.C. 78l), or
(B) that is required to file reports under section 15(d) of such Act (15 U.S.C. 78o(d)).
(3) Covered employeeFor purposes of this subsection, the term “covered employee” means any employee of the taxpayer if—
(A) such employee is the principal executive officer or principal financial officer of the taxpayer at any time during the taxable year, or was an individual acting in such a capacity,
(B) the total compensation of such employee for the taxable year is required to be reported to shareholders under the Securities Exchange Act of 1934 by reason of such employee being among the 3 highest compensated officers for the taxable year (other than any individual described in subparagraph (A)),
(C) in the case of taxable years beginning after December 31, 2026, such employee is among the 5 highest compensated employees for the taxable year other than any individual described in subparagraph (A) or (B), or
(D) was a covered employee described in subparagraph (A) or (B) of the taxpayer (or any predecessor) for any preceding taxable year beginning after December 31, 2016.
Such term shall include any employee who would be described in subparagraph (B) if the reporting described in such subparagraph were required as so described.
(4) Applicable employee remunerationFor purposes of this subsection—
(A) In general
(B) Exception for existing binding contracts
(C) RemunerationFor purposes of this paragraph, the term “remuneration” includes any remuneration (including benefits) in any medium other than cash, but shall not include—
(i) any payment referred to in so much of section 3121(a)(5) as precedes subparagraph (E) thereof, and
(ii) any benefit provided to or on behalf of an employee if at the time such benefit is provided it is reasonable to believe that the employee will be able to exclude such benefit from gross income under this chapter.
For purposes of clause (i), section 3121(a)(5) shall be applied without regard to section 3121(v)(1).
(D) Coordination with disallowed golden parachute payments
(E) Coordination with excise tax on specified stock compensation
(F) Special rule for remuneration paid to beneficiaries, etc.
(5) Special rule for application to employers participating in the Troubled Assets Relief Program
(A) In generalIn the case of an applicable employer, no deduction shall be allowed under this chapter—
(i) in the case of executive remuneration for any applicable taxable year which is attributable to services performed by a covered executive during such applicable taxable year, to the extent that the amount of such remuneration exceeds $500,000, or
(ii) in the case of deferred deduction executive remuneration for any taxable year for services performed during any applicable taxable year by a covered executive, to the extent that the amount of such remuneration exceeds $500,000 reduced (but not below zero) by the sum of—(I) the executive remuneration for such applicable taxable year, plus(II) the portion of the deferred deduction executive remuneration for such services which was taken into account under this clause in a preceding taxable year.
(B) Applicable employerFor purposes of this paragraph—
(i) In general
(ii) Disregard of certain assets sold through direct purchase
(iii) Aggregation rules
(C) Applicable taxable yearFor purposes of this paragraph, the term “applicable taxable year” means, with respect to any employer—
(i) the first taxable year of the employer—(I) which includes any portion of the period during which the authorities under section 101(a) of the Emergency Economic Stabilization Act of 2008 are in effect (determined under section 120 thereof), and(II) in which the aggregate amount of troubled assets acquired from the employer during the taxable year pursuant to such authorities (other than assets to which subparagraph (B)(ii) applies), when added to the aggregate amount so acquired for all preceding taxable years, exceeds $300,000,000, and
(ii) any subsequent taxable year which includes any portion of such period.
(D) Covered executiveFor purposes of this paragraph—
(i) In generalThe term “covered executive” means, with respect to any applicable taxable year, any employee—(I) who, at any time during the portion of the taxable year during which the authorities under section 101(a) of the Emergency Economic Stabilization Act of 2008 are in effect (determined under section 120 thereof), is the chief executive officer of the applicable employer or the chief financial officer of the applicable employer, or an individual acting in either such capacity, or(II) who is described in clause (ii).
(ii) Highest compensated employeesAn employee is described in this clause if the employee is 1 of the 3 highest compensated officers of the applicable employer for the taxable year (other than an individual described in clause (i)(I)), determined—(I) on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (without regard to whether those rules apply to the employer), and(II) by only taking into account employees employed during the portion of the taxable year described in clause (i)(I).
(iii) Employee remains covered executive
(E) Executive remuneration
(F) Deferred deduction executive remuneration
(G) Coordination
(H) Regulatory authority
(6) Special rule for application to certain health insurance providers
(A) In generalNo deduction shall be allowed under this chapter—
(i) in the case of applicable individual remuneration which is for any disqualified taxable year beginning after December 31, 2012, and which is attributable to services performed by an applicable individual during such taxable year, to the extent that the amount of such remuneration exceeds $500,000, or
(ii) in the case of deferred deduction remuneration for any taxable year beginning after December 31, 2012, which is attributable to services performed by an applicable individual during any disqualified taxable year beginning after December 31, 2009, to the extent that the amount of such remuneration exceeds $500,000 reduced (but not below zero) by the sum of—(I) the applicable individual remuneration for such disqualified taxable year, plus(II) the portion of the deferred deduction remuneration for such services which was taken into account under this clause in a preceding taxable year (or which would have been taken into account under this clause in a preceding taxable year if this clause were applied by substituting “December 31, 2009” for “December 31, 2012” in the matter preceding subclause (I)).
(B) Disqualified taxable year
(C) Covered health insurance providerFor purposes of this paragraph—
(i) In generalThe term “covered health insurance provider” means—(I) with respect to taxable years beginning after December 31, 2009, and before January 1, 2013, any employer which is a health insurance issuer (as defined in section 9832(b)(2)) and which receives premiums from providing health insurance coverage (as defined in section 9832(b)(1)), and(II) with respect to taxable years beginning after December 31, 2012, any employer which is a health insurance issuer (as defined in section 9832(b)(2)) and with respect to which not less than 25 percent of the gross premiums received from providing health insurance coverage (as defined in section 9832(b)(1)) is from minimum essential coverage (as defined in section 5000A(f)).
(ii) Aggregation rules
(D) Applicable individual remuneration
(E) Deferred deduction remuneration
(F) Applicable individualFor purposes of this paragraph, the term “applicable individual” means, with respect to any covered health insurance provider for any disqualified taxable year, any individual—
(i) who is an officer, director, or employee in such taxable year, or
(ii) who provides services for or on behalf of such covered health insurance provider during such taxable year.
(G) Coordination
(H) Regulatory authority
(n) Special rule for certain group health plans
(1) In generalNo deduction shall be allowed under this chapter to an employer for any amount paid or incurred in connection with a group health plan if the plan does not reimburse for inpatient hospital care services provided in the State of New York—
(A) except as provided in subparagraphs (B) and (C), at the same rate as licensed commercial insurers are required to reimburse hospitals for such services when such reimbursement is not through such a plan,
(B) in the case of any reimbursement through a health maintenance organization, at the same rate as health maintenance organizations are required to reimburse hospitals for such services for individuals not covered by such a plan (determined without regard to any government-supported individuals exempt from such rate), or
(C) in the case of any reimbursement through any corporation organized under Article 43 of the New York State Insurance Law, at the same rate as any such corporation is required to reimburse hospitals for such services for individuals not covered by such a plan.
(2) State law exception
(3) Group health plan
(o) Treatment of certain expenses of rural mail carriers
(1) General ruleIn the case of any employee of the United States Postal Service who performs services involving the collection and delivery of mail on a rural route and who receives qualified reimbursements for the expenses incurred by such employee for the use of a vehicle in performing such services—
(A) the amount allowable as a deduction under this chapter for the use of a vehicle in performing such services shall be equal to the amount of such qualified reimbursements; and
(B) such qualified reimbursements shall be treated as paid under a reimbursement or other expense allowance arrangement for purposes of section 62(a)(2)(A) (and section 62(c) shall not apply to such qualified reimbursements).
(2) Special rule where expenses exceed reimbursements
(3) Definition of qualified reimbursementsFor purposes of this subsection, the term “qualified reimbursements” means the amounts paid by the United States Postal Service to employees as an equipment maintenance allowance under the 1991 collective bargaining agreement between the United States Postal Service and the National Rural Letter Carriers’ Association. Amounts paid as an equipment maintenance allowance by such Postal Service under later collective bargaining agreements that supersede the 1991 agreement shall be considered qualified reimbursements if such amounts do not exceed the amounts that would have been paid under the 1991 agreement, adjusted by increasing any such amount under the 1991 agreement by an amount equal to—
(A) such amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting “calendar year 1990” for “calendar year 2016” in subparagraph (A)(ii) thereof.
(p) Treatment of expenses of members of reserve component of Armed Forces of the United States
(q) Payments related to sexual harassment and sexual abuseNo deduction shall be allowed under this chapter for—
(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or
(2) attorney’s fees related to such a settlement or payment.
(r) Disallowance of FDIC premiums paid by certain large financial institutions
(1) In general
(2) Exception for small institutions
(3) Applicable percentageFor purposes of this subsection, the term “applicable percentage” means, with respect to any taxpayer for any taxable year, the ratio (expressed as a percentage but not greater than 100 percent) which—
(A) the excess of—
(i) the total consolidated assets of such taxpayer (determined as of the close of such taxable year), over
(ii) $10,000,000,000, bears to
(B) $40,000,000,000.
(4) FDIC premiums
(5) Total consolidated assets
(6) Aggregation rule
(A) In general
(B) Expanded affiliated group
(i) In generalFor purposes of this paragraph, the term “expanded affiliated group” means an affiliated group as defined in section 1504(a), determined—(I) by substituting “more than 50 percent” for “at least 80 percent” each place it appears, and(II) without regard to paragraphs (2) and (3) of section 1504(b).
(ii) Control of non-corporate entities
(s) Cross reference
(1) For special rule relating to expenses in connection with subdividing real property for sale, see section 1237.
(2) For special rule relating to the treatment of payments by a transferee of a franchise, trademark, or trade name, see section 1253.
(3) For special rules relating to—
(A) funded welfare benefit plans, see section 419, and
(B) deferred compensation and other deferred benefits, see section 404.
(Aug. 16, 1954, ch. 736, 68A Stat. 45; Pub. L. 85–866, title I, § 5(a), Sept. 2, 1958, 72 Stat. 1608; Pub. L. 86–779, §§ 7(b), 8(a), Sept. 14, 1960, 74 Stat. 1002, 1003; Pub. L. 87–834, §§ 3(a), 4(b), Oct. 16, 1962, 76 Stat. 973, 976; Pub. L. 91–172, title V, § 516(c)(2)(A), title IX, § 902(a), (b), Dec. 30, 1969, 83 Stat. 648, 710; Pub. L. 92–178, title III, § 310(a), Dec. 10, 1971, 85 Stat. 525; Pub. L. 94–455, title XIX, §§ 1901(c)(4), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1803, 1834; Pub. L. 97–34, title I, § 127(a), Aug. 13, 1981, 95 Stat. 202; Pub. L. 97–35, title XXI, § 2146(b), Aug. 13, 1981, 95 Stat. 801; Pub. L. 97–51, § 139(b)(1), Oct. 1, 1981, 95 Stat. 967; Pub. L. 97–216, title II, § 215(a), July 18, 1982, 96 Stat. 194; Pub. L. 97–248, title I, § 128(b), title II, § 288(a), Sept. 3, 1982, 96 Stat. 366, 571; Pub. L. 98–369, div. A, title V, § 512(b), div. B, title III, § 2354(d), July 18, 1984, 98 Stat. 863, 1102; Pub. L. 98–573, title II, § 232(a), Oct. 30, 1984, 98 Stat. 2991; Pub. L. 99–272, title X, § 10001(a), (c), (d), Apr. 7, 1986, 100 Stat. 222, 223, 227; Pub. L. 99–509, title IX, §§ 9307(c)(2)(B), 9501(a)(1), (b)(1)(A), (2)(A), (c)(1), (d)(1), Oct. 21, 1986, 100 Stat. 1995, 2075–2077; Pub. L. 99–514, title VI, § 613(a), title XI, § 1161(a), title XVIII, § 1895(d)(1)(A), (2)(A), (3)(A), (4)(A), (5)(A), (6)(A), (7), Oct. 22, 1986, 100 Stat. 2251, 2509, 2936–2940; Pub. L. 100–647, title I, §§ 1011B(b)(1)–(3), 1018(t)(7)(B), title III, § 3011(b)(2), (3), Nov. 10, 1988, 102 Stat. 3488, 3589, 3624, 3625; Pub. L. 101–140, title II, § 203(a)(4), Nov. 8, 1989, 103 Stat. 830; Pub. L. 101–239, title VI, § 6202(b)(3)(A), title VII, §§ 7107(a)(1), (b), 7862(c)(3)(A), Dec. 19, 1989, 103 Stat. 2233, 2306, 2432; Pub. L. 101–508, title XI, §§ 11111(d)(2), 11410(a), Nov. 5, 1990, 104 Stat. 1388–413, 1388–479; Pub. L. 102–227, title I, § 110(a)(1), Dec. 11, 1991, 105 Stat. 1688; Pub. L. 102–486, title XIX, § 1938(a), Oct. 24, 1992, 106 Stat. 3033; Pub. L. 103–66, title XIII, §§ 13131(d)(2), 13174(a)(1), (b)(1), 13211(a), 13222(a), 13442(a), Aug. 10, 1993, 107 Stat. 435, 457, 469, 477, 568; Pub. L. 104–7, § 1(a), (b), Apr. 11, 1995, 109 Stat. 93; Pub. L. 104–188, title I, § 1704(p)(1)–(3), Aug. 20, 1996, 110 Stat. 1886; Pub. L. 104–191, title III, §§ 311(a), 322(b)(2)(B), Aug. 21, 1996, 110 Stat. 2053, 2060; Pub. L. 105–34, title IX, § 934(a), title XII, §§ 1203(a), 1204(a), title XVI, § 1602(c), Aug. 5, 1997, 111 Stat. 882, 994, 995, 1094; Pub. L. 105–206, title VI, § 6012(a), July 22, 1998, 112 Stat. 818; Pub. L. 105–277, div. J, title II, § 2002(a), Oct. 21, 1998, 112 Stat. 2681–901; Pub. L. 108–121, title I, § 109(a), Nov. 11, 2003, 117 Stat. 1341; Pub. L. 108–357, title III, § 318(a), (b), title VIII, § 802(b)(2), Oct. 22, 2004, 118 Stat. 1470, 1568; Pub. L. 110–343, div. A, title III, § 302(a), Oct. 3, 2008, 122 Stat. 3803; Pub. L. 111–148, title IX, § 9014(a), title X, § 10108(g)(1), Mar. 23, 2010, 124 Stat. 868, 913; Pub. L. 111–152, title I, § 1004(d)(2), (3), Mar. 30, 2010, 124 Stat. 1035; Pub. L. 111–240, title II, § 2042(a), Sept. 27, 2010, 124 Stat. 2560; Pub. L. 112–10, div. B, title VIII, § 1858(b)(3), Apr. 15, 2011, 125 Stat. 169; Pub. L. 113–295, div. A, title II, § 221(a)(23), (24), Dec. 19, 2014, 128 Stat. 4040; Pub. L. 115–97, title I, §§ 11002(d)(6), 13306(a)(1), 13307(a), 13308(a), 13311(a), 13531(a), 13601(a)–(d), Dec. 22, 2017, 131 Stat. 2061, 2126, 2129, 2132, 2153, 2155, 2156; Pub. L. 117–2, title IX, § 9708, Mar. 11, 2021, 135 Stat. 206.)

CITE AS: 26 USC 162

§ 163. Interest
(a) General rule
(b) Installment purchases where interest charge is not separately stated
(1) General ruleIf personal property or educational services are purchased under a contract—
(A) which provides that payment of part or all of the purchase price is to be made in installments, and
(B) in which carrying charges are separately stated but the interest charge cannot be ascertained,
then the payments made during the taxable year under the contract shall be treated for purposes of this section as if they included interest equal to 6 percent of the average unpaid balance under the contract during the taxable year. For purposes of the preceding sentence, the average unpaid balance is the sum of the unpaid balance outstanding on the first day of each month beginning during the taxable year, divided by 12. For purposes of this paragraph, the term “educational services” means any service (including lodging) which is purchased from an educational organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization.
(2) Limitation
(c) Redeemable ground rents
(d) Limitation on investment interest
(1) In general
(2) Carryforward of disallowed interest
(3) Investment interestFor purposes of this subsection—
(A) In general
(B) ExceptionsThe term “investment interest” shall not include—
(i) any qualified residence interest (as defined in subsection (h)(3)), or
(ii) any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer.
(C) Personal property used in short sale
(4) Net investment incomeFor purposes of this subsection—
(A) In generalThe term “net investment income” means the excess of—
(i) investment income, over
(ii) investment expenses.
(B) Investment incomeThe term “investment income” means the sum of—
(i) gross income from property held for investment (other than any gain taken into account under clause (ii)(I)),
(ii) the excess (if any) of—(I) the net gain attributable to the disposition of property held for investment, over(II) the net capital gain determined by only taking into account gains and losses from dispositions of property held for investment, plus
(iii) so much of the net capital gain referred to in clause (ii)(II) (or, if lesser, the net gain referred to in clause (ii)(I)) as the taxpayer elects to take into account under this clause.
Such term shall include qualified dividend income (as defined in section 1(h)(11)(B)) only to the extent the taxpayer elects to treat such income as investment income for purposes of this subsection.
(C) Investment expenses
(D) Income and expenses from passive activities
(5) Property held for investmentFor purposes of this subsection—
(A) In generalThe term “property held for investment” shall include—
(i) any property which produces income of a type described in section 469(e)(1), and
(ii) any interest held by a taxpayer in an activity involving the conduct of a trade or business—(I) which is not a passive activity, and(II) with respect to which the taxpayer does not materially participate.
(B) Investment expenses
(C) Terms
(e) Original issue discount
(1) In general
(2) Definitions and special rulesFor purposes of this subsection—
(A) Debt instrument
(B) Daily portions
(C) Short-term obligations
(3) Special rule for original issue discount on obligation held by related foreign person
(A) In general
(B) Special rule for certain foreign entities
(i) In general
(ii) Secretarial authority
(C) Related foreign personFor purposes of subparagraph (A), the term “related foreign person” means any person—
(i) who is not a United States person, and
(ii) who is related (within the meaning of section 267(b)) to the issuer.
(4) Exception
(5) Special rules for original issue discount on certain high yield obligations
(A) In generalIn the case of an applicable high yield discount obligation issued by a corporation—
(i) no deduction shall be allowed under this chapter for the disqualified portion of the original issue discount on such obligation, and
(ii) the remainder of such original issue discount shall not be allowable as a deduction until paid.
For purposes of this paragraph, rules similar to the rules of subsection (i)(3)(B) shall apply in determining the amount of the original issue discount and when the original issue discount is paid.
(B) Disqualified portion treated as stock distribution for purposes of dividend received deduction
(i) In general
(ii) Dividend equivalent portionFor purposes of clause (i), the dividend equivalent portion of any amount includible in gross income under section 1272(a) in respect of an applicable high yield discount obligation is the portion of the amount so includible—(I) which is attributable to the disqualified portion of the original issue discount on such obligation, and(II) which would have been treated as a dividend if it had been a distribution made by the issuing corporation with respect to stock in such corporation.
(C) Disqualified portion
(i) In generalFor purposes of this paragraph, the disqualified portion of the original issue discount on any applicable high yield discount obligation is the lesser of—(I) the amount of such original issue discount, or(II) the portion of the total return on such obligation which bears the same ratio to such total return as the disqualified yield on such obligation bears to the yield to maturity on such obligation.
(ii) Definitions
(D) Exception for S corporations
(E) Effect on earnings and profits
(F) Suspension of application of paragraph
(i) Temporary suspension
(ii) Successive application
(iii) Secretarial authority to suspend application
(G) Cross reference
(6) Cross references
(f) Denial of deduction for interest on certain obligations not in registered form
(1) In general
(2) Registration-required obligationFor purposes of this section—
(A) In generalThe term “registration-required obligation” means any obligation (including any obligation issued by a governmental entity) other than an obligation which—
(i) is issued by a natural person,
(ii) is not of a type offered to the public, or
(iii) has a maturity (at issue) of not more than 1 year.
(B) Authority to include other obligationsClauses (ii) and (iii) of subparagraph (A) shall not apply to any obligation if—
(i) such obligation is of a type which the Secretary has determined by regulations to be used frequently in avoiding Federal taxes, and
(ii) such obligation is issued after the date on which the regulations referred to in clause (i) take effect.
(3) Book entries permitted, etc.
(g) Reduction of deduction where section 25 credit taken
(h) Disallowance of deduction for personal interest
(1) In general
(2) Personal interestFor purposes of this subsection, the term “personal interest” means any interest allowable as a deduction under this chapter other than—
(A) interest paid or accrued on indebtedness properly allocable to a trade or business (other than the trade or business of performing services as an employee),
(B) any investment interest (within the meaning of subsection (d)),
(C) any interest which is taken into account under section 469 in computing income or loss from a passive activity of the taxpayer,
(D) any qualified residence interest (within the meaning of paragraph (3)),
(E) any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6163, and
(F) any interest allowable as a deduction under section 221 (relating to interest on educational loans).
(3) Qualified residence interestFor purposes of this subsection—
(A) In generalThe term “qualified residence interest” means any interest which is paid or accrued during the taxable year on—
(i) acquisition indebtedness with respect to any qualified residence of the taxpayer, or
(ii) home equity indebtedness with respect to any qualified residence of the taxpayer.
For purposes of the preceding sentence, the determination of whether any property is a qualified residence of the taxpayer shall be made as of the time the interest is accrued.
(B) Acquisition indebtedness
(i) In generalThe term “acquisition indebtedness” means any indebtedness which—(I) is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer, and(II) is secured by such residence.
 Such term also includes any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness.
(ii) $1,000,000 limitation
(C) Home equity indebtedness
(i) In generalThe term “home equity indebtedness” means any indebtedness (other than acquisition indebtedness) secured by a qualified residence to the extent the aggregate amount of such indebtedness does not exceed—(I) the fair market value of such qualified residence, reduced by(II) the amount of acquisition indebtedness with respect to such residence.
(ii) Limitation
(D) Treatment of indebtedness incurred on or before October 13, 1987
(i) In generalIn the case of any pre-October 13, 1987, indebtedness—(I) such indebtedness shall be treated as acquisition indebtedness, and(II) the limitation of subparagraph (B)(ii) shall not apply.
(ii) Reduction in $1,000,000 limitation
(iii) Pre-October 13, 1987, indebtednessThe term “pre-October 13, 1987, indebtedness” means—(I) any indebtedness which was incurred on or before October 13, 1987, and which was secured by a qualified residence on October 13, 1987, and at all times thereafter before the interest is paid or accrued, or(II) any indebtedness which is secured by the qualified residence and was incurred after October 13, 1987, to refinance indebtedness described in subclause (I) (or refinanced indebtedness meeting the requirements of this subclause) to the extent (immediately after the refinancing) the principal amount of the indebtedness resulting from the refinancing does not exceed the principal amount of the refinanced indebtedness (immediately before the refinancing).
(iv) Limitation on period of refinancingSubclause (II) of clause (iii) shall not apply to any indebtedness after—(I) the expiration of the term of the indebtedness described in clause (iii)(I), or(II) if the principal of the indebtedness described in clause (iii)(I) is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing).
(E) Mortgage insurance premiums treated as interest
(i) In general
(ii) Phaseout
(iii) Limitation
(iv) TerminationClause (i) shall not apply to amounts—(I) paid or accrued after December 31, 2021, or(II) properly allocable to any period after such date.
(F) Special rules for taxable years 2018 through 2025
(i) In generalIn the case of taxable years beginning after December 31, 2017, and before January 1, 2026—(I) Disallowance of home equity indebtedness interest(II) Limitation on acquisition indebtedness(III) Treatment of indebtedness incurred on or before December 15, 2017(IV) Binding contract exception
(ii) Treatment of limitation in taxable years after December 31, 2025
(iii) Treatment of refinancings of indebtedness(I) In general(II) Limitation on period of refinancing
(iv) Coordination with exclusion of income from discharge of indebtedness
(4) Other definitions and special rulesFor purposes of this subsection—
(A) Qualified residence
(i) In generalThe term “qualified residence” means—(I) the principal residence (within the meaning of section 121) of the taxpayer, and(II) 1 other residence of the taxpayer which is selected by the taxpayer for purposes of this subsection for the taxable year and which is used by the taxpayer as a residence (within the meaning of section 280A(d)(1)).
(ii) Married individuals filing separate returnsIf a married couple does not file a joint return for the taxable year—(I) such couple shall be treated as 1 taxpayer for purposes of clause (i), and(II) each individual shall be entitled to take into account 1 residence unless both individuals consent in writing to 1 individual taking into account the principal residence and 1 other residence.
(iii) Residence not rented
(B) Special rule for cooperative housing corporations
(C) Unenforceable security interests
(D) Special rules for estates and trusts
(E) Qualified mortgage insuranceThe term “qualified mortgage insurance” means—
(i) mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and
(ii) private mortgage insurance (as defined by section 2 of the Homeowners Protection Act of 1998 (12 U.S.C. 4901), as in effect on the date of the enactment of this subparagraph).
(F) Special rules for prepaid qualified mortgage insurance
(i) Applicable high yield discount obligation
(1) In generalFor purposes of this section, the term “applicable high yield discount obligation” means any debt instrument if—
(A) the maturity date of such instrument is more than 5 years from the date of issue,
(B) the yield to maturity on such instrument equals or exceeds the sum of—
(i) the applicable Federal rate in effect under section 1274(d) for the calendar month in which the obligation is issued, plus
(ii) 5 percentage points, and
(C) such instrument has significant original issue discount.
For purposes of subparagraph (B)(i), the Secretary may by regulation (i) permit a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the taxpayer establishes to the satisfaction of the Secretary that such higher rate is based on the same principles as the applicable Federal rate and is appropriate for the term of the instrument, or (ii) permit, on a temporary basis, a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the Secretary determines that such rate is appropriate in light of distressed conditions in the debt capital markets.
(2) Significant original issue discountFor purposes of paragraph (1)(C), a debt instrument shall be treated as having significant original issue discount if—
(A) the aggregate amount which would be includible in gross income with respect to such instrument for periods before the close of any accrual period (as defined in section 1272(a)(5)) ending after the date 5 years after the date of issue, exceeds—
(B) the sum of—
(i) the aggregate amount of interest to be paid under the instrument before the close of such accrual period, and
(ii) the product of the issue price of such instrument (as defined in sections 1273(b) and 1274(a)) and its yield to maturity.
(3) Special rulesFor purposes of determining whether a debt instrument is an applicable high yield discount obligation—
(A) any payment under the instrument shall be assumed to be made on the last day permitted under the instrument, and
(B) any payment to be made in the form of another obligation of the issuer (or a related person within the meaning of section 453(f)(1)) shall be assumed to be made when such obligation is required to be paid in cash or in property other than such obligation.
Except for purposes of paragraph (1)(B), any reference to an obligation in subparagraph (B) of this paragraph shall be treated as including a reference to stock.
(4) Debt instrument
(5) RegulationsThe Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subsection and subsection (e)(5), including—
(A) regulations providing for modifications to the provisions of this subsection and subsection (e)(5) in the case of varying rates of interest, put or call options, indefinite maturities, contingent payments, assumptions of debt instruments, conversion rights, or other circumstances where such modifications are appropriate to carry out the purposes of this subsection and subsection (e)(5), and
(B) regulations to prevent avoidance of the purposes of this subsection and subsection (e)(5) through the use of issuers other than C corporations, agreements to borrow amounts due under the debt instrument, or other arrangements.
(j) Limitation on business interest
(1) In generalThe amount allowed as a deduction under this chapter for any taxable year for business interest shall not exceed the sum of—
(A) the business interest income of such taxpayer for such taxable year,
(B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus
(C) the floor plan financing interest of such taxpayer for such taxable year.
The amount determined under subparagraph (B) shall not be less than zero.
(2) Carryforward of disallowed business interest
(3) Exemption for certain small businesses
(4) Application to partnerships, etc.
(A) In generalIn the case of any partnership—
(i) this subsection shall be applied at the partnership level and any deduction for business interest shall be taken into account in determining the non-separately stated taxable income or loss of the partnership, and
(ii) the adjusted taxable income of each partner of such partnership—(I) shall be determined without regard to such partner’s distributive share of any items of income, gain, deduction, or loss of such partnership, and(II) shall be increased by such partner’s distributive share of such partnership’s excess taxable income.
 For purposes of clause (ii)(II), a partner’s distributive share of partnership excess taxable income shall be determined in the same manner as the partner’s distributive share of nonseparately stated taxable income or loss of the partnership.
(B) Special rules for carryforwards
(i) In generalThe amount of any business interest not allowed as a deduction to a partnership for any taxable year by reason of paragraph (1) for any taxable year—(I) shall not be treated under paragraph (2) as business interest paid or accrued by the partnership in the succeeding taxable year, and(II) shall, subject to clause (ii), be treated as excess business interest which is allocated to each partner in the same manner as the non-separately stated taxable income or loss of the partnership.
(ii) Treatment of excess business interest allocated to partnersIf a partner is allocated any excess business interest from a partnership under clause (i) for any taxable year—(I) such excess business interest shall be treated as business interest paid or accrued by the partner in the next succeeding taxable year in which the partner is allocated excess taxable income from such partnership, but only to the extent of such excess taxable income, and(II) any portion of such excess business interest remaining after the application of subclause (I) shall, subject to the limitations of subclause (I), be treated as business interest paid or accrued in succeeding taxable years.
 For purposes of applying this paragraph, excess taxable income allocated to a partner from a partnership for any taxable year shall not be taken into account under paragraph (1)(A) with respect to any business interest other than excess business interest from the partnership until all such excess business interest for such taxable year and all preceding taxable years has been treated as paid or accrued under clause (ii).
(iii) Basis adjustments(I) In general(II) Special rule for dispositions
(C) Excess taxable incomeThe term “excess taxable income” means, with respect to any partnership, the amount which bears the same ratio to the partnership’s adjusted taxable income as—
(i) the excess (if any) of—(I) the amount determined for the partnership under paragraph (1)(B), over(II) the amount (if any) by which the business interest of the partnership, reduced by the floor plan financing interest, exceeds the business interest income of the partnership, bears to
(ii) the amount determined for the partnership under paragraph (1)(B).
(D) Application to S corporations
(5) Business interest
(6) Business interest income
(7) Trade or businessFor purposes of this subsection—
(A) In generalThe term “trade or business” shall not include—
(i) the trade or business of performing services as an employee,
(ii) any electing real property trade or business,
(iii) any electing farming business, or
(iv) the trade or business of the furnishing or sale of—(I) electrical energy, water, or sewage disposal services,(II) gas or steam through a local distribution system, or(III) transportation of gas or steam by pipeline,
 if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, by a public service or public utility commission or other similar body of any State or political subdivision thereof, or by the governing or ratemaking body of an electric cooperative.
(B) Electing real property trade or business
(C) Electing farming businessFor purposes of this paragraph, the term “electing farming business” means—
(i) a farming business (as defined in section 263A(e)(4)) which makes an election under this subparagraph, or
(ii) any trade or business of a specified agricultural or horticultural cooperative (as defined in section 199A(g)(2)) 1
1 See References in Text note below.
with respect to which the cooperative makes an election under this subparagraph.
Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable.
(8) Adjusted taxable incomeFor purposes of this subsection, the term “adjusted taxable income” means the taxable income of the taxpayer—
(A) computed without regard to—
(i) any item of income, gain, deduction, or loss which is not properly allocable to a trade or business,
(ii) any business interest or business interest income,
(iii) the amount of any net operating loss deduction under section 172,
(iv) the amount of any deduction allowed under section 199A, and
(v) in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization, or depletion, and
(B) computed with such other adjustments as provided by the Secretary.
(9) Floor plan financing interest definedFor purposes of this subsection—
(A) In general
(B) Floor plan financing indebtednessThe term “floor plan financing indebtedness” means indebtedness—
(i) used to finance the acquisition of motor vehicles held for sale or lease, and
(ii) secured by the inventory so acquired.
(C) Motor vehicleThe term “motor vehicle” means a motor vehicle that is any of the following:
(i) Any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road.
(ii) A boat.
(iii) Farm machinery or equipment.
(10) Special rule for taxable years beginning in 2019 and 2020
(A) In general
(i) In general
(ii) Special rule for partnershipsIn the case of a partnership—(I) clause (i) shall not apply to any taxable year beginning in 2019, but(II) unless a partner elects not to have this subclause apply, in the case of any excess business interest of the partnership for any taxable year beginning in 2019 which is allocated to the partner under paragraph (4)(B)(i)(II)—(aa) 50 percent of such excess business interest shall be treated as business interest which, notwithstanding paragraph (4)(B)(ii), is paid or accrued by the partner in the partner’s first taxable year beginning in 2020 and which is not subject to the limits of paragraph (1), and(bb) 50 percent of such excess business interest shall be subject to the limitations of paragraph (4)(B)(ii) in the same manner as any other excess business interest so allocated.
(iii) Election out
(B) Election to use 2019 adjusted taxable income for taxable years beginning in 2020
(i) In general
(ii) Special rule for short taxable years
(11) Cross references
(A) For requirement that an electing real property trade or business use the alternative depreciation system, see section 168(g)(1)(F).
(B) For requirement that an electing farming business use the alternative depreciation system, see section 168(g)(1)(G).
(k) Section 6166 interest
(l) Disallowance of deduction on certain debt instruments of corporations
(1) In general
(2) Disqualified debt instrument
(3) Special rules for amounts payable in equityFor purposes of paragraph (2), indebtedness shall be treated as payable in equity of the issuer or any other person only if—
(A) a substantial amount of the principal or interest is required to be paid or converted, or at the option of the issuer or a related party is payable in, or convertible into, such equity,
(B) a substantial amount of the principal or interest is required to be determined, or at the option of the issuer or a related party is determined, by reference to the value of such equity, or
(C) the indebtedness is part of an arrangement which is reasonably expected to result in a transaction described in subparagraph (A) or (B).
For purposes of this paragraph, principal or interest shall be treated as required to be so paid, converted, or determined if it may be required at the option of the holder or a related party and there is a substantial certainty the option will be exercised.
(4) Capitalization allowed with respect to equity of persons other than issuer and related parties
(5) Exception for certain instruments issued by dealers in securities
(6) Related party
(7) Regulations
(m) Interest on unpaid taxes attributable to nondisclosed reportable transactions
(n) Cross references
(1) For disallowance of certain amounts paid in connection with insurance, endowment, or annuity contracts, see section 264.
(2) For disallowance of deduction for interest relating to tax-exempt income, see section 265(a)(2).
(3) For disallowance of deduction for carrying charges chargeable to capital account, see section 266.
(4) For disallowance of interest with respect to transactions between related taxpayers, see section 267.
(5) For treatment of redeemable ground rents and real property held subject to liabilities under redeemable ground rents, see section 1055.
(Aug. 16, 1954, ch. 736, 68A Stat. 46; Pub. L. 88–9, § 1(a), (c), Apr. 10, 1963, 77 Stat. 6, 7; Pub. L. 88–272, title II, § 224(c), Feb. 26, 1964, 78 Stat. 79; Pub. L. 91–172, title II, § 221(a), Dec. 30, 1969, 83 Stat. 574; Pub. L. 92–178, title III, § 304(a)(2), (b)(2), (d), Dec. 10, 1971, 85 Stat. 523, 524; Pub. L. 94–455, title II, §§ 205(c)(3), 209(a), title XIX, §§ 1901(b)(3)(K), (8)(C), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1535, 1542, 1793, 1794, 1834; Pub. L. 97–248, title II, § 231(b), title III, § 310(b)(2), Sept. 3, 1982, 96 Stat. 498, 596; Pub. L. 97–354, § 5(a)(18), Oct. 19, 1982, 96 Stat. 1693; Pub. L. 98–369, div. A, title I, §§ 42(a)(3), 56(b), 127(f), 128(c), title VI, § 612(c), July 18, 1984, 98 Stat. 556, 574, 652, 654, 911; Pub. L. 99–514, title V, § 511(a), (b), title IX, § 902(e)(1), title XIII, § 1301(j)(3), title XVIII, §§ 1803(a)(4), 1810(e)(1), Oct. 22, 1986, 100 Stat. 2244, 2246, 2382, 2657, 2793, 2825; Pub. L. 100–203, title X, §§ 10102(a), (b), 10212(b), Dec. 22, 1987, 101 Stat. 1330–384, 1330–386, 1330–406; Pub. L. 100–647, title I, §§ 1005(c)(1)–(9), (12), 1006(u)(1), 1009(b)(6), title II, § 2004(b)(1), Nov. 10, 1988, 102 Stat. 3390–3392, 3427, 3449, 3598; Pub. L. 101–239, title VII, §§ 7202(a), (b), 7210(a), Dec. 19, 1989, 103 Stat. 2330, 2331, 2339; Pub. L. 101–508, title XI, § 11701(b), (c), Nov. 5, 1990, 104 Stat. 1388–507; Pub. L. 103–66, title XIII, §§ 13206(d)(1), 13228(a)–(c), Aug. 10, 1993, 107 Stat. 467, 494, 495; Pub. L. 104–188, title I, §§ 1703(n)(4), 1704(f)(2)(A), (B), Aug. 20, 1996, 110 Stat. 1877, 1879; Pub. L. 105–34, title III, § 312(d)(1), title V, § 503(b)(2), title X, § 1005(a), title XVI, § 1604(g)(1), Aug. 5, 1997, 111 Stat. 839, 853, 911, 1099; Pub. L. 105–277, div. J, title IV, § 4003(a)(1), Oct. 21, 1998, 112 Stat. 2681–908; Pub. L. 106–170, title V, § 544, Dec. 17, 1999, 113 Stat. 1944; Pub. L. 108–27, title III, § 302(b), May 28, 2003, 117 Stat. 762; Pub. L. 108–357, title VIII, §§ 838(a), 841(a), 845(a)–(d), Oct. 22, 2004, 118 Stat. 1596, 1597, 1600, 1601; Pub. L. 109–135, title IV, § 403(a)(15), Dec. 21, 2005, 119 Stat. 2619; Pub. L. 109–222, title V, § 501(a), (b), May 17, 2006, 120 Stat. 354; Pub. L. 109–432, div. A, title IV, § 419(a), (b), Dec. 20, 2006, 120 Stat. 2967; Pub. L. 110–142, § 3(a), Dec. 20, 2007, 121 Stat. 1804; Pub. L. 111–5, div. B, title I, § 1232(a), (b), Feb. 17, 2009, 123 Stat. 341; Pub. L. 111–147, title V, § 502(a)(1), (2)(B), (C), (c), Mar. 18, 2010, 124 Stat. 107, 108; Pub. L. 111–312, title VII, § 759(a), Dec. 17, 2010, 124 Stat. 3323; Pub. L. 112–240, title II, § 204(a), (b), Jan. 2, 2013, 126 Stat. 2323; Pub. L. 113–295, div. A, title I, § 104(a), title II, §§ 220(h), 221(a)(25)(A), Dec. 19, 2014, 128 Stat. 4013, 4036, 4040; Pub. L. 114–113, div. Q, title I, § 152(a), Dec. 18, 2015, 129 Stat. 3066; Pub. L. 115–97, title I, §§ 11043(a), 13301(a), Dec. 22, 2017, 131 Stat. 2086, 2117; Pub. L. 115–123, div. D, title I, § 40202(a), Feb. 9, 2018, 132 Stat. 145; Pub. L. 115–141, div. U, title IV, § 401(a)(48), (b)(12), (c)(1)(C), (3)(B), Mar. 23, 2018, 132 Stat. 1186, 1202, 1205, 1206; Pub. L. 116–94, div. Q, title I, § 102(a), Dec. 20, 2019, 133 Stat. 3228; Pub. L. 116–136, div. A, title II, § 2306(a), Mar. 27, 2020, 134 Stat. 358; Pub. L. 116–260, div. EE, title I, § 133(a), Dec. 27, 2020, 134 Stat. 3053.)

CITE AS: 26 USC 163

§ 164. Taxes
(a) General ruleExcept as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued:
(1) State and local, and foreign, real property taxes.
(2) State and local personal property taxes.
(3) State and local, and foreign, income, war profits, and excess profits taxes.
(4) The GST tax imposed on income distributions.
In addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income). Notwithstanding the preceding sentence, any tax (not described in the first sentence of this subsection) which is paid or accrued by the taxpayer in connection with an acquisition or disposition of property shall be treated as part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition.
(b) Definitions and special rulesFor purposes of this section—
(1) Personal property taxes
(2) State or local taxes
(3) Foreign taxes
(4) Special rules for GST tax
(A) In generalThe GST tax imposed on income distributions is—
(i) the tax imposed by section 2601, and
(ii) any State tax described in section 2604 (as in effect before its repeal),
but only to the extent such tax is imposed on a transfer which is included in the gross income of the distributee and to which section 666 does not apply.
(B) Special rule for tax paid before due date
(5) General sales taxesFor purposes of subsection (a)—
(A) Election to deduct State and local sales taxes in lieu of State and local income taxesAt the election of the taxpayer for the taxable year, subsection (a) shall be applied—
(i) without regard to the reference to State and local income taxes, and
(ii) as if State and local general sales taxes were referred to in a paragraph thereof.
(B) Definition of general sales tax
(C) Special rules for food, etc.In the case of items of food, clothing, medical supplies, and motor vehicles—
(i) the fact that the tax does not apply with respect to some or all of such items shall not be taken into account in determining whether the tax applies with respect to a broad range of classes of items, and
(ii) the fact that the rate of tax applicable with respect to some or all of such items is lower than the general rate of tax shall not be taken into account in determining whether the tax is imposed at one rate.
(D) Items taxed at different rates
(E) Compensating use taxesA compensating use tax with respect to an item shall be treated as a general sales tax. For purposes of the preceding sentence, the term “compensating use tax” means, with respect to any item, a tax which—
(i) is imposed on the use, storage, or consumption of such item, and
(ii) is complementary to a general sales tax, but only if a deduction is allowable under this paragraph with respect to items sold at retail in the taxing jurisdiction which are similar to such item.
(F) Special rule for motor vehicles
(G) Separately stated general sales taxes
(H) Amount of deduction may be determined under tables
(i) In generalAt the election of the taxpayer for the taxable year, the amount of the deduction allowed under this paragraph for such year shall be—(I) the amount determined under this paragraph (without regard to this subparagraph) with respect to motor vehicles, boats, and other items specified by the Secretary, and(II) the amount determined under tables prescribed by the Secretary with respect to items to which subclause (I) does not apply.
(ii) Requirements for tablesThe tables prescribed under clause (i)—(I) shall reflect the provisions of this paragraph,(II) shall be based on the average consumption by taxpayers on a State-by-State basis (as determined by the Secretary) of items to which clause (i)(I) does not apply, taking into account filing status, number of dependents, adjusted gross income, and rates of State and local general sales taxation, and(III) need only be determined with respect to adjusted gross incomes up to the applicable amount (as determined under section 68(b)).
(6) Limitation on individual deductions for taxable years 2018 through 2025In the case of an individual and a taxable year beginning after December 31, 2017, and before January 1, 2026—
(A) foreign real property taxes shall not be taken into account under subsection (a)(1), and
(B) the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return).
The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212. For purposes of subparagraph (B), an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed.
(c) Deduction denied in case of certain taxesNo deduction shall be allowed for the following taxes:
(1) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed; but this paragraph shall not prevent the deduction of so much of such taxes as is properly allocable to maintenance or interest charges.
(2) Taxes on real property, to the extent that subsection (d) requires such taxes to be treated as imposed on another taxpayer.
(d) Apportionment of taxes on real property between seller and purchaser
(1) General ruleFor purposes of subsection (a), if real property is sold during any real property tax year, then—
(A) so much of the real property tax as is properly allocable to that part of such year which ends on the day before the date of the sale shall be treated as a tax imposed on the seller, and
(B) so much of such tax as is properly allocable to that part of such year which begins on the date of the sale shall be treated as a tax imposed on the purchaser.
(2) Special rules
(A) In the case of any sale of real property, if—
(i) a taxpayer may not, by reason of his method of accounting, deduct any amount for taxes unless paid, and
(ii) the other party to the sale is (under the law imposing the real property tax) liable for the real property tax for the real property tax year,
then for purposes of subsection (a) the taxpayer shall be treated as having paid, on the date of the sale, so much of such tax as, under paragraph (1) of this subsection, is treated as imposed on the taxpayer. For purposes of the preceding sentence, if neither party is liable for the tax, then the party holding the property at the time the tax becomes a lien on the property shall be considered liable for the real property tax for the real property tax year.
(B) In the case of any sale of real property, if the taxpayer’s taxable income for the taxable year during which the sale occurs is computed under an accrual method of accounting, and if no election under section 461(c) (relating to the accrual of real property taxes) applies, then, for purposes of subsection (a), that portion of such tax which—
(i) is treated, under paragraph (1) of this subsection, as imposed on the taxpayer, and
(ii) may not, by reason of the taxpayer’s method of accounting, be deducted by the taxpayer for any taxable year,
shall be treated as having accrued on the date of the sale.
(e) Taxes of shareholder paid by corporationWhere a corporation pays a tax imposed on a shareholder on his interest as a shareholder, and where the shareholder does not reimburse the corporation, then—
(1) the deduction allowed by subsection (a) shall be allowed to the corporation; and
(2) no deduction shall be allowed the shareholder for such tax.
(f) Deduction for one-half of self-employment taxes
(1) In general
(2) Deduction treated as attributable to trade or business
(g) Cross references
(1) For provisions disallowing any deduction for certain taxes, see section 275.
(2) For treatment of taxes imposed by Indian tribal governments (or their subdivisions), see section 7871.
(Aug. 16, 1954, ch. 736, 68A Stat. 47; Pub. L. 85–866, title I, § 6(a), Sept. 2, 1958, 72 Stat. 1608; Pub. L. 88–272, title II, § 207(a), (b)(1), (2), Feb. 26, 1964, 78 Stat. 40–42; Pub. L. 92–580, § 4(a), Oct. 27, 1972, 86 Stat. 1277; Pub. L. 94–455, title XIX, §§ 1901(a)(25), 1951(b)(3)(A), Oct. 4, 1976, 90 Stat. 1767, 1837; Pub. L. 95–600, title I, § 111(a), (b), Nov. 6, 1978, 92 Stat. 2777; Pub. L. 96–223, title I, § 101(b), Apr. 2, 1980, 94 Stat. 250; Pub. L. 97–473, title II, § 202(b)(3), Jan. 14, 1983, 96 Stat. 2609; Pub. L. 98–21, title I, § 124(c)(1), Apr. 20, 1983, 97 Stat. 90; Pub. L. 98–369, div. A, title IV, § 474(r)(29)(F), July 18, 1984, 98 Stat. 844; Pub. L. 99–499, title V, § 516(b)(2)(A), Oct. 17, 1986, 100 Stat. 1771; Pub. L. 99–514, title I, § 134, title XIV, § 1432(a)(1), (2), Oct. 22, 1986, 100 Stat. 2116, 2729; Pub. L. 100–418, title I, § 1941(b)(2)(A), Aug. 23, 1988, 102 Stat. 1323; Pub. L. 100–647, title I, § 1018(u)(11), Nov. 10, 1988, 102 Stat. 3590; Pub. L. 104–188, title I, § 1704(t)(79), Aug. 20, 1996, 110 Stat. 1891; Pub. L. 108–357, title V, § 501(a), Oct. 22, 2004, 118 Stat. 1520; Pub. L. 109–135, title IV, § 403(r)(1), Dec. 21, 2005, 119 Stat. 2628; Pub. L. 109–432, div. A, title I, § 103(a), Dec. 20, 2006, 120 Stat. 2934; Pub. L. 110–343, div. C, title II, § 201(a), Oct. 3, 2008, 122 Stat. 3864; Pub. L. 111–5, div. B, title I, § 1008(a), (b), Feb. 17, 2009, 123 Stat. 317; Pub. L. 111–148, title IX, § 9015(b)(2)(A), Mar. 23, 2010, 124 Stat. 871; Pub. L. 111–312, title VII, § 722(a), Dec. 17, 2010, 124 Stat. 3316; Pub. L. 112–240, title II, § 205(a), Jan. 2, 2013, 126 Stat. 2323; Pub. L. 113–295, div. A, title I, § 105(a), title II, §§ 209(c), 221(a)(12)(D), (26), (95)(B)(ii), Dec. 19, 2014, 128 Stat. 4013, 4028, 4038, 4040, 4051; Pub. L. 114–113, div. Q, title I, § 106(a), Dec. 18, 2015, 129 Stat. 3046; Pub. L. 115–97, title I, § 11042(a), Dec. 22, 2017, 131 Stat. 2085; Pub. L. 117–169, title I, §§ 13903(a)(1), 13904(b)(1), Aug. 16, 2022, 136 Stat. 2014, 2015.)

CITE AS: 26 USC 164

§ 165. Losses
(a) General rule
(b) Amount of deduction
(c) Limitation on losses of individuals
In the case of an individual, the deduction under subsection (a) shall be limited to—
(1) losses incurred in a trade or business;
(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and
(3) except as provided in subsection (h), losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft.
(d) Wagering losses
(e) Theft losses
(f) Capital losses
(g) Worthless securities
(1) General rule
(2) Security defined
For purposes of this subsection, the term “security” means—
(A) a share of stock in a corporation;
(B) a right to subscribe for, or to receive, a share of stock in a corporation; or
(C) a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or by a government or political subdivision thereof, with interest coupons or in registered form.
(3) Securities in affiliated corporation
For purposes of paragraph (1), any security in a corporation affiliated with a taxpayer which is a domestic corporation shall not be treated as a capital asset. For purposes of the preceding sentence, a corporation shall be treated as affiliated with the taxpayer only if—
(A) the taxpayer owns directly stock in such corporation meeting the requirements of section 1504(a)(2), and
(B) more than 90 percent of the aggregate of its gross receipts for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the corporation in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, and gains from sales or exchanges of stocks and securities.
In computing gross receipts for purposes of the preceding sentence, gross receipts from sales or exchanges of stocks and securities shall be taken into account only to the extent of gains therefrom.
(h) Treatment of casualty gains and losses
(1) Dollar limitation per casualty
(2) Net casualty loss allowed only to the extent it exceeds 10 percent of adjusted gross income
(A) In general
If the personal casualty losses for any taxable year exceed the personal casualty gains for such taxable year, such losses shall be allowed for the taxable year only to the extent of the sum of—
(i) the amount of the personal casualty gains for the taxable year, plus
(ii) so much of such excess as exceeds 10 percent of the adjusted gross income of the individual.
(B) Special rule where personal casualty gains exceed personal casualty losses
If the personal casualty gains for any taxable year exceed the personal casualty losses for such taxable year—
(i) all such gains shall be treated as gains from sales or exchanges of capital assets, and
(ii) all such losses shall be treated as losses from sales or exchanges of capital assets.
(3) Definitions of personal casualty gain and personal casualty loss
For purposes of this subsection—
(A) Personal casualty gain
(B) Personal casualty loss
(4) Special rules
(A) Personal casualty losses allowable in computing adjusted gross income to the extent of personal casualty gains
(B) Joint returns
(C) Determination of adjusted gross income in case of estates and trusts
(D) Coordination with estate tax
(E) Claim required to be filed in certain cases
(5) Limitation for taxable years 2018 through 2025
(A) In general
(B) Exception related to personal casualty gains
If a taxpayer has personal casualty gains for any taxable year to which subparagraph (A) applies—
(i) subparagraph (A) shall not apply to the portion of the personal casualty loss not attributable to a Federally declared disaster (as so defined) to the extent such loss does not exceed such gains, and
(ii) in applying paragraph (2) for purposes of subparagraph (A) to the portion of personal casualty loss which is so attributable to such a disaster, the amount of personal casualty gains taken into account under paragraph (2)(A) shall be reduced by the portion of such gains taken into account under clause (i).
(i) Disaster losses
(1) Election to take deduction for preceding year
(2) Year of loss
(3) Amount of loss
(4) Use of disaster loan appraisals to establish amount of loss
(5) Federally declared disasters
For purposes of this subsection—
(A) In general
(B) Disaster area
(j) Denial of deduction for losses on certain obligations not in registered form
(1) In general
(2) Definitions
For purposes of this subsection—
(A) Registration-required obligation
(B) Registered form
(3) Exceptions
The Secretary may, by regulations, provide that this subsection and section 1287 shall not apply with respect to obligations held by any person if—
(A) such person holds such obligations in connection with a trade or business outside the United States,
(B) such person holds such obligations as a broker dealer (registered under Federal or State law) for sale to customers in the ordinary course of his trade or business,
(C) such person complies with reporting requirements with respect to ownership, transfers, and payments as the Secretary may require, or
(D) such person promptly surrenders the obligation to the issuer for the issuance of a new obligation in registered form,
but only if such obligations are held under arrangements provided in regulations or otherwise which are designed to assure that such obligations are not delivered to any United States person other than a person described in subparagraph (A), (B), or (C).
(k) Treatment as disaster loss where taxpayer ordered to demolish or relocate residence in disaster area because of disaster
In the case of a taxpayer whose residence is located in an area which has been determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, if—
(1) not later than the 120th day after the date of such determination, the taxpayer is ordered, by the government of the State or any political subdivision thereof in which such residence is located, to demolish or relocate such residence, and
(2) the residence has been rendered unsafe for use as a residence by reason of the disaster,
any loss attributable to such disaster shall be treated as a loss which arises from a casualty and which is described in subsection (i).
(l) Treatment of certain losses in insolvent financial institutions
(1) In general
If—
(A) as of the close of the taxable year, it can reasonably be estimated that there is a loss on a qualified individual’s deposit in a qualified financial institution, and
(B) such loss is on account of the bankruptcy or insolvency of such institution,
then the taxpayer may elect to treat the amount so estimated as a loss described in subsection (c)(3) incurred during the taxable year.
(2) Qualified individual defined
For purposes of this subsection, the term “qualified individual” means any individual, except an individual—
(A) who owns at least 1 percent in value of the outstanding stock of the qualified financial institution,
(B) who is an officer of the qualified financial institution,
(C) who is a sibling (whether by the whole or half blood), spouse, aunt, uncle, nephew, niece, ancestor, or lineal descendant of an individual described in subparagraph (A) or (B), or
(D) who otherwise is a related person (as defined in section 267(b)) with respect to an individual described in subparagraph (A) or (B).
(3) Qualified financial institution
For purposes of this subsection, the term “qualified financial institution” means—
(A) any bank (as defined in section 581),
(B) any institution described in section 591,
(C) any credit union the deposits or accounts in which are insured under Federal or State law or are protected or guaranteed under State law, or
(D) any similar institution chartered and supervised under Federal or State law.
(4) Deposit
(5) Election to treat as ordinary loss
(A) In general
(B) Limitations
(i) Deposit may not be federally insured
(ii) Dollar limitation
(6) Election
Any election by the taxpayer under this subsection for any taxable year—
(A) shall apply to all losses for such taxable year of the taxpayer on deposits in the institution with respect to which such election was made, and
(B) may be revoked only with the consent of the Secretary.
(7) Coordination with section 166
(m) Cross references
(1) For special rule for banks with respect to worthless securities, see section 582.
(2) For disallowance of deduction for worthlessness of securities to which subsection (g)(2)(C) applies, if issued by a political party or similar organization, see section 271.
(3) For special rule for losses on stock in a small business investment company, see section 1242.
(4) For special rule for losses of a small business investment company, see section 1243.
(5) For special rule for losses on small business stock, see section 1244.
(Aug. 16, 1954, ch. 736, 68A Stat. 49; Pub. L. 85–866, title I, §§ 7, 57(c)(1), title II, § 202(a), Sept. 2, 1958, 72 Stat. 1608, 1646, 1676; Pub. L. 87–426, § 2(a), Mar. 31, 1962, 76 Stat. 51; Pub. L. 88–272, title II, §§ 208(a), 238, Feb. 26, 1964, 78 Stat. 43, 128; Pub. L. 88–348, § 3(a), June 30, 1964, 78 Stat. 237; Pub. L. 91–606, title III, § 301(h), Dec. 31, 1970, 84 Stat. 1759; Pub. L. 91–677, § 1(a), Jan. 12, 1971, 84 Stat. 2061; Pub. L. 91–687, § 1, Jan. 12, 1971, 84 Stat. 2071; Pub. L. 92–336, § 2(a), July 1, 1972, 86 Stat. 406; Pub. L. 92–418, § 2(a), Aug. 29, 1972, 86 Stat. 656, 657; Pub. L. 93–288, title VII, § 702(h), formerly title VI, § 602(h), May 22, 1974, 88 Stat. 164, renumbered title VII, § 702(h), Pub. L. 103–337, div. C, title XXXIV, § 3411(a)(1), (2), Oct. 5, 1994, 108 Stat. 3100; Pub. L. 94–455, title XIX, § 1901(a)(26), Oct. 4, 1976, 90 Stat. 1767; Pub. L. 97–248, title II, § 203(a), (b), title III, § 310(b)(5), Sept. 3, 1982, 96 Stat. 422, 598; Pub. L. 98–369, div. A, title I, § 42(a)(4), title VII, § 711(c)(1), (2)(A)(i), (ii), title X, § 1051(a), July 18, 1984, 98 Stat. 556, 943, 1044; Pub. L. 99–514, title IX, § 905(a), title X, § 1004(a), Oct. 22, 1986, 100 Stat. 2385, 2388; Pub. L. 100–647, title I, § 1009(d)(1), Nov. 10, 1988, 102 Stat. 3449; Pub. L. 100–707, title I, § 109(l), Nov. 23, 1988, 102 Stat. 4709; Pub. L. 105–34, title IX, § 912(a), Aug. 5, 1997, 111 Stat. 878; Pub. L. 106–554, § 1(a)(7) [title III, § 318(b)(1), (2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–645; Pub. L. 108–311, title IV, § 408(a)(7)(A), (B), Oct. 4, 2004, 118 Stat. 1191; Pub. L. 110–343, div. C, title VII, § 706(a)(1), (2)(A)–(C), (c), Oct. 3, 2008, 122 Stat. 3921–3923; Pub. L. 111–147, title V, § 502(a)(2)(D), Mar. 18, 2010, 124 Stat. 107; Pub. L. 113–295, div. A, title II, §§ 211(c)(1)(C), 221(a)(27)(A)–(C), Dec. 19, 2014, 128 Stat. 4033, 4040; Pub. L. 115–97, title I, §§ 11044(a), 11050(a), Dec. 22, 2017, 131 Stat. 2087, 2089.)

CITE AS: 26 USC 165

§ 166. Bad debts
(a) General rule
(1) Wholly worthless debts
(2) Partially worthless debts
(b) Amount of deduction
[(c) Repealed. Pub. L. 99–514, title VIII, § 805(a), Oct. 22, 1986, 100 Stat. 2361]
(d) Nonbusiness debts
(1) General rule
In the case of a taxpayer other than a corporation—
(A) subsection (a) shall not apply to any nonbusiness debt; and
(B) where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 1 year.
(2) Nonbusiness debt defined
For purposes of paragraph (1), the term “nonbusiness debt” means a debt other than—
(A) a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or
(B) a debt the loss from the worthlessness of which is incurred in the taxpayer’s trade or business.
(e) Worthless securities
(f) Cross references
(1) For disallowance of deduction for worthlessness of debts owed by political parties and similar organizations, see section 271.
(2) For special rule for banks with respect to worthless securities, see section 582.
(Aug. 16, 1954, ch. 736, 68A Stat. 50; Pub. L. 85–866, title I, § 8, Sept. 2, 1958, 72 Stat. 1608; Pub. L. 89–722, § 1(a), Nov. 2, 1966, 80 Stat. 1151; Pub. L. 91–172, title IV, § 431(c)(1), Dec. 30, 1969, 83 Stat. 619; Pub. L. 94–455, title VI, § 605(a), title XIV, § 1402(b)(1)(A), (2), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1575, 1731, 1732, 1834; Pub. L. 98–369, div. A, title X, § 1001(b)(1), (e), July 18, 1984, 98 Stat. 1011, 1012; Pub. L. 99–514, title VIII, § 805(a), (b), title IX, § 901(d)(4)(A), Oct. 22, 1986, 100 Stat. 2361, 2379; Pub. L. 100–647, title I, § 1008(d)(1), (2), Nov. 10, 1988, 102 Stat. 3439.)

CITE AS: 26 USC 166

§ 167. Depreciation
(a) General ruleThere shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence)—
(1) of property used in the trade or business, or
(2) of property held for the production of income.
(b) Cross reference
(c) Basis for depreciation
(1) In general
(2) Special rule for property subject to leaseIf any property is acquired subject to a lease—
(A) no portion of the adjusted basis shall be allocated to the leasehold interest, and
(B) the entire adjusted basis shall be taken into account in determining the depreciation deduction (if any) with respect to the property subject to the lease.
(d) Life tenants and beneficiaries of trusts and estates
(e) Certain term interests not depreciable
(1) In general
(2) Coordination with other provisions
(A) Section 273
(B) Section 305(e)
(3) Basis adjustmentsIf, but for this subsection, a depreciation or amortization deduction would be allowable to the taxpayer with respect to any term interest in property—
(A) the taxpayer’s basis in such property shall be reduced by any depreciation or amortization deductions disallowed under this subsection, and
(B) the basis of the remainder interest in such property shall be increased by the amount of such disallowed deductions (properly adjusted for any depreciation deductions allowable under subsection (d) to the taxpayer).
(4) Special rules
(A) Denial of increase in basis of remaindermanNo increase in the basis of the remainder interest shall be made under paragraph (3)(B) for any disallowed deductions attributable to periods during which the term interest was held—
(i) by an organization exempt from tax under this subtitle, or
(ii) by a nonresident alien individual or foreign corporation but only if income from the term interest is not effectively connected with the conduct of a trade or business in the United States.
(B) Coordination with subsection (d)
(5) DefinitionsFor purposes of this subsection—
(A) Term interest in property
(B) Related person
(6) Regulations
(f) Treatment of certain property excluded from section 197
(1) Computer software
(A) In general
(B) Computer software
(C) Tax-exempt use property subject to lease
(2) Certain interests or rights acquired separately
(3) Mortgage servicing rights
(g) Depreciation under income forecast method
(1) In generalIf the depreciation deduction allowable under this section to any taxpayer with respect to any property is determined under the income forecast method or any similar method—
(A) the income from the property to be taken into account in determining the depreciation deduction under such method shall be equal to the amount of income earned in connection with the property before the close of the 10th taxable year following the taxable year in which the property was placed in service,
(B) the adjusted basis of the property shall only include amounts with respect to which the requirements of section 461(h) are satisfied,
(C) the depreciation deduction under such method for the 10th taxable year beginning after the taxable year in which the property was placed in service shall be equal to the adjusted basis of such property as of the beginning of such 10th taxable year, and
(D) such taxpayer shall pay (or be entitled to receive) interest computed under the look-back method of paragraph (2) for any recomputation year.
(2) Look-back methodThe interest computed under the look-back method of this paragraph for any recomputation year shall be determined by—
(A) first determining the depreciation deductions under this section with respect to such property which would have been allowable for prior taxable years if the determination of the amounts so allowable had been made on the basis of the sum of the following (instead of the estimated income from such property)—
(i) the actual income earned in connection with such property for periods before the close of the recomputation year, and
(ii) an estimate of the future income to be earned in connection with such property for periods after the recomputation year and before the close of the 10th taxable year following the taxable year in which the property was placed in service,
(B) second, determining (solely for purposes of computing such interest) the overpayment or underpayment of tax for each such prior taxable year which would result solely from the application of subparagraph (A), and
(C) then using the adjusted overpayment rate (as defined in section 460(b)(7)), compounded daily, on the overpayment or underpayment determined under subparagraph (B).
For purposes of the preceding sentence, any cost incurred after the property is placed in service (which is not treated as a separate property under paragraph (5)) shall be taken into account by discounting (using the Federal mid-term rate determined under section 1274(d) as of the time such cost is incurred) such cost to its value as of the date the property is placed in service. The taxpayer may elect with respect to any property to have the preceding sentence not apply to such property.
(3) Exception from look-back method
(4) Recomputation year
(5) Special rules
(A) Certain costs treated as separate propertyFor purposes of this subsection, the following costs shall be treated as separate properties:
(i) Any costs incurred with respect to any property after the 10th taxable year beginning after the taxable year in which the property was placed in service.
(ii) Any costs incurred after the property is placed in service and before the close of such 10th taxable year if such costs are significant and give rise to a significant increase in the income from the property which was not included in the estimated income from the property.
(B) Syndication income from television seriesIn the case of property which is 1 or more episodes in a television series, income from syndicating such series shall not be required to be taken into account under this subsection before the earlier of—
(i) the 4th taxable year beginning after the date the first episode in such series is placed in service, or
(ii) the earliest taxable year in which the taxpayer has an arrangement relating to the future syndication of such series.
(C) Special rules for financial exploitation of characters, etc.
(D) Collection of interest
(E) Treatment of distribution costs
(F) Determinations
(G) Treatment of pass-thru entities
(6) Limitation on property for which income forecast method may be usedThe depreciation deduction allowable under this section may be determined under the income forecast method or any similar method only with respect to—
(A) property described in paragraph (3) or (4) of section 168(f),
(B) copyrights,
(C) books,
(D) patents, and
(E) other property specified in regulations.
Such methods may not be used with respect to any amortizable section 197 intangible (as defined in section 197(c)).
(7) Treatment of participations and residuals
(A) In general
(B) Participations and residuals
(C) Special rules relating to recomputation years
(D) Other special rules
(i) Participations and residuals
(ii) Coordination with other rules
(E) Authority to make adjustments
(8) Special rules for certain musical works and copyrights
(A) In generalIf an election is in effect under this paragraph for any taxable year, then, notwithstanding paragraph (1), any expense which—
(i) is paid or incurred by the taxpayer in creating or acquiring any applicable musical property placed in service during the taxable year, and
(ii) is otherwise properly chargeable to capital account,
shall be amortized ratably over the 5-year period beginning with the month in which the property was placed in service. The preceding sentence shall not apply to any expense which, without regard to this paragraph, would not be allowable as a deduction.
(B) Exclusive method
(C) Applicable musical propertyFor purposes of this paragraph—
(i) In general
(ii) ExceptionsSuch term shall not include any property—(I) with respect to which expenses are treated as qualified creative expenses to which section 263A(h) applies,(II) to which a simplified procedure established under section 263A(i)(2) 1
1 See References in Text note below.
applies, or(III) which is an amortizable section 197 intangible (as defined in section 197(c)).
(D) Election
(E) Termination
(h) Amortization of geological and geophysical expenditures
(1) In general
(2) Half-year convention
(3) Exclusive method
(4) Treatment upon abandonment
(5) Special rule for major integrated oil companies
(A) In general
(B) Major integrated oil companyFor purposes of this paragraph, the term “major integrated oil company” means, with respect to any taxable year, a producer of crude oil—
(i) which has an average daily worldwide production of crude oil of at least 500,000 barrels for the taxable year,
(ii) which had gross receipts in excess of $1,000,000,000 for its last taxable year ending during calendar year 2005, and
(iii) to which subsection (c) of section 613A does not apply by reason of paragraph (4) of section 613A(d), determined—(I) by substituting “15 percent” for “5 percent” each place it occurs in paragraph (3) of section 613A(d), and(II) without regard to whether subsection (c) of section 613A does not apply by reason of paragraph (2) of section 613A(d).
For purposes of clauses (i) and (ii), all persons treated as a single employer under subsections (a) and (b) of section 52 shall be treated as 1 person and, in case of a short taxable year, the rule under section 448(c)(3)(B) shall apply.
(i) Cross references
(1) For additional rule applicable to depreciation of improvements in the case of mines, oil and gas wells, other natural deposits, and timber, see section 611.
(2) For amortization of goodwill and certain other intangibles, see section 197.
(Aug. 16, 1954, ch. 736, 68A Stat. 51; Pub. L. 85–866, title I, § 89(b), Sept. 2, 1958, 72 Stat. 1665; Pub. L. 87–834, § 13(b), (c)(1), Oct. 16, 1962, 76 Stat. 1034; Pub. L. 89–800, § 2, Nov. 8, 1966, 80 Stat. 1513; Pub. L. 90–26, §§ 1, 2(b), June 13, 1967, 81 Stat. 57, 58; Pub. L. 91–172, title IV, § 441(a), title V, § 521(a), (d), Dec. 30, 1969, 83 Stat. 625, 649, 653; Pub. L. 92–178, title I, § 109(a), Dec. 10, 1971, 85 Stat. 508; Pub. L. 93–625, § 3(c), Jan. 3, 1975, 88 Stat. 2109; Pub. L. 94–455, title II, §§ 202(c)(3), 203(a), title XIX, §§ 1901(a)(27), 1906(b)(13)(A), title XXI, § 2124(c)(1), (d)(1), Oct. 4, 1976, 90 Stat. 1530, 1768, 1834, 1918; Pub. L. 95–171, § 4(a), Nov. 12, 1977, 91 Stat. 1355; Pub. L. 95–600, title III, §§ 312(c)(4), 367, title VII, § 701(f)(4), (6), Nov. 6, 1978, 92 Stat. 2826, 2857, 2901, 2902; Pub. L. 95–615, § 7(a), Nov. 8, 1978, 92 Stat. 3098; Pub. L. 95–618, title III, § 301(d)(3), (e)(1), Nov. 9, 1978, 92 Stat. 3200, 3201; Pub. L. 96–541, §§ 2(c), (d), 3, Dec. 17, 1980, 94 Stat. 3204, 3205; Pub. L. 96–613, § 2(a), Dec. 28, 1980, 94 Stat. 3579; Pub. L. 97–34, title II, §§ 203(a)–(c)(1), (d), 209(d)(3), 212(d)(1), 264(a), Aug. 13, 1981, 95 Stat. 221, 222, 227, 239, 264; Pub. L. 97–424, title V, § 541(a)(2), Jan. 6, 1983, 96 Stat. 2192; Pub. L. 98–369, div. A, title X, § 1064, July 18, 1984, 98 Stat. 1047; Pub. L. 99–514, title II, § 201(d)(1), title XV, § 1511(c)(4), title XVIII, § 1809(d)(1), Oct. 22, 1986, 100 Stat. 2139, 2745, 2821; Pub. L. 100–647, title I, § 1002(a)(22), (24), (31), (i)(1), Nov. 10, 1988, 102 Stat. 3356, 3357, 3370; Pub. L. 101–239, title VII, §§ 7622(b)(1) [(d)(1)], 7645(a), Dec. 19, 1989, 103 Stat. 2378, 2381; Pub. L. 101–508, title XI, § 11812(a), (b)(1), Nov. 5, 1990, 104 Stat. 1388–534; Pub. L. 103–66, title XIII, §§ 13206(c)(2), 13261(b), (f)(1), Aug. 10, 1993, 107 Stat. 466, 538, 539; Pub. L. 104–188, title I, § 1604(a), Aug. 20, 1996, 110 Stat. 1836; Pub. L. 105–34, title X, § 1086(a), Aug. 5, 1997, 111 Stat. 957; Pub. L. 108–357, title II, § 242(a), (b), title VIII, § 847(b)(1), (2), Oct. 22, 2004, 118 Stat. 1438, 1439, 1601; Pub. L. 109–58, title XIII, § 1329(a), Aug. 8, 2005, 119 Stat. 1020; Pub. L. 109–135, title IV, § 412(r), Dec. 21, 2005, 119 Stat. 2638; Pub. L. 109–222, title II, § 207(a), title V, § 503(a), May 17, 2006, 120 Stat. 350, 354; Pub. L. 110–140, title XV, § 1502(a), Dec. 19, 2007, 121 Stat. 1800; Pub. L. 110–172, § 11(a)(13), Dec. 29, 2007, 121 Stat. 2485.)

CITE AS: 26 USC 167

§ 168. Accelerated cost recovery system
(a) General ruleExcept as otherwise provided in this section, the depreciation deduction provided by section 167(a) for any tangible property shall be determined by using—
(1) the applicable depreciation method,
(2) the applicable recovery period, and
(3) the applicable convention.
(span) Applicable depreciation methodFor purposes of this section—
(1) In generalExcept as provided in paragraphs (2) and (3), the applicable depreciation method is—
(A) the 200 percent declining balance method,
(B) switching to the straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance.
(2) 150 percent declining balance method in certain casesParagraph (1) shall be applied by substituting “150 percent” for “200 percent” in the case of—
(A) any 15-year or 20-year property not referred to in paragraph (3),
(B) any property (other than property described in paragraph (3)) which is a qualified smart electric meter or qualified smart electric grid system, or
(C) any property (other than property described in paragraph (3)) with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply.
(3) Property to which straight line method appliesThe applicable depreciation method shall be the straight line method in the case of the following property:
(A) Nonresidential real property.
(B) Residential rental property.
(C) Any railroad grading or tunnel bore.
(D) Property with respect to which the taxpayer elects under paragraph (5) to have the provisions of this paragraph apply.
(E) Property described in subsection (e)(3)(D)(ii).
(F) Water utility property described in subsection (e)(5).
(G) Qualified improvement property described in subsection (e)(6).
(4) Salvage value treated as zero
(5) Election
(c) Applicable recovery period
(d) Applicable conventionFor purposes of this section—
(1) In general
(2) Real propertyIn the case of—
(A) nonresidential real property,
(B) residential rental property, and
(C) any railroad grading or tunnel bore,
the applicable convention is the mid-month convention.
(3) Special rule where substantial property placed in service during last 3 months of taxable year
(A) In generalExcept as provided in regulations, if during any taxable year—
(i) the aggregate bases of property to which this section applies placed in service during the last 3 months of the taxable year, exceed
(ii) 40 percent of the aggregate bases of property to which this section applies placed in service during such taxable year,
the applicable convention for all property to which this section applies placed in service during such taxable year shall be the mid-quarter convention.
(B) Certain property not taken into accountFor purposes of subparagraph (A), there shall not be taken into account—
(i) any nonresidential real property, residential rental property, and railroad grading or tunnel bore, and
(ii) any other property placed in service and disposed of during the same taxable year.
(4) Definitions
(A) Half-year convention
(B) Mid-month convention
(C) Mid-quarter convention
(e) Classification of propertyFor purposes of this section—
(1) In general
(2) Residential rental or nonresidential real property
(A) Residential rental property
(i) Residential rental property
(ii) DefinitionsFor purposes of clause (i)—(I) 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(II) 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.
(B) Nonresidential real propertyThe term “nonresidential real property” means section 1250 property which is not—
(i) residential rental property, or
(ii) property with a class life of less than 27.5 years.
(3) Classification of certain property
(A) 3-year propertyThe term “3-year property” includes—
(i) any race horse—(I) which is placed in service before January 1, 2022, and(II) which is placed in service after December 31, 2021, and which is more than 2 years old at the time such horse is placed in service by such purchaser,
(ii) any horse other than a race horse which is more than 12 years old at the time it is placed in service, and
(iii) any qualified rent-to-own property.
(B) 5-year propertyThe term “5-year property” includes—
(i) any automobile or light general purpose truck,
(ii) any semi-conductor manufacturing equipment,
(iii) any computer-based telephone central office switching equipment,
(iv) any qualified technological equipment,
(v) any section 1245 property used in connection with research and experimentation,
(vi) any property which—(I) is described in subparagraph (A) of section 48(a)(3) (or would be so described if “solar or wind energy” were substituted for “solar energy” in clause (i) thereof and the last sentence of such section did not apply to such subparagraph),(II) is described in paragraph (15) of section 48(l) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) and has a power production capacity of not greater than 80 megawatts, or(III) is 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), and
(vii) any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) which is used in a farming business (as defined in section 263A(e)(4)), the original use of which commences with the taxpayer after December 31, 2017.
Nothing in any provision of law shall be construed to treat property as not being described in subclause (I) or (II) of clause (vi) by reason of being public utility property.
(C) 7-year propertyThe term “7-year property” includes—
(i) any railroad track,
(ii) any motorsports entertainment complex,
(iii) any Alaska natural gas pipeline,
(iv) any natural gas gathering line the original use of which commences with the taxpayer after April 11, 2005, and
(v) any property which—(I) does not have a class life, and(II) is not otherwise classified under paragraph (2) or this paragraph.
(D) 10-year propertyThe term “10-year property” includes—
(i) any single purpose agricultural or horticultural structure (within the meaning of subsection (i)(13)),
(ii) any tree or vine bearing fruit or nuts,
(iii) any qualified smart electric meter, and
(iv) any qualified smart electric grid system.
(E) 15-year propertyThe term “15-year property” includes—
(i) any municipal wastewater treatment plant,
(ii) any telephone distribution plant and comparable equipment used for 2-way exchange of voice and data communications,
(iii) any section 1250 property which is a retail motor fuels outlet (whether or not food or other convenience items are sold at the outlet),
(iv) initial clearing and grading land improvements with respect to gas utility property,
(v) any section 1245 property (as defined in section 1245(a)(3)) used in the transmission at 69 or more kilovolts of electricity for sale and the original use of which commences with the taxpayer after April 11, 2005,
(vi) any natural gas distribution line the original use of which commences with the taxpayer after April 11, 2005, and which is placed in service before January 1, 2011, and
(vii) any qualified improvement property.
(F) 20-year property
(4) Railroad grading or tunnel bore
(5) Water utility propertyThe term “water utility property” means property—
(A) which is an integral part of the gathering, treatment, or commercial distribution of water, and which, without regard to this paragraph, would be 20-year property, and
(B) any municipal sewer.
(6) Qualified improvement property
(A) In general
(B) Certain improvements not includedSuch term shall not include any improvement for which the expenditure is attributable to—
(i) the enlargement of the building,
(ii) any elevator or escalator, or
(iii) the internal structural framework of the building.
(f) Property to which section does not applyThis section shall not apply to—
(1) Certain methods of depreciationAny property if—
(A) the taxpayer elects to exclude such property from the application of this section, and
(B) for the 1st taxable year for which a depreciation deduction would be allowable with respect to such property in the hands of the taxpayer, the property is properly depreciated under the unit-of-production method or any method of depreciation not expressed in a term of years (other than the retirement-replacement-betterment method or similar method).
(2) Certain public utility property
(3) Films and video tape
(4) Sound recordings
(5) Certain property placed in service in churning transactions
(A) In generalProperty—
(i) described in paragraph (4) of section 168(e) (as in effect before the amendments made by the Tax Reform Act of 1986), or
(ii) which would be described in such paragraph if such paragraph were applied by substituting “1987” for “1981” and “1986” for “1980” each place such terms appear.
(B) Subparagraph (A)(ii) not to applyClause (ii) of subparagraph (A) shall not apply to—
(i) any residential rental property or nonresidential real property,
(ii) any property if, for the 1st taxable year in which such property is placed in service—(I) the amount allowable as a deduction under this section (as in effect before the date of the enactment of this paragraph) with respect to such property is greater than,(II) the amount allowable as a deduction under this section (as in effect on or after such date and using the half-year convention) for such taxable year, or
(iii) any property to which this section (as amended by the Tax Reform Act of 1986) applied in the hands of the trans­feror.
(C) Special rule
(g) Alternative depreciation system for certain property
(1) In generalIn the case of—
(A) any tangible property which during the taxable year is used predominantly outside the United States,
(B) any tax-exempt use property,
(C) any tax-exempt bond financed property,
(D) any imported property covered by an Executive order under paragraph (6),
(E) any property to which an election under paragraph (7) applies,
(F) any property described in paragraph (8), and
(G) any property with a recovery period of 10 years or more which is held by an electing farming business (as defined in section 163(j)(7)(C)),
the depreciation deduction provided by section 167(a) shall be determined under the alternative depreciation system.
(2) Alternative depreciation systemFor purposes of paragraph (1), the alternative depreciation system is depreciation determined by using—
(A) the straight line method (without regard to salvage value),
(B) the applicable convention determined under subsection (d), and
(C) a recovery period determined under the following table:

    In the case of:

The recovery

period

shall be:

(i) Property not described in clause (ii) or (iii)

The class life.

(ii) Personal property with no class life

(3) Special rules for determining class life
(A) Tax-exempt use property subject to lease
(B) Special rule for certain property assigned to classes
(C) Qualified technological equipment
(D) Automobiles, etc.
(E) Certain real property
(4) Exception for certain property used outside United StatesSubparagraph (A) of paragraph (1) shall not apply to—
(A) 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;
(B) rolling stock which is used within and without the United States and which is—
(i) of a rail carrier subject to part A of subtitle IV of title 49, or
(ii) of a United States person (other than a corporation described in clause (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;
(C) any vessel documented under the laws of the United States which is operated in the foreign or domestic commerce of the United States;
(D) any motor vehicle of a United States person (as defined in section 7701(a)(30)) which is operated to and from the United States;
(E) any container of a United States person which is used in the transportation of property to and from the United States;
(F) 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));
(G) 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;
(H) 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;
(I) any cable, or any interest therein, of a domestic corporation engaged in furnishing telephone service to which section 168(i)(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;
(J) 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;
(K) 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
(L) any satellite (not described in subparagraph (H)) 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 (J), 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.
(5) Tax-exempt bond financed propertyFor purposes of this subsection—
(A) In general
(B) Allocation of bond proceeds
(C) Qualified residential rental projects
(6) Imported property
(A) Countries maintaining trade restrictions or engaging in discriminatory actsIf the President determines that a foreign country—
(i) maintains nontariff trade restrictions, including variable import fees, which substantially burden United States commerce in a manner inconsistent with provisions of trade agreements, or
(ii) engages in discriminatory or other acts (including tolerance of international cartels) or policies unjustifiably restricting United States commerce,
the President may by Executive order provide for the application of paragraph (1)(D) to any article or class of articles manufactured or produced in such foreign country for such period as may be provided by such Executive order. Any period specified in the preceding sentence shall not apply to any property ordered before (or the construction, reconstruction, or erection of which began before) the date of the Executive order unless the President determines an earlier date to be in the public interest and specifies such date in the Executive order.
(B) Imported propertyFor purposes of this subsection, the term “imported property” means any property if—
(i) such property was completed outside the United States, or
(ii) less than 50 percent of the basis of such property is attributable to value added within the United States.
For purposes of this subparagraph, the term “United States” includes the Commonwealth of Puerto Rico and the possessions of the United States.
(7) Election to use alternative depreciation system
(A) In general
(B) Election irrevocable
(8) Electing real property trade or business
(h) Tax-exempt use property
(1) In generalFor purposes of this section—
(A) Property other than nonresidential real property
(B) Nonresidential real property
(i) In general
(ii) Disqualified leaseFor purposes of this subparagraph, the term “disqualified lease” means any lease of the property to a tax-exempt entity, but only if—(I) part or all of the property was financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103(a) and such entity (or a related entity) participated in such financing,(II) under such lease there is a fixed or determinable price purchase or sale option which involves such entity (or a related entity) or there is the equivalent of such an option,(III) such lease has a lease term in excess of 20 years, or(IV) such lease occurs after a sale (or other transfer) of the property by, or lease of the property from, such entity (or a related entity) and such property has been used by such entity (or a related entity) before such sale (or other transfer) or lease.
(iii) 35-percent threshold test
(iv) Treatment of improvements
(v) Leasebacks during 1st 3 months of use not taken into account
(C) Exception for short-term leases
(i) In general
(ii) Short-term leaseFor purposes of clause (i), the term “short-term lease” means any lease the term of which is—(I) less than 3 years, and(II) less than the greater of 1 year or 30 percent of the property’s present class life.
 In the case of nonresidential real property and property with no present class life, subclause (II) shall not apply.
(D) Exception where property used in unrelated trade or business
(E) Nonresidential real property defined
(2) Tax-exempt entity
(A) In generalFor purposes of this subsection, the term “tax-exempt entity” means—
(i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing,
(ii) an organization (other than a cooperative described in section 521) which is exempt from tax imposed by this chapter,
(iii) any foreign person or entity, and
(iv) any Indian tribal government described in section 7701(a)(40).
For purposes of applying this subsection, any Indian tribal government referred to in clause (iv) shall be treated in the same manner as a State.
(B) Exception for certain property subject to United States tax and used by foreign person or entityClause (iii) of subparagraph (A) shall not apply with respect to any property if more than 50 percent of the gross income for the taxable year derived by the foreign person or entity from the use of such property is—
(i) subject to tax under this chapter, or
(ii) included under section 951 in the gross income of a United States shareholder for the taxable year with or within which ends the taxable year of the controlled foreign corporation in which such income was derived.
For purposes of the preceding sentence, any exclusion or exemption shall not apply for purposes of determining the amount of the gross income so derived, but shall apply for purposes of determining the portion of such gross income subject to tax under this chapter.
(C) Foreign person or entityFor purposes of this paragraph, the term “foreign person or entity” means—
(i) any foreign government, any international organization, or any agency or instrumentality of any of the foregoing, and
(ii) any person who is not a United States person.
Such term does not include any foreign partnership or other foreign pass-thru entity.
(D) Treatment of certain taxable instrumentalitiesFor purposes of this subsection, a corporation shall not be treated as an instrumentality of the United States or of any State or political subdivision thereof if—
(i) all of the activities of such corporation are subject to tax under this chapter, and
(ii) a majority of the board of directors of such corporation is not selected by the United States or any State or political subdivision thereof.
(E) Certain previously tax-exempt organizations
(i) In general
(ii) Election not to have clause (i) apply(I) In general(II) Tax-exempt use period(III) Election
(iii) Treatment of successor organizations
(iv) First usedFor purposes of this subparagraph, property shall be treated as first used by the organization—(I) when the property is first placed in service under a lease to such organization, or(II) in the case of property leased to (or held by) a partnership (or other pass-thru entity) in which the organization is a member, the later of when such property is first used by such partnership or pass-thru entity or when such organization is first a member of such partnership or pass-thru entity.
(3) Special rules for certain high technology equipment
(A) Exemption where lease term is 5 years or less
(B) Exception for certain property
(i) In generalFor purposes of subparagraph (A), the term “qualified technological equipment” shall not include any property leased to a tax-exempt entity if—(I) part or all of the property was financed (directly or indirectly) by an obligation the interest on which is exempt from tax under section 103(a),(II) such lease occurs after a sale (or other transfer) of the property by, or lease of such property from, such entity (or related entity) and such property has been used by such entity (or a related entity) before such sale (or other transfer) or lease, or(III) such tax-exempt entity is the United States or any agency or instrumentality of the United States.
(ii) Leasebacks during 1st 3 months of use not taken into account
(4) Related entitiesFor purposes of this subsection—
(A)
(i) Each governmental unit and each agency or instrumentality of a governmental unit is related to each other such unit, agency, or instrumentality which directly or indirectly derives its powers, rights, and duties in whole or in part from the same sovereign authority.
(ii) For purposes of clause (i), the United States, each State, and each possession of the United States shall be treated as a separate sovereign authority.
(B) Any entity not described in subparagraph (A)(i) is related to any other entity if the 2 entities have—
(i) significant common purposes and substantial common membership, or
(ii) directly or indirectly substantial common direction or control.
(C)
(i) An entity is related to another entity if either entity owns (directly or through 1 or more entities) a 50 percent or greater interest in the capital or profits of the other entity.
(ii) For purposes of clause (i), entities treated as related under subparagraph (A) or (B) shall be treated as 1 entity.
(D) An entity is related to another entity with respect to a transaction if such transaction is part of an attempt by such entities to avoid the application of this subsection.
(5) Tax-exempt use of property leased to partnerships, etc., determined at partner levelFor purposes of this subsection—
(A) In general
(B) Other pass-thru entities; tiered entities
(C) Presumption with respect to foreign entities
(6) Treatment of property owned by partnerships, etc.
(A) In generalFor purposes of this subsection, if—
(i) any property which (but for this subparagraph) is not tax-exempt use property is owned by a partnership which has both a tax-exempt entity and a person who is not a tax-exempt entity as partners, and
(ii) any allocation to the tax-exempt entity of partnership items is not a qualified allocation,
an amount equal to such tax-exempt entity’s proportionate share of such property shall (except as provided in paragraph (1)(D)) be treated as tax-exempt use property.
(B) Qualified allocationFor purposes of subparagraph (A), the term “qualified allocation” means any allocation to a tax-exempt entity which—
(i) is consistent with such entity’s being allocated the same distributive share of each item of income, gain, loss, deduction, credit, and basis and such share remains the same during the entire period the entity is a partner in the partnership, and
(ii) has substantial economic effect within the meaning of section 704(span)(2).
For purposes of this subparagraph, items allocated under section 704(c) shall not be taken into account.
(C) Determination of proportionate share
(i) In general
(ii) Determination where allocations vary
(D) Determination of whether property used in unrelated trade or business
(E) Other pass-thru entities; tiered entities
(F) Treatment of certain taxable entities
(i) In general
(ii) ElectionIf a tax-exempt controlled entity makes an election under this clause—(I) such entity shall not be treated as a tax-exempt entity for purposes of this paragraph and paragraph (5), and(II) any gain recognized by a tax-exempt entity on any disposition of an interest in such entity (and any dividend or interest received or accrued by a tax-exempt entity from such tax-exempt controlled entity) shall be treated as unrelated business taxable income for purposes of section 511.
 Any such election shall be irrevocable and shall bind all tax-exempt entities holding interests in such tax-exempt controlled entity. For purposes of subclause (II), there shall only be taken into account dividends which are properly allocable to income of the tax-exempt controlled entity which was not subject to tax under this chapter.
(iii) Tax-exempt controlled entity(I) In general(II) Only 5-percent shareholders taken into account in case of publicly traded stock(III) Section 318 to apply
(G) RegulationsFor purposes of determining whether there is a qualified allocation under subparagraph (B), the regulations prescribed under paragraph (8) for purposes of this paragraph—
(i) shall set forth the proper treatment for partnership guaranteed payments, and
(ii) may provide for the exclusion or segregation of items.
(7) Lease
(8) Regulations
(i) Definitions and special rulesFor purposes of this section—
(1) Class life
(2) Qualified technological equipment
(A) In generalThe term “qualified technological equipment” means—
(i) any computer or peripheral equipment,
(ii) any high technology telephone station equipment installed on the customer’s premises, and
(iii) any high technology medical equipment.
(B) Computer or peripheral equipment definedFor purposes of this paragraph—
(i) In generalThe term “computer or peripheral equipment” means—(I) any computer, and(II) any related peripheral equipment.
(ii) ComputerThe term “computer” means a programmable electronically activated device which—(I) is capable of accepting information, applying prescribed processes to the information, and supplying the results of these processes with or without human intervention, and(II) consists of a central processing unit containing extensive storage, logic, arithmetic, and control capabilities.
(iii) Related peripheral equipment
(iv) ExceptionsThe term “computer or peripheral equipment” shall not include—(I) any equipment which is an integral part of other property which is not a computer,(II) typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment, and(III) equipment of a kind used primarily for amusement or entertainment of the user.
(C) High technology medical equipment
(3) Lease term
(A) In generalIn determining a lease term—
(i) there shall be taken into account options to renew,
(ii) the term of a lease shall include the term of any service contract or similar arrangement (whether or not treated as a lease under section 7701(e))—(I) which is part of the same transaction (or series of related transactions) which includes the lease, and(II) which is with respect to the property subject to the lease or substantially similar property, and
(iii) 2 or more successive leases which are part of the same transaction (or a series of related transactions) with respect to the same or substantially similar property shall be treated as 1 lease.
(B) Special rule for fair rental options on nonresidential real property or residential rental property
(4) General asset accounts
(5) Changes in use
(6) Treatments of additions or improvements to propertyIn the case of any addition to (or improvement of) any property—
(A) any deduction under subsection (a) for such addition or improvement shall be computed in the same manner as the deduction for such property would be computed if such property had been placed in service at the same time as such addition or improvement, and
(B) the applicable recovery period for such addition or improvement shall begin on the later of—
(i) the date on which such addition (or improvement) is placed in service, or
(ii) the date on which the property with respect to which such addition (or improvement) was made is placed in service.
(7) Treatment of certain transferees
(A) In general
(B) Transactions coveredThe transactions described in this subparagraph are—
(i) any transaction described in section 332, 351, 361, 721, or 731, and
(ii) any transaction between members of the same affiliated group during any taxable year for which a consolidated return is made by such group.
(C) Property reacquired by the taxpayer
(8) Treatment of leasehold improvements
(A) In general
(B) Treatment of lessor improvements which are abandoned at termination of leaseAn improvement—
(i) which is made by the lessor of leased property for the lessee of such property, and
(ii) which is irrevocably disposed of or abandoned by the lessor at the termination of the lease by such lessee,
shall be treated for purposes of determining gain or loss under this title as disposed of by the lessor when so disposed of or abandoned.
(C) Cross reference
(9) Normalization rules
(A) In generalIn order to use a normalization method of accounting with respect to any public utility property for purposes of subsection (f)(2)—
(i) the taxpayer must, in computing its tax expense for purposes of establishing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account, use a method of depreciation with respect to such property that is the same as, and a depreciation period for such property that is no shorter than, the method and period used to compute its depreciation expense for such purposes; and
(ii) if the amount allowable as a deduction under this section with respect to such property (respecting all elections made by the taxpayer under this section) differs from the amount that would be allowable as a deduction under section 167 using the method (including the period, first and last year convention, and salvage value) used to compute regulated tax expense under clause (i), the taxpayer must make adjustments to a reserve to reflect the deferral of taxes resulting from such difference.
(B) Use of inconsistent estimates and projections, etc.
(i) In general
(ii) Use of inconsistent estimates and projections
(iii) Regulatory authority
(C) Public utility property which does not meet normalization rules
(10) Public utility propertyThe term “public utility property” means property used predominantly in the trade or business of the furnishing or sale of—
(A) electrical energy, water, or sewage disposal services,
(B) gas or steam through a local distribution system,
(C) telephone services, or other communication services if furnished or sold by the Communications Satellite Corporation for purposes authorized by the Communications Satellite Act of 1962 (47 U.S.C. 701), or
(D) transportation of gas or steam by pipeline,
if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof.
(11) Research and experimentation
(12) Section 1245 and 1250 property
(13) Single purpose agricultural or horticultural structure
(A) In generalThe term “single purpose agricultural or horticultural structure” means—
(i) a single purpose livestock structure, and
(ii) a single purpose horticultural structure.
(B) DefinitionsFor purposes of this paragraph—
(i) Single purpose livestock structureThe term “single purpose livestock structure” means any enclosure or structure specifically designed, constructed, and used—(I) for housing, raising, and feeding a particular type of livestock and their produce, and(II) for housing the equipment (including any replacements) necessary for the housing, raising, and feeding referred to in subclause (I).
(ii) Single purpose horticultural structureThe term “single purpose horticultural structure” means—(I) a greenhouse specifically designed, constructed, and used for the commercial production of plants, and(II) a structure specifically designed, constructed, and used for the commercial production of mushrooms.
(iii) Structures which include work spaceAn 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—(I) the stocking, caring for, or collecting of livestock or plants (as the case may be) or their produce,(II) the maintenance of the enclosure or structure, and(III) the maintenance or replacement of the equipment or stock enclosed or housed therein.
(iv) Livestock
(14) Qualified rent-to-own property
(A) In general
(B) Rent-to-own dealer
(C) Consumer property
(D) Rent-to-own contractThe 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—
(i) is titled “Rent-to-Own Agreement” or “Lease Agreement with Ownership Option,” or uses other similar language,
(ii) 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),
(iii) 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,
(iv) 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),
(v) 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,
(vi) provides for payments under the contract that, in the aggregate, do not exceed $10,000 per item of consumer property,
(vii) 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
(viii) 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.
(15) Motorsports entertainment complex
(A) In generalThe term “motorsports entertainment complex” means a racing track facility which—
(i) is permanently situated on land, and
(ii) during the 36-month period following the first day of the month in which the asset is placed in service, hosts 1 or more racing events for automobiles (of any type), trucks, or motorcycles which are open to the public for the price of admission.
(B) Ancillary and support facilitiesSuch term shall include, if owned by the taxpayer who owns the complex and provided for the benefit of patrons of the complex—
(i) ancillary facilities and land improvements in support of the complex’s activities (including parking lots, sidewalks, waterways, bridges, fences, and landscaping),
(ii) support facilities (including food and beverage retailing, souvenir vending, and other nonlodging accommodations), and
(iii) appurtenances associated with such facilities and related attractions and amusements (including ticket booths, race track surfaces, suites and hospitality facilities, grandstands and viewing structures, props, walls, facilities that support the delivery of entertainment services, other special purpose structures, facades, shop interiors, and buildings).
(C) Exception
(D) Termination
(16) Alaska natural gas pipelineThe term “Alaska natural gas pipeline” means the natural gas pipeline system located in the State of Alaska which—
(A) has a capacity of more than 500,000,000,000 Btu of natural gas per day, and
(B) is—
(i) placed in service after December 31, 2013, or
(ii) treated as placed in service on January 1, 2014, if the taxpayer who places such system in service before January 1, 2014, elects such treatment.
Such term includes the pipe, trunk lines, related equipment, and appurtenances used to carry natural gas, but does not include any gas processing plant.
(17) Natural gas gathering lineThe term “natural gas gathering line” means—
(A) the pipe, equipment, and appurtenances determined to be a gathering line by the Federal Energy Regulatory Commission, and
(B) 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—
(i) a gas processing plant,
(ii) an interconnection with a transmission pipeline for which a certificate as an interstate transmission pipeline has been issued by the Federal Energy Regulatory Commission,
(iii) an interconnection with an intrastate transmission pipeline, or
(iv) a direct interconnection with a local distribution company, a gas storage facility, or an industrial consumer.
(18) Qualified smart electric meters
(A) In generalThe term “qualified smart electric meter” means any smart electric meter which—
(i) is placed in service by a taxpayer who is a supplier of electric energy or a provider of electric energy services, and
(ii) does not have a class life (determined without regard to subsection (e)) of less than 16 years.
(B) Smart electric meterFor 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—
(i) measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day,
(ii) 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,
(iii) provides data to such supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and
(iv) provides net metering.
(19) Qualified smart electric grid systems
(A) In generalThe term “qualified smart electric grid system” means any smart grid property which—
(i) 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
(ii) does not have a class life (determined without regard to subsection (e)) of less than 16 years.
(B) Smart grid propertyFor the purposes of subparagraph (A), the term “smart grid property” means electronics and related equipment that is capable of—
(i) sensing, collecting, and monitoring data of or from all portions of a utility’s electric distribution grid,
(ii) providing real-time, two-way communications to monitor or manage such grid, and
(iii) 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.
(j) Property on Indian reservations
(1) In general
(2) Applicable recovery period for Indian reservation property
(3) Deduction allowed in computing minimum tax
(4) Qualified Indian reservation property definedFor purposes of this subsection—
(A) In generalThe term “qualified Indian reservation property” means property which is property described in the table in paragraph (2) and which is—
(i) used by the taxpayer predominantly in the active conduct of a trade or business within an Indian reservation,
(ii) not used or located outside the Indian reservation on a regular basis,
(iii) not acquired (directly or indirectly) by the taxpayer from a person who is related to the taxpayer (within the meaning of section 465(span)(3)(C)), and
(iv) not property (or any portion thereof) placed in service for purposes of conducting or housing class I, II, or III gaming (as defined in section 4 of the Indian Regulatory Act (25 U.S.C. 2703)).
(B) Exception for alternative depreciation propertyThe term “qualified Indian reservation property” does not include any property to which the alternative depreciation system under subsection (g) applies, determined—
(i) without regard to subsection (g)(7) (relating to election to use alternative depreciation system), and
(ii) after the application of section 280F(span) (relating to listed property with limited business use).
(C) Special rule for reservation infrastructure investment
(i) In general
(ii) Qualified infrastructure propertyFor purposes of this subparagraph, the term “qualified infrastructure property” means qualified Indian reservation property (determined without regard to subparagraph (A)(ii)) which—(I) benefits the tribal infrastructure,(II) is available to the general public, and(III) is placed in service in connection with the taxpayer’s active conduct of a trade or business within an Indian reservation.
 Such term includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities.
(5) Real estate rentals
(6) Indian reservation definedFor purposes of this subsection, the term “Indian reservation” means a reservation, as defined in—
(A) section 3(d) of the Indian Financing Act of 1974 (25 U.S.C. 1452(d)), or
(B) 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 the date of the enactment of this sentence).
(7) Coordination with nonrevenue laws
(8) Election out
(9) Termination
(k) Special allowance for certain property
(1) Additional allowanceIn 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 the applicable percentage 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 propertyFor purposes of this subsection—
(A) In generalThe 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 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,(III) which is water utility property, or 2
2 So in original. The word “or” probably should not appear.
(IV) which is a qualified film or television production (as defined in subsection (d) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection, or(V) which is a qualified live theatrical production (as defined in subsection (e) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection,
(ii) the original use of which begins with the taxpayer or the acquisition of which by the taxpayer meets the requirements of clause (ii) of subparagraph (E), and
(iii) which is placed in service by the taxpayer before January 1, 2027.
(B) Certain property having longer production periods treated as qualified property
(i) In generalThe term “qualified property” includes any property if such property—(I) meets the requirements of clauses (i) and (ii) of subparagraph (A),(II) is placed in service by the taxpayer before January 1, 2028,(III) is acquired by the taxpayer (or acquired pursuant to a written binding contract entered into) before January 1, 2027,(IV) has a recovery period of at least 10 years or is transportation property,(V) is subject to section 263A, and(VI) meets the requirements of clause (iii) of section 263A(f)(1)(B) (determined as if such clause also applies to property which has a long useful life (within the meaning of section 263A(f))).
(ii) Only pre-January 1, 2027 basis eligible for additional allowance
(iii) Transportation property
(iv) Application of subparagraph
(C) Certain aircraftThe term “qualified property” includes property—
(i) which meets the requirements of subparagraph (A)(ii) and subclauses (II) and (III) of subparagraph (B)(i),
(ii) which is an aircraft which is not a transportation property (as defined in subparagraph (B)(iii)) other than for agricultural or firefighting purposes,
(iii) which is purchased and on which such purchaser, at the time of the contract for purchase, has made a nonrefundable deposit of the lesser of—(I) 10 percent of the cost, or(II) $100,000, and
(iv) which has—(I) an estimated production period exceeding 4 months, and(II) a cost exceeding $200,000.
(D) Exception for alternative depreciation propertyThe 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(span) (relating to listed property with limited business use).
(E) Special rules
(i) Self-constructed property
(ii) Acquisition requirementsAn acquisition of property meets the requirements of this clause if—(I) such property was not used by the taxpayer at any time prior to such acquisition, and(II) the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of section 179(d).
(iii) SyndicationFor purposes of subparagraph (A)(ii), if—(I) property is used by a lessor of such property and such use is the lessor’s first use of such property,(II) such property is sold by such lessor or any subsequent purchaser within 3 months after the date such property was originally placed in service (or, in the case of multiple units of property subject to the same lease, within 3 months after the date the final unit is placed in service, so long as the period between the time the first unit is placed in service and the time the last unit is placed in service does not exceed 12 months), and(III) the user of such property after the last sale during such 3-month period remains the same as when such property was originally placed in service,
 such property shall be treated as originally placed in service not earlier than the date of such last sale.
(F) Coordination with section 280FFor purposes of section 280F—
(i) Automobiles
(ii) Listed property
(iii) Phase downIn the case of a passenger automobile acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017, clause (i) shall be applied by substituting for “$8,000”—(I) in the case of an automobile placed in service during 2018, $6,400, and(II) in the case of an automobile placed in service during 2019, $4,800.
(G) Deduction allowed in computing minimum tax
(H) Production placed in serviceFor purposes of subparagraph (A)—
(i) a qualified film or television production shall be considered to be placed in service at the time of initial release or broadcast, and
(ii) a qualified live theatrical production shall be considered to be placed in service at the time of the initial live staged performance.
[(3) Repealed. Puspan. L. 115–97, title I, § 13204(a)(4)(B)(ii), Dec. 22, 2017, 131 Stat. 2111]
[(4) Repealed. Puspan. L. 115–97, title I, § 12001(span)(13), Dec. 22, 2017, 131 Stat. 2094]
(5) Special rules for certain plants bearing fruits and nuts
(A) In generalIn the case of any specified plant which is planted before January 1, 2027, or is grafted before such date to a plant that has already been planted, by the taxpayer in the ordinary course of the taxpayer’s farming business (as defined in section 263A(e)(4)) during a taxable year for which the taxpayer has elected the application of this paragraph—
(i) a depreciation deduction equal to the applicable percentage of the adjusted basis of such specified plant shall be allowed under section 167(a) for the taxable year in which such specified plant is so planted or grafted, and
(ii) the adjusted basis of such specified plant shall be reduced by the amount of such deduction.
(B) Specified plantFor purposes of this paragraph, the term “specified plant” means—
(i) any tree or vine which bears fruits or nuts, and
(ii) any other plant which will have more than one crop or yield of fruits or nuts and which generally has a pre-productive period of more than 2 years from the time of planting or grafting to the time at which such plant begins bearing a marketable crop or yield of fruits or nuts.
Such term shall not include any property which is planted or grafted outside of the United States.
(C) Election revocable only with consent
(D) Additional depreciation may be claimed only once
(E) Deduction allowed in computing minimum tax
(6) Applicable percentageFor purposes of this subsection—
(A) In generalExcept as otherwise provided in this paragraph, the term “applicable percentage” means—
(i) in the case of property placed in service after September 27, 2017, and before January 1, 2023, 100 percent,
(ii) in the case of property placed in service after December 31, 2022, and before January 1, 2024, 80 percent,
(iii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 60 percent,
(iv) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 40 percent, and
(v) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 20 percent.
(B) Rule for property with longer production periodsIn the case of property described in subparagraph (B) or (C) of paragraph (2), the term “applicable percentage” means—
(i) in the case of property placed in service after September 27, 2017, and before January 1, 2024, 100 percent,
(ii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 80 percent,
(iii) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 60 percent,
(iv) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 40 percent, and
(v) in the case of property placed in service after December 31, 2026, and before January 1, 2028, 20 percent.
(C) Rule for plants bearing fruits and nutsIn the case of a specified plant described in paragraph (5), the term “applicable percentage” means—
(i) in the case of a plant which is planted or grafted after September 27, 2017, and before January 1, 2023, 100 percent,
(ii) in the case of a plant which is planted or grafted after December 31, 2022, and before January 1, 2024, 80 percent,
(iii) in the case of a plant which is planted or grafted after December 31, 2023, and before January 1, 2025, 60 percent,
(iv) in the case of a plant which is planted or grafted after December 31, 2024, and before January 1, 2026, 40 percent, and
(v) in the case of a plant which is planted or grafted after December 31, 2025, and before January 1, 2027, 20 percent.
(7) Election out
(8) Phase downIn the case of qualified property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017, paragraph (6) shall be applied by substituting for each percentage therein—
(A) “50 percent” in the case of—
(i) property placed in service before January 1, 2018, and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2018,
(B) “40 percent” in the case of—
(i) property placed in service in 2018 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2019,
(C) “30 percent” in the case of—
(i) property placed in service in 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2020, and
(D) “0 percent” in the case of—
(i) property placed in service after 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and
(ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service after 2020.
(9) Exception for certain propertyThe term “qualified property” shall not include—
(A) any property which is primarily used in a trade or business described in clause (iv) of section 163(j)(7)(A), or
(B) any property used in a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section.
(10) Special rule for property placed in service during certain periods
(A) In general
(B) Form of election
(l) Special allowance for second generation biofuel plant property
(1) Additional allowanceIn the case of any qualified second generation biofuel plant 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 50 percent of the adjusted basis of such property, and
(B) the adjusted basis of such 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 second generation biofuel plant propertyThe term “qualified second generation biofuel plant property” means property of a character subject to the allowance for depreciation—
(A) which is used in the United States solely to produce second generation biofuel (as defined in section 40(span)(6)(E)),
(B) the original use of which commences with the taxpayer after the date of the enactment of this subsection,
(C) which is acquired by the taxpayer by purchase (as defined in section 179(d)) after the date of the enactment of this subsection, but only if no written binding contract for the acquisition was in effect on or before the date of the enactment of this subsection, and
(D) which is placed in service by the taxpayer before January 1, 2021.
(3) Exceptions
(A) Bonus depreciation property under subsection (k)
(B) Alternative depreciation property
(C) Tax-exempt bond-financed property
(D) Election out
(4) Special rules
(5) Allowance against alternative minimum tax
(6) Recapture
(7) Denial of double benefit
(m) Special allowance for certain reuse and recycling property
(1) In generalIn the case of any qualified reuse and recycling 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 50 percent of the adjusted basis of the qualified reuse and recycling property, and
(B) the adjusted basis of the qualified reuse and recycling 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 reuse and recycling propertyFor purposes of this subsection—
(A) In generalThe term “qualified reuse and recycling property” means any reuse and recycling property—
(i) to which this section applies,
(ii) which has a useful life of at least 5 years,
(iii) the original use of which commences with the taxpayer after August 31, 2008, and
(iv) which is—(I) acquired by purchase (as defined in section 179(d)(2)) by the taxpayer after August 31, 2008, but only if no written binding contract for the acquisition was in effect before September 1, 2008, or(II) acquired by the taxpayer pursuant to a written binding contract which was entered into after August 31, 2008.
(B) Exceptions
(i) Bonus depreciation property under subsection (k)
(ii) Alternative depreciation property
(iii) Election out
(C) Special rule for self-constructed property
(D) Deduction allowed in computing minimum tax
(3) DefinitionsFor purposes of this subsection—
(A) Reuse and recycling property
(i) In general
(ii) Exclusion
(B) Qualified reuse and recyclable materials
(i) In general
(ii) Electronic scrapFor purposes of clause (i), the term “electronic scrap” means—(I) any cathode ray tube, flat panel screen, or similar video display device with a screen size greater than 4 inches measured diagonally, or(II) any central processing unit.
(C) Recycling or recycle
(Added Puspan. L. 97–34, title II, § 201(a), Aug. 13, 1981, 95 Stat. 203; amended Puspan. L. 97–248, title II, §§ 206, 208(a)(1), (2)(A), (span), 209(a), (span), 216(a), 224(c)(1), (2), Sept. 3, 1982, 96 Stat. 431, 432, 435, 442, 445, 470, 489; Puspan. L. 97–354, § 5(a)(19), (20), Oct. 19, 1982, 96 Stat. 1693, 1694; Puspan. L. 97–424, title V, § 541(a)(1), Jan. 6, 1983, 96 Stat. 2192; Puspan. L. 97–448, title I, § 102(a)(1)–(5), (8)–(10)(A), (f)(4), Jan. 12, 1983, 96 Stat. 2367, 2368, 2371; Puspan. L. 98–369, div. A, title I, §§ 12(a)(3), 31(a), (d), 32(a), 111(a)–(e)(4), (9), 113(a)(2), (span)(1), (2)(A), title IV, § 474(r)(7), title VI, §§ 612(e)(4), (5), 628(span), July 18, 1984, 98 Stat. 503, 509, 518, 530, 631–633, 636, 637, 840, 912, 931; Puspan. L. 99–121, title I, § 103(a), (span)(1)(A), (2)–(4), Oct. 11, 1985, 99 Stat. 509; Puspan. L. 99–514, title II, § 201(a), title XVIII, §§ 1802(a)(1)–(2)(E)(i), (G), (3), (4)(A), (B), (7), (span)(1), 1809(a)(1)–(2)(C)(i), (4)(A), (B), (span)(1), (2), Oct. 22, 1986, 100 Stat. 2121, 2786–2789, 2791, 2818–2821; Puspan. L. 100–647, title I, §§ 1002(a)(5)–(8), (11), (16)(B), (21), (23)(A), (i)(2)(A)–(G), 1018(span)(2), title VI, §§ 6027(a), (span), 6028(a), 6029(a)–(c), 6253, Nov. 10, 1988, 102 Stat. 3353–3356, 3370, 3371, 3577, 3693, 3694, 3753; Puspan. L. 101–239, title VII, § 7816(e), (f), (w), Dec. 19, 1989, 103 Stat. 2421, 2423; Puspan. L. 101–508, title XI, §§ 11801(c)(8)(B), 11812(span)(2), 11813(span)(9), Nov. 5, 1990, 104 Stat. 1388–524, 1388–534, 1388–552; Puspan. L. 103–66, title XIII, §§ 13151(a), 13321(a), Aug. 10, 1993, 107 Stat. 448, 558; Puspan. L. 104–88, title III, § 304(a), Dec. 29, 1995, 109 Stat. 943; Puspan. L. 104–188, title I, §§ 1120(a), (span), 1121(a), 1613(span)(1)–(4), 1702(h)(1), 1704(t)(54), Aug. 20, 1996, 110 Stat. 1765, 1766, 1850, 1873, 1890; Puspan. L. 105–34, title X, § 1086(span), title XII, § 1213(c), title XVI, § 1604(c)(1), Aug. 5, 1997, 111 Stat. 957, 1001, 1097; Puspan. L. 105–206, title VI, § 6006(span), July 22, 1998, 112 Stat. 806; Puspan. L. 107–147, title I, § 101(a), title VI, § 613(span), Mar. 9, 2002, 116 Stat. 22, 61; Puspan. L. 108–27, title II, § 201(a)–(c)(1), May 28, 2003, 117 Stat. 756, 757; Puspan. L. 108–311, title III, § 316, title IV, §§ 403(a), 408(a)(6), (8), Oct. 4, 2004, 118 Stat. 1181, 1186, 1191; Puspan. L. 108–357, title II, § 211(a)–(e), title III, §§ 336(a), (span), 337(a), title VII, §§ 704(a), (span), 706(a)–(c), title VIII, §§ 847(a), (c)–(e), 901(a)–(c), Oct. 22, 2004, 118 Stat. 1429, 1430, 1479, 1480, 1548–1550, 1601, 1602, 1650; Puspan. L. 109–58, title XIII, §§ 1301(f)(5), 1308(a), (span), 1325(a), (span), 1326(a)–(c), Aug. 8, 2005, 119 Stat. 990, 1006, 1016, 1017; Puspan. L. 109–135, title IV, §§ 403(j), 405(a)(1), 410(a), 412(s), Dec. 21, 2005, 119 Stat. 2625, 2634, 2636, 2638; Puspan. L. 109–432, div. A, title I, §§ 112(a), 113(a), title II, § 209(a), Dec. 20, 2006, 120 Stat. 2940, 2946; Puspan. L. 110–172, § 11(span)(1), Dec. 29, 2007, 121 Stat. 2488; Puspan. L. 110–185, title I, § 103(a)–(c)(7), (11), (12), Fespan. 13, 2008, 122 Stat. 618, 619; Puspan. L. 110–234, title XV, § 15344(a), May 22, 2008, 122 Stat. 1520; Puspan. L. 110–246, § 4(a), title XV, § 15344(a), June 18, 2008, 122 Stat. 1664, 2282; Puspan. L. 110–289, div. C, title III, § 3081(a), July 30, 2008, 122 Stat. 2903; Puspan. L. 110–343, div. B, title II, § 201(a), (span), title III, §§ 306(a)–(c), 308(a), div. C, title III, §§ 305(a)(1), (span)(1), (c)(1)–(4), 315(a), 317(a), title V, § 505(a), (span), title VII, § 710(a), Oct. 3, 2008, 122 Stat. 3832, 3848, 3849, 3867, 3868, 3872, 3873, 3879, 3926; Puspan. L. 111–5, div. B, title I, § 1201(a)(1), (2)(A)–(D), (3)(A), (span)(1), Fespan. 17, 2009, 123 Stat. 333, 334; Puspan. L. 111–240, title II, § 2022(a)–(span)(5), Sept. 27, 2010, 124 Stat. 2558; Puspan. L. 111–312, title IV, § 401(a)–(d)(5), title VII, §§ 737(a)–(span)(2), 738(a), 739(a), Dec. 17, 2010, 124 Stat. 3304–3306, 3318, 3319; Puspan. L. 112–240, title III, §§ 311(a), 312(a), 313(a), 331(a), (c)–(e)(3), title IV, § 410(a)(1), (span)(1), (2), Jan. 2, 2013, 126 Stat. 2330, 2335–2337, 2342, 2343; Puspan. L. 113–295, div. A, title I, §§ 121(a), 122(a), 123(a), 124(a), 125(a), (c)–(d)(3), 157(a), title II, §§ 202(e), 210(c), (d), (g)(2), 211(span), 212(span), 214(span), Dec. 19, 2014, 128 Stat. 4015–4017, 4022, 4024, 4031–4034; Puspan. L. 114–113, div. Q, title I, §§ 123(a), (span), 143(a)(1), (3), (4), (span)(1)–(6)(G), (J), 165(a), 166(a), 167(a), (span), 189(a), Dec. 18, 2015, 129 Stat. 3052, 3056–3064, 3067, 3075; Puspan. L. 115–97, title I, §§ 12001(span)(13), 13201(a), (span)(1), (2)(B)–(g), 13203(a), (span), 13204(a), 13205(a), 13504(span)(1), Dec. 22, 2017, 131 Stat. 2094, 2105–2109, 2111, 2142; Puspan. L. 115–123, div. D, title I, §§ 40304(a), 40305(a), 40306(a), 40412(a), Fespan. 9, 2018, 132 Stat. 146, 151; Puspan. L. 115–141, div. U, title I, § 101(d)(1), (2), (e), title III, § 302(a), title IV, § 401(a)(49), (50), (span)(13)(A), (d)(1)(D)(iv), Mar. 23, 2018, 132 Stat. 1160, 1161, 1184, 1186, 1202, 1207; Puspan. L. 116–94, div. Q, title I, §§ 114(a), 115(a), 116(a), 130(a), Dec. 20, 2019, 133 Stat. 3229, 3232; Puspan. L. 116–136, div. A, title II, § 2307(a), Mar. 27, 2020, 134 Stat. 359; Puspan. L. 116–260, div. EE, title I, §§ 115(a), 137(a), 138(a), Dec. 27, 2020, 134 Stat. 3050, 3053, 3054; Puspan. L. 117–169, title I, § 13703(a), Aug. 16, 2022, 136 Stat. 1997.)

CITE AS: 26 USC 168

§ 169. Amortization of pollution control facilities
(a) Allowance of deduction
(b) Election of amortization
(c) Termination of amortization deduction
(d) Definitions and special rulesFor purposes of this section—
(1) Certified pollution control facilityThe term “certified pollution control facility” means a new identifiable treatment facility which is used, in connection with a plant or other property in operation before January 1, 1976, to abate or control water or atmospheric pollution or contamination by removing, altering, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat and which—
(A) the State certifying authority having jurisdiction with respect to such facility has certified to the Federal certifying authority as having been constructed, reconstructed, erected, or acquired in conformity with the State program or requirements for abatement or control of water or atmospheric pollution or contamination;
(B) the Federal certifying authority has certified to the Secretary (i) as being in compliance with the applicable regulations of Federal agencies and (ii) as being in furtherance of the general policy of the United States for cooperation with the States in the prevention and abatement of water pollution under the Federal Water Pollution Control Act, as amended (33 U.S.C. 466 et seq.), or in the prevention and abatement of atmospheric pollution and contamination under the Clean Air Act, as amended (42 U.S.C. 1857 et seq.); and
(C) does not significantly—
(i) increase the output or capacity, extend the useful life, or reduce the total operating costs of such plant or other property (or any unit thereof), or
(ii) alter the nature of the manufacturing or production process or facility.
(2) State certifying authority
(3) Federal certifying authority
(4) New identifiable treatment facility
(A) In generalFor purposes of paragraph (1), the term “new identifiable treatment facility” includes only tangible property (not including a building and its structural components, other than a building which is exclusively a treatment facility) which is of a character subject to the allowance for depreciation provided in section 167, which is identifiable as a treatment facility, and which is property—
(i) the construction, reconstruction, or erection of which is completed by the taxpayer after December 31, 1968, or
(ii) acquired after December 31, 1968, if the original use of the property commences with the taxpayer and commences after such date.
In applying this section in the case of property described in clause (i) there shall be taken into account only that portion of the basis which is properly attributable to construction, reconstruction, or erection after December 31, 1968.
(B) Certain facilities placed in operation after April 11, 2005
(5) Special rule relating to certain atmospheric pollution control facilitiesIn the case of any atmospheric pollution control facility which is placed in service after April 11, 2005, and used in connection with an electric generation plant or other property which is primarily coal fired—
(A) paragraph (1) shall be applied without regard to the phrase “in operation before January 1, 1976”, and
(B) in the case of a facility placed in service in connection with a plant or other property placed in operation after December 31, 1975, this section shall be applied by substituting “84” for “60” each place it appears in subsections (a) and (b).
(e) Profitmaking abatement works, etc.
(f) Amortizable basis
(1) Defined
(2) Special rules
(A) If a certified pollution control facility has a useful life (determined as of the first day of the first month for which a deduction is allowable under this section) in excess of 15 years, the amortizable basis of such facility shall be equal to an amount which bears the same ratio to the portion of the adjusted basis of such facility, which would be eligible for amortization but for the application of this subparagraph, as 15 bears to the number of years of useful life of such facility.
(B) The amortizable basis of a certified pollution control facility with respect to which an election under this section is in effect shall not be increased, for purposes of this section, for additions or improvements after the amortization period has begun.
(g) Depreciation deduction
[(h) Repealed. Pub. L. 92–178, title I, § 104(f)(2), Dec. 10, 1971, 85 Stat. 502]
(i) Life tenant and remainderman
(j) Cross reference
(Added Pub. L. 91–172, title VII, § 704(a), Dec. 30, 1969, 83 Stat. 667; amended Pub. L. 92–178, title I, § 104(f)(2), Dec. 10, 1971, 85 Stat. 502; Pub. L. 93–625, § 3(a), Jan. 3, 1975, 88 Stat. 2109; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), title XXI, § 2112(b), (c), Oct. 4, 1976, 90 Stat. 1834, 1906; Pub. L. 109–58, title XIII, § 1309(a)–(d), Aug. 8, 2005, 119 Stat. 1007; Pub. L. 109–135, title IV, § 402(e), Dec. 21, 2005, 119 Stat. 2611; Pub. L. 115–141, div. U, title IV, § 401(a)(51), Mar. 23, 2018, 132 Stat. 1186.)

CITE AS: 26 USC 169

§ 170. Charitable, etc., contributions and gifts
(a) Allowance of deduction
(1) General rule
(2) Corporations on accrual basisIn the case of a corporation reporting its taxable income on the accrual basis, if—
(A) the board of directors authorizes a charitable contribution during any taxable year, and
(B) payment of such contribution is made after the close of such taxable year and on or before the 15th day of the fourth month following the close of such taxable year,
then the taxpayer may elect to treat such contribution as paid during such taxable year. The election may be made only at the time of the filing of the return for such taxable year, and shall be signified in such manner as the Secretary shall by regulations prescribe.
(3) Future interests in tangible personal property
(b) Percentage limitations
(1) IndividualsIn the case of an individual, the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagraphs.
(A) General ruleAny charitable contribution to—
(i) a church or a convention or association of churches,
(ii) an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on,
(iii) an organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical research, if the organization is a hospital, or if the organization is a medical research organization directly engaged in the continuous active conduct of medical research in conjunction with a hospital, and during the calendar year in which the contribution is made such organization is committed to spend such contributions for such research before January 1 of the fifth calendar year which begins after the date such contribution is made,
(iv) an organization which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a)) from the United States or any State or political subdivision thereof or from direct or indirect contributions from the general public, and which is organized and operated exclusively to receive, hold, invest, and administer property and to make expenditures to or for the benefit of a college or university which is an organization referred to in clause (ii) of this subparagraph and which is an agency or instrumentality of a State or political subdivision thereof, or which is owned or operated by a State or political subdivision thereof or by an agency or instrumentality of one or more States or political subdivisions,
(v) a governmental unit referred to in subsection (c)(1),
(vi) an organization referred to in subsection (c)(2) which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a)) from a governmental unit referred to in subsection (c)(1) or from direct or indirect contributions from the general public,
(vii) a private foundation described in subparagraph (F),
(viii) an organization described in section 509(a)(2) or (3), or
(ix) an agricultural research organization directly engaged in the continuous active conduct of agricultural research (as defined in section 1404 of the National Agricultural Research, Extension, and Teaching Policy Act of 1977) in conjunction with a land-grant college or university (as defined in such section) or a non-land grant college of agriculture (as defined in such section), and during the calendar year in which the contribution is made such organization is committed to spend such contribution for such research before January 1 of the fifth calendar year which begins after the date such contribution is made,
shall be allowed to the extent that the aggregate of such contributions does not exceed 50 percent of the taxpayer’s contribution base for the taxable year.
(B) Other contributionsAny charitable contribution other than a charitable contribution to which subparagraph (A) applies shall be allowed to the extent that the aggregate of such contributions does not exceed the lesser of—
(i) 30 percent of the taxpayer’s contribution base for the taxable year, or
(ii) the excess of 50 percent of the taxpayer’s contribution base for the taxable year over the amount of charitable contributions allowable under subparagraph (A) (determined without regard to subparagraph (C)).
If the aggregate of such contributions exceeds the limitation of the preceding sentence, such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution (to which subparagraph (A) does not apply) in each of the 5 succeeding taxable years in order of time.
(C) Special limitation with respect to contributions described in subparagraph (A) of certain capital gain property
(i) In the case of charitable contributions described in subparagraph (A) of capital gain property to which subsection (e)(1)(B) does not apply, the total amount of contributions of such property which may be taken into account under subsection (a) for any taxable year shall not exceed 30 percent of the taxpayer’s contribution base for such year. For purposes of this subsection, contributions of capital gain property to which this subparagraph applies shall be taken into account after all other charitable contributions (other than charitable contributions to which subparagraph (D) applies).
(ii) If charitable contributions described in subparagraph (A) of capital gain property to which clause (i) applies exceeds 30 percent of the taxpayer’s contribution base for any taxable year, such excess shall be treated, in a manner consistent with the rules of subsection (d)(1), as a charitable contribution of capital gain property to which clause (i) applies in each of the 5 succeeding taxable years in order of time.
(iii) At the election of the taxpayer (made at such time and in such manner as the Secretary prescribes by regulations), subsection (e)(1) shall apply to all contributions of capital gain property (to which subsection (e)(1)(B) does not otherwise apply) made by the taxpayer during the taxable year. If such an election is made, clauses (i) and (ii) shall not apply to contributions of capital gain property made during the taxable year, and, in applying subsection (d)(1) for such taxable year with respect to contributions of capital gain property made in any prior contribution year for which an election was not made under this clause, such contributions shall be reduced as if subsection (e)(1) had applied to such contributions in the year in which made.
(iv) For purposes of this paragraph, the term “capital gain property” means, with respect to any contribution, any capital asset the sale of which at its fair market value at the time of the contribution would have resulted in gain which would have been long-term capital gain. For purposes of the preceding sentence, any property which is property used in the trade or business (as defined in section 1231(b)) shall be treated as a capital asset.
(D) Special limitation with respect to contributions of capital gain property to organizations not described in subparagraph (A)
(i) In generalIn the case of charitable contributions (other than charitable contributions to which subparagraph (A) applies) of capital gain property, the total amount of such contributions of such property taken into account under subsection (a) for any taxable year shall not exceed the lesser of—(I) 20 percent of the taxpayer’s contribution base for the taxable year, or(II) the excess of 30 percent of the taxpayer’s contribution base for the taxable year over the amount of the contributions of capital gain property to which subparagraph (C) applies.
 For purposes of this subsection, contributions of capital gain property to which this subparagraph applies shall be taken into account after all other charitable contributions.
(ii) Carryover
(E) Contributions of qualified conservation contributions
(i) In general
(ii) Carryover
(iii) Coordination with other subparagraphs
(iv) Special rule for contribution of property used in agriculture or livestock production(I) In general(II) Exception
(v) Definition
(F) Certain private foundationsThe private foundations referred to in subparagraph (A)(vii) and subsection (e)(1)(B) are—
(i) a private operating foundation (as defined in section 4942(j)(3)),
(ii) any other private foundation (as defined in section 509(a)) which, not later than the 15th day of the third month after the close of the foundation’s taxable year in which contributions are received, makes qualifying distributions (as defined in section 4942(g), without regard to paragraph (3) thereof), which are treated, after the application of section 4942(g)(3), as distributions out of corpus (in accordance with section 4942(h)) in an amount equal to 100 percent of such contributions, and with respect to which the taxpayer obtains adequate records or other sufficient evidence from the foundation showing that the foundation made such qualifying distributions, and
(iii) a private foundation all of the contributions to which are pooled in a common fund and which would be described in section 509(a)(3) but for the right of any substantial contributor (hereafter in this clause called “donor”) or his spouse to designate annually the recipients, from among organizations described in paragraph (1) of section 509(a), of the income attributable to the donor’s contribution to the fund and to direct (by deed or by will) the payment, to an organization described in such paragraph (1), of the corpus in the common fund attributable to the donor’s contribution; but this clause shall apply only if all of the income of the common fund is required to be (and is) distributed to one or more organizations described in such paragraph (1) not later than the 15th day of the third month after the close of the taxable year in which the income is realized by the fund and only if all of the corpus attributable to any donor’s contribution to the fund is required to be (and is) distributed to one or more of such organizations not later than one year after his death or after the death of his surviving spouse if she has the right to designate the recipients of such corpus.
(G) Increased limitation for cash contributions
(i) In general
(ii) Carryover
(iii) Coordination with subparagraphs (A) and (B)(I) In general(II) Limitation reduction
(H) Contribution base defined
(2) CorporationsIn the case of a corporation—
(A) In general
(B) Qualified conservation contributions by certain corporate farmers and ranchers
(i) In generalAny qualified conservation contribution (as defined in subsection (h)(1))—(I) which is made by a corporation which, for the taxable year during which the contribution is made, is a qualified farmer or rancher (as defined in paragraph (1)(E)(v)) and the stock of which is not readily tradable on an established securities market at any time during such year, and(II) which, in the case of contributions made after the date of the enactment of this subparagraph, is a contribution of property which is used in agriculture or livestock production (or available for such production) and which is subject to a restriction that such property remain available for such production,
 shall be allowed to the extent the aggregate of such contributions does not exceed the excess of the taxpayer’s taxable income over the amount of charitable contributions allowable under subparagraph (A).
(ii) Carryover
(C) Qualified conservation contributions by certain Native Corporations
(i) In generalAny qualified conservation contribution (as defined in subsection (h)(1)) which—(I) is made by a Native Corporation, and(II) is a contribution of property which was land conveyed under the Alaska Native Claims Settlement Act,
 shall be allowed to the extent that the aggregate amount of such contributions does not exceed the excess of the taxpayer’s taxable income over the amount of charitable contributions allowable under subparagraph (A).
(ii) Carryover
(iii) Native Corporation
(D) Taxable incomeFor purposes of this paragraph, taxable income shall be computed without regard to—
(i) this section,
(ii) part VIII (except section 248),
(iii) any net operating loss carryback to the taxable year under section 172,
(iv) any capital loss carryback to the taxable year under section 1212(a)(1) 1
1 So in original. Probably should be followed by “, and”.
(v) section 199A(g).
(c) Charitable contribution definedFor purposes of this section, the term “charitable contribution” means a contribution or gift to or for the use of—
(1) A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.
(2) A corporation, trust, or community chest, fund, or foundation—
(A) created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States;
(B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals;
(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and
(D) which is not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.
A contribution or gift by a corporation to a trust, chest, fund, or foundation shall be deductible by reason of this paragraph only if it is to be used within the United States or any of its possessions exclusively for purposes specified in subparagraph (B). Rules similar to the rules of section 501(j) shall apply for purposes of this paragraph.
(3) A post or organization of war veterans, or an auxiliary unit or society of, or trust or foundation for, any such post or organization—
(A) organized in the United States or any of its possessions, and
(B) no part of the net earnings of which inures to the benefit of any private shareholder or individual.
(4) In the case of a contribution or gift by an individual, a domestic fraternal society, order, or association, operating under the lodge system, but only if such contribution or gift is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.
(5) A cemetery company owned and operated exclusively for the benefit of its members, or any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, if such company or corporation is not operated for profit and no part of the net earnings of such company or corporation inures to the benefit of any private shareholder or individual.
For purposes of this section, the term “charitable contribution” also means an amount treated under subsection (g) as paid for the use of an organization described in paragraph (2), (3), or (4).
(d) Carryovers of excess contributions
(1) Individuals
(A) In generalIn the case of an individual, if the amount of charitable contributions described in subsection (b)(1)(A) payment of which is made within a taxable year (hereinafter in this paragraph referred to as the “contribution year”) exceeds 50 percent of the taxpayer’s contribution base for such year, such excess shall be treated as a charitable contribution described in subsection (b)(1)(A) paid in each of the 5 succeeding taxable years in order of time, but, with respect to any such succeeding taxable year, only to the extent of the lesser of the two following amounts:
(i) the amount by which 50 percent of the taxpayer’s contribution base for such succeeding taxable year exceeds the sum of the charitable contributions described in subsection (b)(1)(A) payment of which is made by the taxpayer within such succeeding taxable year (determined without regard to this subparagraph) and the charitable contributions described in subsection (b)(1)(A) payment of which was made in taxable years before the contribution year which are treated under this subparagraph as having been paid in such succeeding taxable year; or
(ii) in the case of the first succeeding taxable year, the amount of such excess, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess not treated under this subparagraph as a charitable contribution described in subsection (b)(1)(A) paid in any taxable year intervening between the contribution year and such succeeding taxable year.
(B) Special rule for net operating loss carryovers
(2) Corporations
(A) In general
(B) Special rule for net operating loss carryoversFor purposes of subparagraph (A), the excess of—
(i) the contributions made by a corporation in a taxable year to which this section applies, over
(ii) the amount deductible in such year under the limitation in subsection (b)(2)(A),
shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172(b)(2)) and increases a net operating loss carryover under section 172 to a succeeding taxable year.
(e) Certain contributions of ordinary income and capital gain property
(1) General ruleThe amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the sum of—
(A) the amount of gain which would not have been long-term capital gain (determined without regard to section 1221(b)(3)) if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution), and
(B) in the case of a charitable contribution—
(i) of tangible personal property—(I) if the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under section 501 (or, in the case of a governmental unit, to any purpose or function described in subsection (c)), or(II) which is applicable property (as defined in paragraph (7)(C), but without regard to clause (ii) thereof) which is sold, exchanged, or otherwise disposed of by the donee before the last day of the taxable year in which the contribution was made and with respect to which the donee has not made a certification in accordance with paragraph (7)(D),
(ii) to or for the use of a private foundation (as defined in section 509(a)), other than a private foundation described in subsection (b)(1)(F),
(iii) of any patent, copyright (other than a copyright described in section 1221(a)(3) or 1231(b)(1)(C)), trademark, trade name, trade secret, know-how, software (other than software described in section 197(e)(3)(A)(i)), or similar property, or applications or registrations of such property, or
(iv) of any taxidermy property which is contributed by the person who prepared, stuffed, or mounted the property or by any person who paid or incurred the cost of such preparation, stuffing, or mounting,
the amount of gain which would have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution).
For purposes of applying this paragraph (other than in the case of gain to which section 617(d)(1), 1245(a), 1250(a), 1252(a), or 1254(a) applies), property which is property used in the trade or business (as defined in section 1231(b)) shall be treated as a capital asset. For purposes of applying this paragraph in the case of a charitable contribution of stock in an S corporation, rules similar to the rules of section 751 shall apply in determining whether gain on such stock would have been long-term capital gain if such stock were sold by the taxpayer.
(2) Allocation of basis
(3) Special rule for certain contributions of inventory and other property
(A) Qualified contributionsFor purposes of this paragraph, a qualified contribution shall mean a charitable contribution of property described in paragraph (1) or (2) of section 1221(a), by a corporation (other than a corporation which is an S corporation) to an organization which is described in section 501(c)(3) and is exempt under section 501(a) (other than a private foundation, as defined in section 509(a), which is not an operating foundation, as defined in section 4942(j)(3)), but only if—
(i) the use of the property by the donee is related to the purpose or function constituting the basis for its exemption under section 501 and the property is to be used by the donee solely for the care of the ill, the needy, or infants;
(ii) the property is not transferred by the donee in exchange for money, other property, or services;
(iii) the taxpayer receives from the donee a written statement representing that its use and disposition of the property will be in accordance with the provisions of clauses (i) and (ii); and
(iv) in the case where the property is subject to regulation under the Federal Food, Drug, and Cosmetic Act, as amended, such property must fully satisfy the applicable requirements of such Act and regulations promulgated thereunder on the date of transfer and for one hundred and eighty days prior thereto.
(B) Amount of reductionThe reduction under paragraph (1)(A) for any qualified contribution (as defined in subparagraph (A)) shall be no greater than the sum of—
(i) one-half of the amount computed under paragraph (1)(A) (computed without regard to this paragraph), and
(ii) the amount (if any) by which the charitable contribution deduction under this section for any qualified contribution (computed by taking into account the amount determined in clause (i), but without regard to this clause) exceeds twice the basis of such property.
(C) Special rule for contributions of food inventory
(i) General ruleIn the case of a charitable contribution of food from any trade or business of the taxpayer, this paragraph shall be applied—(I) without regard to whether the contribution is made by a C corporation, and(II) only to food that is apparently wholesome food.
(ii) LimitationThe aggregate amount of such contributions for any taxable year which may be taken into account under this section shall not exceed—(I) in the case of any taxpayer other than a C corporation, 15 percent of the taxpayer’s aggregate net income for such taxable year from all trades or businesses from which such contributions were made for such year, computed without regard to this section, and(II) in the case of a C corporation, 15 percent of taxable income (as defined in subsection (b)(2)(D)).
(iii) Rules related to limitation(I) Carryover(II) Coordination with overall corporate limitation
(iv) Determination of basis for certain taxpayersIf a taxpayer—(I) does not account for inventories under section 471, and(II) is not required to capitalize indirect costs under section 263A,
 the taxpayer may elect, solely for purposes of subparagraph (B), to treat the basis of any apparently wholesome food as being equal to 25 percent of the fair market value of such food.
(v) Determination of fair market valueIn the case of any such contribution of apparently wholesome food which cannot or will not be sold solely by reason of internal standards of the taxpayer, lack of market, or similar circumstances, or by reason of being produced by the taxpayer exclusively for the purposes of transferring the food to an organization described in subparagraph (A), the fair market value of such contribution shall be determined—(I) without regard to such internal standards, such lack of market, such circumstances, or such exclusive purpose, and(II) by taking into account the price at which the same or substantially the same food items (as to both type and quality) are sold by the taxpayer at the time of the contribution (or, if not so sold at such time, in the recent past).
(vi) Apparently wholesome food
(D) This paragraph shall not apply to so much of the amount of the gain described in paragraph (1)(A) which would be long-term capital gain but for the application of sections 617, 1245, 1250, or 1252.
(4) Special rule for contributions of scientific property used for research
(A) Limit on reduction
(B) Qualified research contributionsFor purposes of this paragraph, the term “qualified research contribution” means a charitable contribution by a corporation of tangible personal property described in paragraph (1) of section 1221(a), but only if—
(i) the contribution is to an organization described in subparagraph (A) or subparagraph (B) of section 41(e)(6),
(ii) the property is constructed or assembled by the taxpayer,
(iii) the contribution is made not later than 2 years after the date the construction or assembly of the property is substantially completed,
(iv) the original use of the property is by the donee,
(v) the property is scientific equipment or apparatus substantially all of the use of which by the donee is for research or experimentation (within the meaning of section 174), or for research training, in the United States in physical or biological sciences,
(vi) the property is not transferred by the donee in exchange for money, other property, or services, and
(vii) the taxpayer receives from the donee a written statement representing that its use and disposition of the property will be in accordance with the provisions of clauses (v) and (vi).
(C) Construction of property by taxpayer
(D) CorporationFor purposes of this paragraph, the term “corporation” shall not include—
(i) an S corporation,
(ii) a personal holding company (as defined in section 542), and
(iii) a service organization (as defined in section 414(m)(3)).
(5) Special rule for contributions of stock for which market quotations are readily available
(A) In general
(B) Qualified appreciated stockExcept as provided in subparagraph (C), for purposes of this paragraph, the term “qualified appreciated stock” means any stock of a corporation—
(i) for which (as of the date of the contribution) market quotations are readily available on an established securities market, and
(ii) which is capital gain property (as defined in subsection (b)(1)(C)(iv)).
(C) Donor may not contribute more than 10 percent of stock of corporation
(i) In general
(ii) Special rule
[(6) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(28)(B), Dec. 19, 2014, 128 Stat. 4041]
(7) Recapture of deduction on certain dispositions of exempt use property
(A) In generalIn the case of an applicable disposition of applicable property, there shall be included in the income of the donor of such property for the taxable year of such donor in which the applicable disposition occurs an amount equal to the excess (if any) of—
(i) the amount of the deduction allowed to the donor under this section with respect to such property, over
(ii) the donor’s basis in such property at the time such property was contributed.
(B) Applicable dispositionFor purposes of this paragraph, the term “applicable disposition” means any sale, exchange, or other disposition by the donee of applicable property—
(i) after the last day of the taxable year of the donor in which such property was contributed, and
(ii) before the last day of the 3-year period beginning on the date of the contribution of such property,
unless the donee makes a certification in accordance with subparagraph (D).
(C) Applicable propertyFor purposes of this paragraph, the term “applicable property” means charitable deduction property (as defined in section 6050L(a)(2)(A))—
(i) which is tangible personal property the use of which is identified by the donee as related to the purpose or function constituting the basis of the donee’s exemption under section 501, and
(ii) for which a deduction in excess of the donor’s basis is allowed.
(D) CertificationA certification meets the requirements of this subparagraph if it is a written statement which is signed under penalty of perjury by an officer of the donee organization and—
(i) which—(I) certifies that the use of the property by the donee was substantial and related to the purpose or function constituting the basis for the donee’s exemption under section 501, and(II) describes how the property was used and how such use furthered such purpose or function, or
(ii) which—(I) states the intended use of the property by the donee at the time of the contribution, and(II) certifies that such intended use has become impossible or infeasible to implement.
(f) Disallowance of deduction in certain cases and special rules
(1) In general
(2) Contributions of property placed in trust
(A) Remainder interest
(B) Income interests, etc.
(C) Denial of deduction in case of payments by certain trusts
(D) Exception
(3) Denial of deduction in case of certain contributions of partial interests in property
(A) In general
(B) ExceptionsSubparagraph (A) shall not apply to—
(i) a contribution of a remainder interest in a personal residence or farm,
(ii) a contribution of an undivided portion of the taxpayer’s entire interest in property, and
(iii) a qualified conservation contribution.
(4) Valuation of remainder interest in real property
(5) Reduction for certain interestIf, in connection with any charitable contribution, a liability is assumed by the recipient or by any other person, or if a charitable contribution is of property which is subject to a liability, then, to the extent necessary to avoid the duplication of amounts, the amount taken into account for purposes of this section as the amount of the charitable contribution—
(A) shall be reduced for interest (i) which has been paid (or is to be paid) by the taxpayer, (ii) which is attributable to the liability, and (iii) which is attributable to any period after the making of the contribution, and
(B) in the case of a bond, shall be further reduced for interest (i) which has been paid (or is to be paid) by the taxpayer on indebtedness incurred or continued to purchase or carry such bond, and (ii) which is attributable to any period before the making of the contribution.
The reduction pursuant to subparagraph (B) shall not exceed the interest (including interest equivalent) on the bond which is attributable to any period before the making of the contribution and which is not (under the taxpayer’s method of accounting) includible in the gross income of the taxpayer for any taxable year. For purposes of this paragraph, the term “bond” means any bond, debenture, note, or certificate or other evidence of indebtedness.
(6) Deductions for out-of-pocket expenditures
(7) Reformations to comply with paragraph (2)
(A) In general
(B) Rules similar to section 2055(e)(3) to apply
(8) Substantiation requirement for certain contributions
(A) General rule
(B) Content of acknowledgementAn acknowledgement meets the requirements of this subparagraph if it includes the following information:
(i) The amount of cash and a description (but not value) of any property other than cash contributed.
(ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i).
(iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.
For purposes of this subparagraph, the term “intangible religious benefit” means any intangible religious benefit which is provided by an organization organized exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context.
(C) ContemporaneousFor purposes of subparagraph (A), an acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of—
(i) the date on which the taxpayer files a return for the taxable year in which the contribution was made, or
(ii) the due date (including extensions) for filing such return.
(D) Regulations
(9) Denial of deduction where contribution for lobbying activities
(10) Split-dollar life insurance, annuity, and endowment contracts
(A) In general
(i) the organization directly or indirectly pays, or has previously paid, any premium on any personal benefit contract with respect to the transferor, or
(ii) there is an understanding or expectation that any person will directly or indirectly pay any premium on any personal benefit contract with respect to the transferor.
(B) Personal benefit contract
(C) Application to charitable remainder trusts
(D) Exception for certain annuity contractsIf, in connection with a transfer to or for the use of an organization described in subsection (c), such organization incurs an obligation to pay a charitable gift annuity (as defined in section 501(m)) and such organization purchases any annuity contract to fund such obligation, persons receiving payments under the charitable gift annuity shall not be treated for purposes of subparagraph (B) as indirect beneficiaries under such contract if—
(i) such organization possesses all of the incidents of ownership under such contract,
(ii) such organization is entitled to all the payments under such contract, and
(iii) the timing and amount of payments under such contract are substantially the same as the timing and amount of payments to each such person under such obligation (as such obligation is in effect at the time of such transfer).
(E) Exception for certain contracts held by charitable remainder trustsA person shall not be treated for purposes of subparagraph (B) as an indirect beneficiary under any life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust (as defined in section 664(d)) solely by reason of being entitled to any payment referred to in paragraph (1)(A) or (2)(A) of section 664(d) if—
(i) such trust possesses all of the incidents of ownership under such contract, and
(ii) such trust is entitled to all the payments under such contract.
(F) Excise tax on premiums paid
(i) In general
(ii) Payments by other persons
(iii) ReportingAny organization on which tax is imposed by clause (i) with respect to any premium shall file an annual return which includes—(I) the amount of such premiums paid during the year and the name and TIN of each beneficiary under the contract to which the premium relates, and(II) such other information as the Secretary may require.
 The penalties applicable to returns required under section 6033 shall apply to returns required under this clause. Returns required under this clause shall be furnished at such time and in such manner as the Secretary shall by forms or regulations require.
(iv) Certain rules to apply
(G) Special rule where State requires specification of charitable gift annuitant in contractIn the case of an obligation to pay a charitable gift annuity referred to in subparagraph (D) which is entered into under the laws of a State which requires, in order for the charitable gift annuity to be exempt from insurance regulation by such State, that each beneficiary under the charitable gift annuity be named as a beneficiary under an annuity contract issued by an insurance company authorized to transact business in such State, the requirements of clauses (i) and (ii) of subparagraph (D) shall be treated as met if—
(i) such State law requirement was in effect on February 8, 1999,
(ii) each such beneficiary under the charitable gift annuity is a bona fide resident of such State at the time the obligation to pay a charitable gift annuity is entered into, and
(iii) the only persons entitled to payments under such contract are persons entitled to payments as beneficiaries under such obligation on the date such obligation is entered into.
(H) Member of family
(I) Regulations
(11) Qualified appraisal and other documentation for certain contributions
(A) In general
(i) Denial of deduction
(ii) Exceptions(I) Readily valued property(II) Reasonable cause
(B) Property description for contributions of more than $500
(C) Qualified appraisal for contributions of more than $5,000
(D) Substantiation for contributions of more than $500,000
(E) Qualified appraisal and appraiserFor purposes of this paragraph—
(i) Qualified appraisalThe term “qualified appraisal” means, with respect to any property, an appraisal of such property which—(I) is treated for purposes of this paragraph as a qualified appraisal under regulations or other guidance prescribed by the Secretary, and(II) is conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed under subclause (I).
(ii) Qualified appraiserExcept as provided in clause (iii), the term “qualified appraiser” means an individual who—(I) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary,(II) regularly performs appraisals for which the individual receives compensation, and(III) meets such other requirements as may be prescribed by the Secretary in regulations or other guidance.
(iii) Specific appraisalsAn individual shall not be treated as a qualified appraiser with respect to any specific appraisal unless—(I) the individual demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and(II) the individual has not been prohibited from practicing before the Internal Revenue Service by the Secretary under section 330(c) 2
2 See References in Text note below.
of title 31, United States Code, at any time during the 3-year period ending on the date of the appraisal.
(F) Aggregation of similar items of property
(G) Special rule for pass-thru entities
(H) Regulations
(12) Contributions of used motor vehicles, boats, and airplanes
(A) In generalIn the case of a contribution of a qualified vehicle the claimed value of which exceeds $500—
(i) paragraph (8) shall not apply and no deduction shall be allowed under subsection (a) for such contribution unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization that meets the requirements of subparagraph (B) and includes the acknowledgement with the taxpayer’s return of tax which includes the deduction, and
(ii) if the organization sells the vehicle without any significant intervening use or material improvement of such vehicle by the organization, the amount of the deduction allowed under subsection (a) shall not exceed the gross proceeds received from such sale.
(B) Content of acknowledgementAn acknowledgement meets the requirements of this subparagraph if it includes the following information:
(i) The name and taxpayer identification number of the donor.
(ii) The vehicle identification number or similar number.
(iii) In the case of a qualified vehicle to which subparagraph (A)(ii) applies—(I) a certification that the vehicle was sold in an arm’s length transaction between unrelated parties,(II) the gross proceeds from the sale, and(III) a statement that the deductible amount may not exceed the amount of such gross proceeds.
(iv) In the case of a qualified vehicle to which subparagraph (A)(ii) does not apply—(I) a certification of the intended use or material improvement of the vehicle and the intended duration of such use, and(II) a certification that the vehicle would not be transferred in exchange for money, other property, or services before completion of such use or improvement.
(v) Whether the donee organization provided any goods or services in consideration, in whole or in part, for the qualified vehicle.
(vi) A description and good faith estimate of the value of any goods or services referred to in clause (v) or, if such goods or services consist solely of intangible religious benefits (as defined in paragraph (8)(B)), a statement to that effect.
(C) ContemporaneousFor purposes of subparagraph (A), an acknowledgement shall be considered to be contemporaneous if the donee organization provides it within 30 days of—
(i) the sale of the qualified vehicle, or
(ii) in the case of an acknowledgement including a certification described in subparagraph (B)(iv), the contribution of the qualified vehicle.
(D) Information to Secretary
(E) Qualified vehicleFor purposes of this paragraph, the term “qualified vehicle” means any—
(i) motor vehicle manufactured primarily for use on public streets, roads, and highways,
(ii) boat, or
(iii) airplane.
Such term shall not include any property which is described in section 1221(a)(1).
(F) Regulations or other guidance
(13) Contributions of certain interests in buildings located in registered historic districts
(A) In general
(B) Contribution described
(C) Dedication of fee
(14) Reduction for amounts attributable to rehabilitation credit
(A) the sum of the credits allowed to the taxpayer under section 47 for the 5 preceding taxable years with respect to any building which is a part of such contribution, bears to
(B) the fair market value of the building on the date of the contribution.
(15) Special rule for taxidermy property
(A) Basis
(B) Taxidermy propertyFor purposes of this section, the term “taxidermy property” means any work of art which—
(i) is the reproduction or preservation of an animal, in whole or in part,
(ii) is prepared, stuffed, or mounted for purposes of recreating one or more characteristics of such animal, and
(iii) contains a part of the body of the dead animal.
(16) Contributions of clothing and household items
(A) In general
(B) Items of minimal value
(C) Exception for certain property
(D) Household itemsFor purposes of this paragraph—
(i) In general
(ii) Excluded itemsSuch term does not include—(I) food,(II) paintings, antiques, and other objects of art,(III) jewelry and gems, and(IV) collections.
(E) Special rule for pass-thru entities
(17) Recordkeeping
(18) Contributions to donor advised fundsA deduction otherwise allowed under subsection (a) for any contribution to a donor advised fund (as defined in section 4966(d)(2)) shall only be allowed if—
(A) the sponsoring organization (as defined in section 4966(d)(1)) with respect to such donor advised fund is not—
(i) described in paragraph (3), (4), or (5) of subsection (c), or
(ii) a type III supporting organization (as defined in section 4943(f)(5)(A)) which is not a functionally integrated type III supporting organization (as defined in section 4943(f)(5)(B)), and
(B) the taxpayer obtains a contemporaneous written acknowledgment (determined under rules similar to the rules of paragraph (8)(C)) from the sponsoring organization (as so defined) of such donor advised fund that such organization has exclusive legal control over the assets contributed.
(19) Certain qualified conservation contributions
(A) In generalIn the case of a qualified conservation contribution to which this paragraph applies, no deduction shall be allowed under subsection (a) for such contribution unless the partnership making such contribution—
(i) includes on its return for the taxable year in which the contribution is made a statement that the partnership made such a contribution, and
(ii) provides such information about the contribution as the Secretary may require.
(B) Contributions to which this paragraph appliesThis paragraph shall apply to any qualified conservation contribution—
(i) the conservation purpose of which is the preservation of any building which is a certified historic structure (as defined in subsection (h)(4)(C)),
(ii) which is made by a partnership (whether directly or as a distributive share of a contribution of another partnership), and
(iii) the amount of which exceeds 2.5 times the sum of each partner’s relevant basis (as defined in subsection (h)(7)) in the partnership making the contribution.
(C) Application to other pass-through entities
(g) Amounts paid to maintain certain students as members of taxpayer’s household
(1) In generalSubject to the limitations provided by paragraph (2), amounts paid by the taxpayer to maintain an individual (other than a dependent, as defined in section 152 (determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), or a relative of the taxpayer) as a member of his household during the period that such individual is—
(A) a member of the taxpayer’s household under a written agreement between the taxpayer and an organization described in paragraph (2), (3), or (4) of subsection (c) to implement a program of the organization to provide educational opportunities for pupils or students in private homes, and
(B) a full-time pupil or student in the twelfth or any lower grade at an educational organization described in section 170(b)(1)(A)(ii) located in the United States,
shall be treated as amounts paid for the use of the organization.
(2) Limitations
(A) Amount
(B) Compensation or reimbursement
(3) Relative defined
(4) No other amount allowed as deduction
(h) Qualified conservation contribution
(1) In generalFor purposes of subsection (f)(3)(B)(iii), the term “qualified conservation contribution” means a contribution—
(A) of a qualified real property interest,
(B) to a qualified organization,
(C) exclusively for conservation purposes.
(2) Qualified real property interestFor purposes of this subsection, the term “qualified real property interest” means any of the following interests in real property:
(A) the entire interest of the donor other than a qualified mineral interest,
(B) a remainder interest, and
(C) a restriction (granted in perpetuity) on the use which may be made of the real property.
(3) Qualified organizationFor purposes of paragraph (1), the term “qualified organization” means an organization which—
(A) is described in clause (v) or (vi) of subsection (b)(1)(A), or
(B) is described in section 501(c)(3) and—
(i) meets the requirements of section 509(a)(2), or
(ii) meets the requirements of section 509(a)(3) and is controlled by an organization described in subparagraph (A) or in clause (i) of this subparagraph.
(4) Conservation purpose defined
(A) In generalFor purposes of this subsection, the term “conservation purpose” means—
(i) the preservation of land areas for outdoor recreation by, or the education of, the general public,
(ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,
(iii) the preservation of open space (including farmland and forest land) where such preservation is—(I) for the scenic enjoyment of the general public, or(II) pursuant to a clearly delineated Federal, State, or local governmental conservation policy,
 and will yield a significant public benefit, or
(iv) the preservation of an historically important land area or a certified historic structure.
(B) Special rules with respect to buildings in registered historic districtsIn the case of any contribution of a qualified real property interest which is a restriction with respect to the exterior of a building described in subparagraph (C)(ii), such contribution shall not be considered to be exclusively for conservation purposes unless—
(i) such interest—(I) includes a restriction which preserves the entire exterior of the building (including the front, sides, rear, and height of the building), and(II) prohibits any change in the exterior of the building which is inconsistent with the historical character of such exterior,
(ii) the donor and donee enter into a written agreement certifying, under penalty of perjury, that the donee—(I) is a qualified organization (as defined in paragraph (3)) with a purpose of environmental protection, land conservation, open space preservation, or historic preservation, and(II) has the resources to manage and enforce the restriction and a commitment to do so, and
(iii) in the case of any contribution made in a taxable year beginning after the date of the enactment of this subparagraph, the taxpayer includes with the taxpayer’s return for the taxable year of the contribution—(I) a qualified appraisal (within the meaning of subsection (f)(11)(E)) of the qualified property interest,(II) photographs of the entire exterior of the building, and(III) a description of all restrictions on the development of the building.
(C) Certified historic structureFor purposes of subparagraph (A)(iv), the term “certified historic structure” means—
(i) any building, structure, or land area which is listed in the National Register, or
(ii) any building which is located in a registered historic district (as defined in section 47(c)(3)(B)) and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district.
A building, structure, or land area satisfies the preceding sentence if it satisfies such sentence either at the time of the transfer or on the due date (including extensions) for filing the transferor’s return under this chapter for the taxable year in which the transfer is made.
(5) Exclusively for conservation purposesFor purposes of this subsection—
(A) Conservation purpose must be protected
(B) No surface mining permitted
(i) In general
(ii) Special rule
(6) Qualified mineral interestFor purposes of this subsection, the term “qualified mineral interest” means—
(A) subsurface oil, gas, or other minerals, and
(B) the right to access to such minerals.
(7) Limitation on deduction for qualified conservation contributions made by pass-through entities
(A) In general
(B) Relevant basisFor purposes of this paragraph—
(i) In general
(ii) Modified basisThe term “modified basis” means, with respect to any partner, such partner’s adjusted basis in the partnership as determined—(I) immediately before the contribution described in subparagraph (A),(II) without regard to section 752, and(III) by the partnership after taking into account the adjustments described in subclauses (I) and (II) and such other adjustments as the Secretary may provide.
(C) Exception for contributions outside 3-year holding periodSubparagraph (A) shall not apply to any contribution which is made at least 3 years after the latest of—
(i) the last date on which the partnership that made such contribution acquired any portion of the real property with respect to which such contribution is made,
(ii) the last date on which any partner in the partnership that made such contribution acquired any interest in such partnership, and
(iii) if the interest in the partnership that made such contribution is held through 1 or more partnerships—(I) the last date on which any such partnership acquired any interest in any other such partnership, and(II) the last date on which any partner in any such partnership acquired any interest in such partnership.
(D) Exception for family partnerships
(i) In general
(ii) Members of the familyFor purposes of this subparagraph, the term “members of the family” means, with respect to any individual—(I) the spouse of such individual, and(II) any individual who bears a relationship to such individual which is described in subparagraphs (A) through (G) of section 152(d)(2).
(E) Exception for contributions to preserve certified historic structures
(F) Application to other pass-through entities
(G) RegulationsThe Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations or other guidance—
(i) to require reporting, including reporting related to tiered partnerships and the modified basis of partners, and
(ii) to prevent the avoidance of the purposes of this paragraph.
(i) Standard mileage rate for use of passenger automobile
(j) Denial of deduction for certain travel expenses
[(k) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(28)(C), Dec. 19, 2014, 128 Stat. 4041]
(l) Treatment of certain amounts paid to or for the benefit of institutions of higher education
(1) In general
(2) Amount describedFor purposes of paragraph (1), an amount is described in this paragraph if—
(A) the amount is paid by the taxpayer to or for the benefit of an educational organization—
(i) which is described in subsection (b)(1)(A)(ii), and
(ii) which is an institution of higher education (as defined in section 3304(f)), and
(B) the taxpayer receives (directly or indirectly) as a result of paying such amount the right to purchase tickets for seating at an athletic event in an athletic stadium of such institution.
If any portion of a payment is for the purchase of such tickets, such portion and the remaining portion (if any) of such payment shall be treated as separate amounts for purposes of this subsection.
(m) Certain donee income from intellectual property treated as an additional charitable contribution
(1) Treatment as additional contribution
(2) Reduction in additional deductions to extent of initial deduction
(3) Qualified donee income
(4) Allocation of qualified donee income to taxable years of donor
(5) 10-year limitation
(6) Benefit limited to life of intellectual property
(7) Applicable percentage
(8) Qualified intellectual property contributionFor purposes of this subsection, the term “qualified intellectual property contribution” means any charitable contribution of qualified intellectual property—
(A) the amount of which taken into account under this section is reduced by reason of subsection (e)(1), and
(B) with respect to which the donor informs the donee at the time of such contribution that the donor intends to treat such contribution as a qualified intellectual property contribution for purposes of this subsection and section 6050L.
(9) Qualified intellectual property
(10) Other special rules
(A) Application of limitations on charitable contributions
(B) Net income determined by donee
(C) Deduction limited to 12 taxable years
(D) RegulationsThe Secretary may issue regulations or other guidance to carry out the purposes of this subsection, including regulations or guidance—
(i) modifying the application of this subsection in the case of a donor or donee with a short taxable year, and
(ii) providing for the determination of an amount to be treated as net income of the donee which is properly allocable to qualified intellectual property in the case of a donee who uses such property to further a purpose or function constituting the basis of the donee’s exemption under section 501 (or, in the case of a governmental unit, any purpose described in section 170(c)) and does not possess a right to receive any payment from a third party with respect to such property.
(n) Expenses paid by certain whaling captains in support of Native Alaskan subsistence whaling
(1) In general
(2) Amount described
(A) In general
(B) Whaling expensesFor purposes of subparagraph (A), the term “whaling expenses” includes expenses for—
(i) the acquisition and maintenance of whaling boats, weapons, and gear used in sanctioned whaling activities,
(ii) the supplying of food for the crew and other provisions for carrying out such activities, and
(iii) storage and distribution of the catch from such activities.
(3) Sanctioned whaling activities
(4) Substantiation of expenses
(o) Special rules for fractional gifts
(1) Denial of deduction in certain cases
(A) In generalNo deduction shall be allowed for a contribution of an undivided portion of a taxpayer’s entire interest in tangible personal property unless all interests in the property are held immediately before such contribution by—
(i) the taxpayer, or
(ii) the taxpayer and the donee.
(B) Exceptions
(2) Valuation of subsequent giftsIn the case of any additional contribution, the fair market value of such contribution shall be determined by using the lesser of—
(A) the fair market value of the property at the time of the initial fractional contribution, or
(B) the fair market value of the property at the time of the additional contribution.
(3) Recapture of deduction in certain cases; addition to tax
(A) RecaptureThe Secretary shall provide for the recapture of the amount of any deduction allowed under this section (plus interest) with respect to any contribution of an undivided portion of a taxpayer’s entire interest in tangible personal property—
(i) in any case in which the donor does not contribute all of the remaining interests in such property to the donee (or, if such donee is no longer in existence, to any person described in section 170(c)) on or before the earlier of—(I) the date that is 10 years after the date of the initial fractional contribution, or(II) the date of the death of the donor, and
(ii) in any case in which the donee has not, during the period beginning on the date of the initial fractional contribution and ending on the date described in clause (i)—(I) had substantial physical possession of the property, and(II) used the property in a use which is related to a purpose or function constituting the basis for the organizations’ exemption under section 501.
(B) Addition to tax
(4) DefinitionsFor purposes of this subsection—
(A) Additional contribution
(B) Initial fractional contribution
(p) Special rule for taxpayers who do not elect to itemize deductionsIn the case of any taxable year beginning in 2021, if the individual does not elect to itemize deductions for such taxable year, the deduction under this section shall be equal to the deduction, not in excess of $300 ($600 in the case of a joint return), which would be determined under this section if the only charitable contributions taken into account in determining such deduction were contributions made in cash during such taxable year (determined without regard to subsections (b)(1)(G)(ii) and (d)(1)) to an organization described in section 170(b)(1)(A) and not—
(1) to an organization described in section 509(a)(3), or
(2) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in section 4966(d)(2)).
(q) Other cross references
(1) For treatment of certain organizations providing child care, see section 501(k).
(2) For charitable contributions of estates and trusts, see section 642(c).
(3) For nondeductibility of contributions by common trust funds, see section 584.
(4) For charitable contributions of partners, see section 702.
(5) For charitable contributions of nonresident aliens, see section 873.
(6) For treatment of gifts for benefit of or use in connection with the Naval Academy as gifts to or for use of the United States, see section 8473 of title 10, United States Code.
(7) For treatment of gifts accepted by the Secretary of State, the Director of the International Communication Agency, or the Director of the United States International Development Cooperation Agency, as gifts to or for the use of the United States, see section 25 of the State Department Basic Authorities Act of 1956.
(8) For treatment of gifts of money accepted by the Attorney General for credit to the “Commissary Funds Federal Prisons” as gifts to or for the use of the United States, see section 4043 of title 18, United States Code.
(9) For charitable contributions to or for the use of Indian tribal governments (or their subdivisions), see section 7871.
(Aug. 16, 1954, ch. 736, 68A Stat. 58; Aug. 7, 1956, ch. 1031, § 1, 70 Stat. 1117; Pub. L. 85–866, title I, §§ 10(a), 11, 12(a), Sept. 2, 1958, 72 Stat. 1609, 1610; Pub. L. 86–779, § 7(a), Sept. 14, 1960, 74 Stat. 1002; Pub. L. 87–834, § 13(d), Oct. 16, 1962, 76 Stat. 1034; Pub. L. 87–858, § 2(a), (b), Oct. 23, 1962, 76 Stat. 1134; Pub. L. 88–272, title II, §§ 209(a), (b), (c)(1), (d)(1), (e), 231(b)(1), Feb. 26, 1964, 78 Stat. 43, 45–47, 105; Pub. L. 89–570, § 1(b)(1), Sept. 12, 1966, 80 Stat. 762; Pub. L. 91–172, title I, § 101(j)(2), title II, § 201(a)(1), (2)(A), (h)(1), Dec. 30, 1969, 83 Stat. 526, 549, 558, 565; Pub. L. 94–455, title II, § 205(c)(1)(A), title X, § 1052(c)(2), title XIII, §§ 1307(c), (d)(1)(B)(i), 1313(b)(1), title XIX, §§ 1901(a)(28), (b)(8)(A), 1906(b)(13)(A), title XXI, §§ 2124(e)(1), 2135(a), Oct. 4, 1976, 90 Stat. 1535, 1648, 1726, 1727, 1730, 1768, 1794, 1834, 1919, 1928; Pub. L. 95–30, title III, § 309(a), May 23, 1977, 91 Stat. 154; Pub. L. 95–600, title IV, §§ 402(b)(2), 403(c)(1), Nov. 6, 1978, 92 Stat. 2868; Pub. L. 96–465, title II, § 2206(e)(2), Oct. 17, 1980, 94 Stat. 2162; Pub. L. 96–541, § 6(a), (b), Dec. 17, 1980, 94 Stat. 3206; Pub. L. 97–34, title I, § 121(a), title II, §§ 222(a), 263(a), Aug. 13, 1981, 95 Stat. 196, 248, 264; Pub. L. 97–248, title II, § 286(b)(1), Sept. 3, 1982, 96 Stat. 570; Pub. L. 97–258, § 3(f)(1), Sept. 13, 1982, 96 Stat. 1064; Pub. L. 97–354, § 5(a)(21), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 97–448, title I, § 102(f)(7), Jan. 12, 1983, 96 Stat. 2372; Pub. L. 97–473, title II, § 202(b)(4), Jan. 14, 1983, 96 Stat. 2609; Pub. L. 98–369, div. A, title I, § 174(b)(5)(A), title III, § 301(a)–(c), title IV, § 492(b)(1), title X, §§ 1022(b), 1031(a), 1032(b)(1), 1035(a), July 18, 1984, 98 Stat. 707, 777, 778, 854, 1028, 1033, 1042; Pub. L. 99–514, title I, § 142(d), title II, § 231(f), title III, § 301(b)(2), title XVIII, § 1831, Oct. 22, 1986, 100 Stat. 2120, 2180, 2217, 2851; Pub. L. 100–203, title X, § 10711(a)(1), Dec. 22, 1987, 101 Stat. 1330–464; Pub. L. 100–647, title VI, § 6001(a), Nov. 10, 1988, 102 Stat. 3683; Pub. L. 101–508, title XI, §§ 11801(a)(11), (c)(5), 11813(b)(10), Nov. 5, 1990, 104 Stat. 1388–520, 1388–523, 1388–554; Pub. L. 103–66, title XIII, §§ 13172(a), 13222(b), Aug. 10, 1993, 107 Stat. 455, 479; Pub. L. 104–188, title I, §§ 1206(a), 1316(b), Aug. 20, 1996, 110 Stat. 1776, 1786; Pub. L. 105–34, title II, § 224(a), title V, § 508(d), title VI, § 602(a), title IX, § 973(a), Aug. 5, 1997, 111 Stat. 818, 860, 862, 898; Pub. L. 105–206, title VI, § 6004(e), July 22, 1998, 112 Stat. 795; Pub. L. 105–277, div. J, title I, § 1004(a)(1), Oct. 21, 1998, 112 Stat. 2681–888; Pub. L. 106–170, title V, §§ 532(c)(1)(A), (B), 537(a), Dec. 17, 1999, 113 Stat. 1930, 1936; Pub. L. 106–554, § 1(a)(7) [title I, § 165(a)–(e)], Dec. 21, 2000, 114 Stat. 2763, 2763A–626; Pub. L. 107–16, title V, § 542(e)(2)(B), June 7, 2001, 115 Stat. 85; Pub. L. 107–147, title IV, § 417(7), (22), Mar. 9, 2002, 116 Stat. 56, 57; Pub. L. 108–81, title V, § 503, Sept. 25, 2003, 117 Stat. 1003; Pub. L. 108–311, title II, § 207(15), (16), title III, § 306(a), Oct. 4, 2004, 118 Stat. 1177, 1179; Pub. L. 108–357, title III, § 335(a), title IV, § 413(c)(30), title VIII, §§ 882(a), (b), (d), 883(a), 884(a), Oct. 22, 2004, 118 Stat. 1478, 1509, 1627, 1631, 1632; Pub. L. 109–73, title III, §§ 305(a), 306(a), Sept. 23, 2005, 119 Stat. 2025; Pub. L. 109–135, title IV, § 403(a)(16), (gg), Dec. 21, 2005, 119 Stat. 2619, 2631; Pub. L. 109–222, title II, § 204(b), May 17, 2006, 120 Stat. 350; Pub. L. 109–280, title XII, §§ 1202(a), 1204(a), 1206(a), (b)(1), 1213(a)–(d), 1214(a), (b), 1215(a), 1216(a), 1217(a), 1218(a), 1219(c)(1), 1234(a), Aug. 17, 2006, 120 Stat. 1066, 1068, 1069, 1075–1077, 1079, 1080, 1084, 1100; Pub. L. 109–432, div. A, title I, § 116(a)(1), (b)(1), (2), Dec. 20, 2006, 120 Stat. 2941; Pub. L. 110–172, §§ 3(c), 11(a)(14)(A), (B), (15), (16), Dec. 29, 2007, 121 Stat. 2474, 2485; Pub. L. 110–234, title XV, § 15302(a), May 22, 2008, 122 Stat. 1501; Pub. L. 110–246, § 4(a), title XV, § 15302(a), June 18, 2008, 122 Stat. 1664, 2263; Pub. L. 110–343, div. C, title III, §§ 321(a), 323(a)(1), (b)(1), 324(a), (b), Oct. 3, 2008, 122 Stat. 3873–3875; Pub. L. 111–312, title III, § 301(a), title VII, §§ 723(a), (b), 740(a), 741(a), 742(a), Dec. 17, 2010, 124 Stat. 3300, 3316, 3319; Pub. L. 112–240, title II, § 206(a), (b), title III, § 314(a), Jan. 2, 2013, 126 Stat. 2324, 2330; Pub. L. 113–295, div. A, title I, §§ 106(a), (b), 126(a), title II, § 221(a)(28), Dec. 19, 2014, 128 Stat. 4013, 4017, 4041; Pub. L. 114–41, title II, § 2006(a)(2)(A), July 31, 2015, 129 Stat. 457; Pub. L. 114–113, div. Q, title I, §§ 111(a)–(b)(2), 113(a), (b), title III, § 331(a), Dec. 18, 2015, 129 Stat. 3046, 3047, 3104; Pub. L. 115–97, title I, §§ 11011(d)(5), 11023(a), 13305(b)(2), 13704(a), 13705(a), Dec. 22, 2017, 131 Stat. 2071, 2074, 2126, 2169; Pub. L. 115–141, div. U, title IV, § 401(a)(52), (b)(14), Mar. 23, 2018, 132 Stat. 1186, 1202; Pub. L. 115–232, div. A, title VIII, § 809(h)(1), Aug. 13, 2018, 132 Stat. 1842; Pub. L. 116–260, div. EE, title II, § 212(a), Dec. 27, 2020, 134 Stat. 3067; Pub. L. 117–328, div. T, title VI, § 605(a)(1), (b), Dec. 29, 2022, 136 Stat. 5393, 5395.)

CITE AS: 26 USC 170

§ 171. Amortizable bond premium
(a) General rule
In the case of any bond, as defined in subsection (d), the following rules shall apply to the amortizable bond premium (determined under subsection (b)) on the bond:
(1) Taxable bonds
(2) Tax-exempt bonds
(3) Cross reference
(b) Amortizable bond premium
(1) Amount of bond premium
For purposes of paragraph (2), the amount of bond premium, in the case of the holder of any bond, shall be determined—
(A) with reference to the amount of the basis (for determining loss on sale or exchange) of such bond,
(B)
(i) with reference to the amount payable on maturity (or if it results in a smaller amortizable bond premium attributable to the period before the call date, with reference to the amount payable on the earlier call date), in the case of a bond described in subsection (a)(1), and
(ii) with reference to the amount payable on maturity or on an earlier call date, in the case of a bond described in subsection (a)(2).
(C) with adjustments proper to reflect unamortized bond premium, with respect to the bond, for the period before the date as of which subsection (a) becomes applicable with respect to the taxpayer with respect to such bond.
In no case shall the amount of bond premium on a convertible bond include any amount attributable to the conversion features of the bond.
(2) Amount amortizable
(3) Method of determination
(A) In general
Except as provided in regulations prescribed by the Secretary, the determinations required under paragraphs (1) and (2) shall be made on the basis of the taxpayer’s yield to maturity determined by—
(i) using the taxpayer’s basis (for purposes of determining loss on sale or exchange) of the obligation, and
(ii) compounding at the close of each accrual period (as defined in section 1272(a)(5)).
(B) Special rule where earlier call date is used
(4) Treatment of certain bonds acquired in exchange for other property
(A) In general
If—
(i) a bond is acquired by any person in exchange for other property, and
(ii) the basis of such bond is determined (in whole or in part) by reference to the basis of such other property,
for purposes of applying this subsection to such bond while held by such person, the basis of such bond shall not exceed its fair market value immediately after the exchange. A similar rule shall apply in the case of such bond while held by any other person whose basis is determined (in whole or in part) by reference to the basis in the hands of the person referred to in clause (i).
(B) Special rule where bond exchanged in reorganization
(c) Election as to taxable bonds
(1) Eligibility to elect; bonds with respect to which election permitted
(2) Manner and effect of election
(d) Bond defined
(e) Treatment as offset to interest payments
Except as provided in regulations, in the case of any taxable bond—
(1) the amount of any bond premium shall be allocated among the interest payments on the bond under rules similar to the rules of subsection (b)(3), and
(2) in lieu of any deduction under subsection (a), the amount of any premium so allocated to any interest payment shall be applied against (and operate to reduce) the amount of such interest payment.
For purposes of the preceding sentence, the term “taxable bond” means any bond the interest of which is not excludable from gross income.
(f) Dealers in tax-exempt securities
(Aug. 16, 1954, ch. 736, 68A Stat. 61; Pub. L. 85–866, title I, § 13(a), Sept. 2, 1958, 72 Stat. 1610; Pub. L. 94–455, title XIX, §§ 1901(b)(1)(E), 1906(b)(13)(A), 1951(b)(5)(A), Oct. 4, 1976, 90 Stat. 1790, 1834, 1837; Pub. L. 99–514, title VI, § 643(a), title XVIII, § 1803(a)(11)(A), (B), (12)(A), Oct. 22, 1986, 100 Stat. 2285, 2795; Pub. L. 100–647, title I, § 1006(j)(1)(A), Nov. 10, 1988, 102 Stat. 3411; Pub. L. 108–357, title IV, § 413(c)(2), Oct. 22, 2004, 118 Stat. 1507; Pub. L. 113–295, div. A, title II, § 221(a)(29), Dec. 19, 2014, 128 Stat. 4041.)

CITE AS: 26 USC 171

§ 172. Net operating loss deduction
(a) Deduction allowedThere shall be allowed as a deduction for the taxable year an amount equal to—
(1) in the case of a taxable year beginning before January 1, 2021, the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and
(2) in the case of a taxable year beginning after December 31, 2020, the sum of—
(A) the aggregate amount of net operating losses arising in taxable years beginning before January 1, 2018, carried to such taxable year, plus
(B) the lesser of—
(i) the aggregate amount of net operating losses arising in taxable years beginning after December 31, 2017, carried to such taxable year, or
(ii) 80 percent of the excess (if any) of—(I) taxable income computed without regard to the deductions under this section and sections 199A and 250, over(II) the amount determined under subparagraph (A).
For purposes of this subtitle, the term “net operating loss deduction” means the deduction allowed by this subsection.
(b) Net operating loss carrybacks and carryovers
(1) Years to which loss may be carried
(A) General ruleA net operating loss for any taxable year—
(i) shall be a net operating loss carryback to the extent provided in subparagraphs (B), (C)(i), and (D), and
(ii) except as provided in subparagraph (C)(ii), shall be a net operating loss carryover—(I) in the case of a net operating loss arising in a taxable year beginning before January 1, 2018, to each of the 20 taxable years following the taxable year of the loss, and(II) in the case of a net operating loss arising in a taxable year beginning after December 31, 2017, to each taxable year following the taxable year of the loss.
(B) Farming losses
(i) In general
(ii) Farming lossFor purposes of this section, the term “farming loss” means the lesser of—(I) the amount which would be the net operating loss for the taxable year if only income and deductions attributable to farming businesses (as defined in section 263A(e)(4)) are taken into account, or(II) the amount of the net operating loss for such taxable year.
(iii) Coordination with paragraph (2)
(iv) Election
(C) Insurance companiesIn the case of an insurance company (as defined in section 816(a)) other than a life insurance company, the net operating loss for any taxable year—
(i) shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and
(ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss.
(D) Special rule for losses arising in 2018, 2019, and 2020
(i) In generalIn the case of any net operating loss arising in a taxable year beginning after December 31, 2017, and before January 1, 2021—(I) such loss shall be a net operating loss carryback to each of the 5 taxable years preceding the taxable year of such loss, and(II) subparagraphs (B) and (C)(i) shall not apply.
(ii) Special rules for REITsFor purposes of this subparagraph—(I) In general(II) Special rule(III) REIT year
(iii) Special rule for life insurance companies
(iv) Rule relating to carrybacks to years to which section 965 applies
(v) Special rules for elections under paragraph (3)(I) Special election to exclude section 965 years(II) Time of elections
(2) Amount of carrybacks and carryoversThe entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the “loss year”) shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the taxable income for any such prior taxable year shall—
(A) be computed with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter,
(B) not be considered to be less than zero, and
(C) for taxable years beginning after December 31, 2020, be reduced by 20 percent of the excess (if any) described in subsection (a)(2)(B)(ii) for such taxable year.
(3) Election to waive carryback
(c) Net operating loss defined
(d) ModificationsThe modifications referred to in this section are as follows:
(1) Net operating loss deduction
(2) Capital gains and losses of taxpayers other than corporationsIn the case of a taxpayer other than a corporation—
(A) the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includable on account of gains from sales or exchanges of capital assets; and
(B) the exclusion provided by section 1202 shall not be allowed.
(3) Deduction for personal exemptions
(4) Nonbusiness deductions of taxpayers other than corporationsIn the case of a taxpayer other than a corporation, the deductions allowable by this chapter which are not attributable to a taxpayer’s trade or business shall be allowed only to the extent of the amount of the gross income not derived from such trade or business. For purposes of the preceding sentence—
(A) any gain or loss from the sale or other disposition of—
(i) property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or
(ii) real property used in the trade or business,
shall be treated as attributable to the trade or business;
(B) the modifications specified in paragraphs (1), (2)(B), and (3) shall be taken into account;
(C) any deduction for casualty or theft losses allowable under paragraph (2) or (3) of section 165(c) shall be treated as attributable to the trade or business; and
(D) any deduction allowed under section 404 to the extent attributable to contributions which are made on behalf of an individual who is an employee within the meaning of section 401(c)(1) shall not be treated as attributable to the trade or business of such individual.
(5) Computation of deduction for dividends received
(6) Modifications related to real estate investment trustsIn the case of any taxable year for which part II of subchapter M (relating to real estate investment trusts) applies to the taxpayer—
(A) the net operating loss for such taxable year shall be computed by taking into account the adjustments described in section 857(b)(2) (other than the deduction for dividends paid described in section 857(b)(2)(B));
(B) where such taxable year is a “prior taxable year” referred to in paragraph (2) of subsection (b), the term “taxable income” in such paragraph shall mean “real estate investment trust taxable income” (as defined in section 857(b)(2)); and
(C) subsection (a)(2)(B)(ii)(I) shall be applied by substituting “real estate investment trust taxable income (as defined in section 857(b)(2) but without regard to the deduction for dividends paid (as defined in section 561))” for “taxable income”.
[(7) Repealed. Pub. L. 115–97, title I, § 13305(b)(3), Dec. 22, 2017, 131 Stat. 2126]
(8) Qualified business income deduction
(9) Deduction for foreign-derived intangible income
(e) Law applicable to computations
(f) Special rule for insurance companiesIn the case of an insurance company (as defined in section 816(a)) other than a life insurance company—
(1) the amount of the deduction allowed under subsection (a) shall be the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and
(2) subparagraph (C) of subsection (b)(2) shall not apply.
(g) Cross references
(1) For treatment of net operating loss carryovers in certain corporate acquisitions, see section 381.
(2) For special limitation on net operating loss carryovers in case of a corporate change of ownership, see section 382.
(Aug. 16, 1954, ch. 736, 68A Stat. 63; Pub. L. 85–866, title I, §§ 14(a), (b), 64(b), title II, § 203(a), (b), Sept. 2, 1958, 72 Stat. 1611, 1656, 1678; Pub. L. 87–710, § 1, Sept. 27, 1962, 76 Stat. 648; Pub. L. 87–792, § 7(f), Oct. 10, 1962, 76 Stat. 829; Pub. L. 87–794, title III, § 317(b), Oct. 11, 1962, 76 Stat. 889; Pub. L. 88–272, title II, §§ 210(a), (b), 234(b)(5), Feb. 26, 1964, 78 Stat. 47, 48, 115; Pub. L. 90–225, § 3(a), Dec. 27, 1967, 81 Stat. 732; Pub. L. 91–172, title IV, § 431(b), Dec. 30, 1969, 83 Stat. 619; Pub. L. 91–677, § 2(a)–(c), Jan. 12, 1971, 84 Stat. 2061; Pub. L. 94–455, title VIII, § 806(a)–(c), title X, § 1052(c)(3), title XVI, § 1606(b), (c), title XIX, §§ 1901(a)(29), 1906(b)(13)(A), title XXI, § 2126, Oct. 4, 1976, 90 Stat. 1598, 1648, 1755, 1756, 1769, 1834, 1920; Pub. L. 95–30, title I, § 102(b)(2), May 23, 1977, 91 Stat. 137; Pub. L. 95–600, title III, § 371(a), (b), title VI, § 601(b)(1), title VII, §§ 701(d)(1), 703(p)(1), Nov. 6, 1978, 92 Stat. 2859, 2896, 2900, 2943;

CITE AS: 26 USC 172

§ 173. Circulation expenditures
(a) General rule
(b) Cross reference
(Aug. 16, 1954, ch. 736, 68A Stat. 65; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97–248, title II, § 201(d)(9)(A), formerly § 201(c)(9)(A), Sept. 3, 1982, 96 Stat. 420, renumbered § 201(d)(9)(A), Pub. L. 97–448, title III, § 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 98–369, div. A, title VII, § 711(a)(3)(C), July 18, 1984, 98 Stat. 942; Pub. L. 99–514, title VII, § 701(e)(4)(D), Oct. 22, 1986, 100 Stat. 2343; Pub. L. 100–647, title I, § 1007(g)(5), Nov. 10, 1988, 102 Stat. 3435.)

CITE AS: 26 USC 173

§ 174. Amortization of research and experimental expenditures
(a) In generalIn the case of a taxpayer’s specified research or experimental expenditures for any taxable year—
(1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and
(2) the taxpayer shall—
(A) charge such expenditures to capital account, and
(B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred.
(b) Specified research or experimental expenditures
(c) Special rules
(1) Land and other property
(2) Exploration expenditures
(3) Software development
(d) Treatment upon disposition, retirement, or abandonment
(Aug. 16, 1954, ch. 736, 68A Stat. 66; Pub. L. 94–455, title XIX, §§ 1901(a)(30), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1769, 1834; Pub. L. 97–248, title II, § 201(d)(9)(B) formerly § 201(c)(9)(B), Sept. 3, 1982, 96 Stat. 420, renumbered § 201(d)(9)(B), Pub. L. 97–448, title III, § 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; amended Pub. L. 99–514, title VII, § 701(e)(4)(D), Oct. 22, 1986, 100 Stat. 2343; Pub. L. 100–647, title I, § 1007(g)(5), Nov. 10, 1988, 102 Stat. 3435; Pub. L. 101–239, title VII, § 7110(d), Dec. 19, 1989, 103 Stat. 2325; Pub. L. 113–295, div. A, title II, § 221(a)(31), (32), Dec. 19, 2014, 128 Stat. 4042; Pub. L. 115–97, title I, § 13206(a), Dec. 22, 2017, 131 Stat. 2111.)

CITE AS: 26 USC 174

§ 175. Soil and water conservation expenditures; endangered species recovery expenditures
(a) In general
(b) Limitation
(c) DefinitionsFor purposes of subsection (a)—
(1) The term “expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention of erosion of land used in farming, or for endangered species recovery” means expenditures paid or incurred for the treatment or moving of earth, including (but not limited to) leveling, grading and terracing, contour furrowing, the construction, control, and protection of diversion channels, drainage ditches, earthen dams, watercourses, outlets, and ponds, the eradication of brush, and the planting of windbreaks. Such term shall include expenditures paid or incurred for the purpose of achieving site-specific management actions recommended in recovery plans approved pursuant to the Endangered Species Act of 1973. Such term does not include—
(A) the purchase, construction, installation, or improvement of structures, appliances, or facilities which are of a character which is subject to the allowance for depreciation provided in section 167, or
(B) any amount paid or incurred which is allowable as a deduction without regard to this section.
Notwithstanding the preceding sentences, such term also includes any amount, not otherwise allowable as a deduction, paid or incurred to satisfy any part of an assessment levied by a soil or water conservation or drainage district to defray expenditures made by such district (i) which, if paid or incurred by the taxpayer, would without regard to this sentence constitute expenditures deductible under this section, or (ii) for property of a character subject to the allowance for depreciation provided in section 167 and used in the soil or water conservation or drainage district’s business as such (to the extent that the taxpayer’s share of the assessment levied on the members of the district for such property does not exceed 10 percent of such assessment).
(2) The term “land used in farming” means land used (before or simultaneously with the expenditures described in paragraph (1)) by the taxpayer or his tenant for the production of crops, fruits, or other agricultural products or for the sustenance of livestock.
(3)Additional limitations.—
(A)Expenditures must be consistent with soil conservation plan or endangered species recovery plan.—Notwithstanding any other provision of this section, subsection (a) shall not apply to any expenditures unless such expenditures are consistent with—
(i) the plan (if any) approved by the Soil Conservation Service of the Department of Agriculture or the recovery plan approved pursuant to the Endangered Species Act of 1973 for the area in which the land is located, or
(ii) if there is no plan described in clause (i), any soil conservation plan of a comparable State agency.
(B)Certain wetland, etc., activities not qualified.—Subsection (a) shall not apply to any expenditures in connection with the draining or filling of wetlands or land preparation for center pivot irrigation systems.
(d) When method may be adopted
(1) Without consent
(2) With consent
(e) Scope
(f) Rules applicable to assessments for depreciable property
(1) Amounts treated as paid or incurred over 9-year period
(2) Disposition of land during 9-year period
(3) Disposition by reason of death
(Aug. 16, 1954, ch. 736, 68A Stat. 67; Pub. L. 90–630, § 5(a), (b), Oct. 22, 1968, 82 Stat. 1329; Pub. L. 94–455, title XIX, §§ 1901(a)(30), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1769, 1834; Pub. L. 99–514, title IV, § 401(a), Oct. 22, 1986, 100 Stat. 2221; Pub. L. 110–234, title XV, § 15303(a)(1)–(2)(B), (b), May 22, 2008, 122 Stat. 1501, 1502; Pub. L. 110–246, § 4(a), title XV, § 15303(a)(1)–(2)(B), (b), June 18, 2008, 122 Stat. 1664, 2263, 2264; Pub. L. 113–295, div. A, title II, § 221(a)(33), Dec. 19, 2014, 128 Stat. 4042.)

CITE AS: 26 USC 175

§ 176. Payments with respect to employees of certain foreign corporations

In the case of a domestic corporation, there shall be allowed as a deduction amounts (to the extent not compensated for) paid or incurred pursuant to an agreement entered into under section 3121(l) with respect to services performed by United States citizens employed by foreign subsidiary corporations. Any reimbursement of any amount previously allowed as a deduction under this section shall be included in gross income for the taxable year in which received.

(Added Sept. 1, 1954, ch. 1206, title II, § 210(a), 68 Stat. 1096.)

CITE AS: 26 USC 176

[§ 177. Repealed. Pub. L. 99–514, title II, § 241(a), Oct. 22, 1986, 100 Stat. 2181]

CITE AS: 26 USC 177

§ 178. Amortization of cost of acquiring a lease
(a) General rule
(b) Certain periods excluded
(Added Pub. L. 85–866, title I, § 15(a), Sept. 2, 1958, 72 Stat. 1612; amended Pub. L. 99–514, title II, § 201(d)(2)(A), title XVIII, § 1812(c)(4)(B), Oct. 22, 1986, 100 Stat. 2139, 2835; Pub. L. 100–647, title I, § 1002(a)(9), Nov. 10, 1988, 102 Stat. 3354.)

CITE AS: 26 USC 178

§ 179. Election to expense certain depreciable business assets
(a) Treatment as expenses
(b) Limitations
(1) Dollar limitation
(2) Reduction in limitation
(3) Limitation based on income from trade or business
(A) In general
(B) Carryover of disallowed deductionThe amount allowable as a deduction under subsection (a) for any taxable year shall be increased by the lesser of—
(i) the aggregate amount disallowed under subparagraph (A) for all prior taxable years (to the extent not previously allowed as a deduction by reason of this subparagraph), or
(ii) the excess (if any) of—(I) the limitation of paragraphs (1) and (2) (or if lesser, the aggregate amount of taxable income referred to in subparagraph (A)), over(II) the amount allowable as a deduction under subsection (a) for such taxable year without regard to this subparagraph.
(C) Computation of taxable income
(4) Married individuals filing separatelyIn the case of a husband and wife filing separate returns for the taxable year—
(A) such individuals shall be treated as 1 taxpayer for purposes of paragraphs (1) and (2), and
(B) unless such individuals elect otherwise, 50 percent of the cost which may be taken into account under subsection (a) for such taxable year (before application of paragraph (3)) shall be allocated to each such individual.
(5) Limitation on cost taken into account for certain passenger vehicles
(A) In general
(B) Sport utility vehicleFor purposes of subparagraph (A)—
(i) In generalThe term “sport utility vehicle” means any 4-wheeled vehicle—(I) which is primarily designed or which can be used to carry passengers over public streets, roads, or highways (except any vehicle operated exclusively on a rail or rails),(II) which is not subject to section 280F, and(III) which is rated at not more than 14,000 pounds gross vehicle weight.
(ii) Certain vehicles excludedSuch term does not include any vehicle which—(I) is designed to have a seating capacity of more than 9 persons behind the driver’s seat,(II) is equipped with a cargo area of at least 6 feet in interior length which is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or(III) has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.
(6) Inflation adjustment
(A) In generalIn the case of any taxable year beginning after 2018, the dollar amounts in paragraphs (1), (2), and (5)(A) shall each 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 “calendar year 2017” for “calendar year 2016” in subparagraph (A)(ii) thereof.
(B) Rounding
(c) Election
(1) In generalAn election under this section for any taxable year shall—
(A) specify the items of section 179 property to which the election applies and the portion of the cost of each of such items which is to be taken into account under subsection (a), and
(B) be made on the taxpayer’s return of the tax imposed by this chapter for the taxable year.
Such election shall be made in such manner as the Secretary may by regulations prescribe.
(2) Election
(d) Definitions and special rules
(1) Section 179 propertyFor purposes of this section, the term “section 179 property” means property—
(A) which is—
(i) tangible property (to which section 168 applies), or
(ii) computer software (as defined in section 197(e)(3)(B)) which is described in section 197(e)(3)(A)(i) and to which section 167 applies,
(B) which is—
(i) section 1245 property (as defined in section 1245(a)(3)), or
(ii) at the election of the taxpayer, qualified real property (as defined in subsection (e)), and
(C) which is acquired by purchase for use in the active conduct of a trade or business.
Such term shall not include any property described in section 50(b) (other than paragraph (2) thereof).
(2) Purchase definedFor purposes of paragraph (1), the term “purchase” means any acquisition of property, but only if—
(A) the property is not acquired from a person whose relationship to the person acquiring it would result in the disallowance of losses under section 267 or 707(b) (but, in applying section 267(b) and (c) for purposes of this section, paragraph (4) of section 267(c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, and lineal descendants),
(B) the property is not acquired by one component member of a controlled group from another component member of the same controlled group, and
(C) the basis of the property in the hands of the person acquiring it is not determined—
(i) in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or
(ii) under section 1014(a) (relating to property acquired from a decedent).
(3) Cost
(4) Section not to apply to estates and trusts
(5) Section not to apply to certain noncorporate lessorsThis section shall not apply to any section 179 property which is purchased by a person who is not a corporation and with respect to which such person is the lessor unless—
(A) the property subject to the lease has been manufactured or produced by the lessor, or
(B) the term of the lease (taking into account options to renew) is less than 50 percent of the class life of the property (as defined in section 168(i)(1)), and for the period consisting of the first 12 months after the date on which the property is transferred to the lessee the sum of the deductions with respect to such property which are allowable to the lessor solely by reason of section 162 (other than rents and reimbursed amounts with respect to such property) exceeds 15 percent of the rental income produced by such property.
(6) Dollar limitation of controlled groupFor purposes of subsection (b) of this section—
(A) all component members of a controlled group shall be treated as one taxpayer, and
(B) the Secretary shall apportion the dollar limitation contained in subsection (b)(1) among the component members of such controlled group in such manner as he shall by regulations prescribe.
(7) Controlled group defined
(8) Treatment of partnerships and S corporations
(9) Coordination with section 38
(10) Recapture in certain cases
(e) Qualified real propertyFor purposes of this section, the term “qualified real property” means—
(1) any qualified improvement property described in section 168(e)(6), and
(2) any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service:
(A) Roofs.
(B) Heating, ventilation, and air-conditioning property.
(C) Fire protection and alarm systems.
(D) Security systems.
(Added Pub. L. 85–866, title II, § 204(a), Sept. 2, 1958, 72 Stat. 1679; amended Pub. L. 87–834, § 13(c)(2), Oct. 16, 1962, 76 Stat. 1034; Pub. L. 91–172, title IV, § 401(f), Dec. 30, 1969, 83 Stat. 603; Pub. L. 94–455, title II, § 213(a), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1547, 1834; Pub. L. 97–34, title II, § 202(a), Aug. 13, 1981, 95 Stat. 219; Pub. L. 97–354, § 3(f), Oct. 19, 1982, 96 Stat. 1689; Pub. L. 97–448, title I, § 102(aa), Jan. 12, 1983, 96 Stat. 2369; Pub. L. 98–369, div. A, title I, § 13, July 18, 1984, 98 Stat. 505; Pub. L. 99–514, title II, §§ 201(d)(3), 202, Oct. 22, 1986, 100 Stat. 2139, 2142; Pub. L. 100–647, title I, § 1002(a)(19), (b)(1), Nov. 10, 1988, 102 Stat. 3356, 3357; Pub. L. 101–508, title XI, § 11813(b)(11), Nov. 5, 1990, 104 Stat. 1388–554; Pub. L. 103–66, title XIII, § 13116(a), Aug. 10, 1993, 107 Stat. 432; Pub. L. 104–188, title I, §§ 1111(a), 1702(h)(10), (19), Aug. 20, 1996, 110 Stat. 1758, 1874; Pub. L. 108–27, title II, § 202(a)–(e), May 28, 2003, 117 Stat. 757, 758; Pub. L. 108–357, title II, § 201, title VIII, § 910(a), Oct. 22, 2004, 118 Stat. 1429, 1659; Pub. L. 109–222, title I, § 101, May 17, 2006, 120 Stat. 346; Pub. L. 110–28, title VIII, § 8212(a)–(c), May 25, 2007, 121 Stat. 192; Pub. L. 110–185, title I, § 102(a), Feb. 13, 2008, 122 Stat. 618; Pub. L. 110–343, div. C, title VII, § 711(a), Oct. 3, 2008, 122 Stat. 3928; Pub. L. 111–5, div. B, title I, § 1202(a), Feb. 17, 2009, 123 Stat. 335; Pub. L. 111–147, title II, § 201(a), Mar. 18, 2010, 124 Stat. 77; Pub. L. 111–240, title II, § 2021(a)–(d), Sept. 27, 2010, 124 Stat. 2556, 2558; Pub. L. 111–312, title IV, § 402(a)–(e), title VII, § 737(b)(3), Dec. 17, 2010, 124 Stat. 3306, 3307, 3318; Pub. L. 112–240, title III, § 315(a)–(d), Jan. 2, 2013, 126 Stat. 2330, 2331; Pub. L. 113–295, div. A, title I, § 127(a)–(d), Dec. 19, 2014, 128 Stat. 4017; Pub. L. 114–113, div. Q, title I, § 124(a)–(f), Dec. 18, 2015, 129 Stat. 3053; Pub. L. 115–97, title I, §§ 11002(d)(1)(R), 13101(a)–(c), Dec. 22, 2017, 131 Stat. 2060, 2101, 2102; Pub. L. 115–141, div. U, title IV, § 401(b)(15)(A), (B), Mar. 23, 2018, 132 Stat. 1202.)

CITE AS: 26 USC 179

[§ 179A. Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(34)(A), Dec. 19, 2014, 128 Stat. 4042]

CITE AS: 26 USC 179A

§ 179B. Deduction for capital costs incurred in complying with Environmental Protection Agency sulfur regulations
(a) Allowance of deduction
(b) Reduced percentage
(c) Basis reduction
(1) In general
(2) Ordinary income recapture
(d) Coordination with other provisions
(e) Election to allocate deduction to cooperative owner
(1) In general
If—
(A) a small business refiner to which subsection (a) applies is an organization to which part I of subchapter T applies, and
(B) one or more persons directly holding an ownership interest in the refiner are organizations to which part I of subchapter T apply,
the refiner may elect to allocate all or a portion of the deduction allowable under subsection (a) to such persons. Such allocation shall be equal to the person’s ratable share of the total amount allocated, determined on the basis of the person’s ownership interest in the taxpayer. The taxable income of the refiner shall not be reduced under section 1382 by reason of any amount to which the preceding sentence applies.
(2) Form and effect of election
(3) Written notice to owners
(Added Pub. L. 108–357, title III, § 338(a), Oct. 22, 2004, 118 Stat. 1480; amended Pub. L. 109–58, title XIII, § 1324(a), Aug. 8, 2005, 119 Stat. 1015; Pub. L. 110–172, § 7(a)(3)(A), (C), Dec. 29, 2007, 121 Stat. 2482.)

CITE AS: 26 USC 179B

§ 179C. Election to expense certain refineries
(a) Treatment as expenses
(b) Election
(1) In general
(2) Election irrevocable
(c) Qualified refinery property
(1) In general
The term “qualified refinery property” means any portion of a qualified refinery—
(A) the original use of which commences with the taxpayer,
(B) which is placed in service by the taxpayer after the date of the enactment of this section and before January 1, 2014,
(C) in the case any portion of a qualified refinery (other than a qualified refinery which is separate from any existing refinery), which meets the requirements of subsection (e),
(D) which meets all applicable environmental laws in effect on the date such portion was placed in service,
(E) no written binding contract for the construction of which was in effect on or before June 14, 2005, and
(F)
(i) the construction of which is subject to a written binding construction contract entered into before January 1, 2010,
(ii) which is placed in service before January 1, 2010, or
(iii) in the case of self-constructed property, the construction of which began after June 14, 2005, and before January 1, 2010.
(2) Special rule for sale-leasebacks
For purposes of paragraph (1)(A), if property is—
(A) originally placed in service after the date of the enactment of this section by a person, and
(B) 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 subparagraph (B).
(3) Effect of waiver under Clean Air Act
(d) Qualified refinery
(e) Production capacity
The requirements of this subsection are met if the portion of the qualified refinery—
(1) enables the existing qualified refinery to increase total volume output (determined without regard to asphalt or lube oil) by 5 percent or more on an average daily basis, or
(2) enables the existing qualified refinery to process shale, tar sands, or qualified fuels (as defined in section 45K(c)) at a rate which is equal to or greater than 25 percent of the total throughput of such qualified refinery on an average daily basis.
(f) Ineligible refinery property
No deduction shall be allowed under subsection (a) for any qualified refinery property—
(1) the primary purpose of which is for use as a topping plant, asphalt plant, lube oil facility, crude or product terminal, or blending facility, or
(2) which is built solely to comply with consent decrees or projects mandated by Federal, State, or local governments.
(g) Election to allocate deduction to cooperative owner
(1) In general
If—
(A) a taxpayer to which subsection (a) applies is an organization to which part I of subchapter T applies, and
(B) one or more persons directly holding an ownership interest in the taxpayer are organizations to which part I of subchapter T apply,
the taxpayer may elect to allocate all or a portion of the deduction allowable under subsection (a) to such persons. Such allocation shall be equal to the person’s ratable share of the total amount allocated, determined on the basis of the person’s ownership interest in the taxpayer. The taxable income of the taxpayer shall not be reduced under section 1382 by reason of any amount to which the preceding sentence applies.
(2) Form and effect of election
(3) Written notice to owners
(h) Reporting
(Added Pub. L. 109–58, title XIII, § 1323(a), Aug. 8, 2005, 119 Stat. 1013; amended Pub. L. 110–343, div. B, title II, § 209(a), (b), Oct. 3, 2008, 122 Stat. 3840.)

CITE AS: 26 USC 179C

§ 179D. Energy efficient commercial buildings deduction
(a) In general
(b) Maximum amount of deduction
(1) In generalThe deduction under subsection (a) with respect to any building for any taxable year shall not exceed the excess (if any) of—
(A) the product of—
(i) the applicable dollar value, and
(ii) the square footage of the building, over
(B) the aggregate amount of the deductions under subsections (a) and (f) with respect to the building for the 3 taxable years immediately preceding such taxable year (or, in the case of any such deduction allowable to a person other than the taxpayer, for any taxable year ending during the 4-taxable-year period ending with such taxable year).
(2) Applicable dollar value
(3) Increased deduction amount for certain property
(A) In general
(B) Property requirementsIn the case of any energy efficient commercial building property, energy efficient building retrofit property, or property installed pursuant to a qualified retrofit plan, such property shall meet the requirements of this subparagraph if—
(i) installation of such property begins prior to the date that is 60 days after the Secretary publishes guidance with respect to the requirements of paragraphs (4)(A) and (5), or
(ii) installation of such property satisfies the requirements of paragraphs (4)(A) and (5).
(4) Prevailing wage requirements
(A) In general
(B) Correction and penalty related to failure to satisfy wage requirements
(5) Apprenticeship requirements
(6) Regulations
(c) DefinitionsFor purposes of this section—
(1) Energy efficient commercial building propertyThe term “energy efficient commercial building property” means property—
(A) with respect to which depreciation (or amortization in lieu of depreciation) is allowable,
(B) which is installed on or in any building which is—
(i) located in the United States, and
(ii) within the scope of Reference Standard 90.1,
(C) which is installed as part of—
(i) the interior lighting systems,
(ii) the heating, cooling, ventilation, and hot water systems, or
(iii) the building envelope, and
(D) which is certified in accordance with subsection (d)(5) as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the interior lighting systems, heating, cooling, ventilation, and hot water systems of the building by 25 percent or more in comparison to a reference building which meets the minimum requirements of Reference Standard 90.1 using methods of calculation under subsection (d)(1).
(2) Reference Standard 90.1The term “Reference Standard 90.1” means, with respect to any property, the more recent of—
(A) Standard 90.1-2007 published by the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America, or
(B) the most recent Standard 90.1 published by the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America for which the Department of Energy has issued a final determination and which has been affirmed by the Secretary, after consultation with the Secretary of Energy, for purposes of this section not later than the date that is 4 years before the date such property is placed in service.
(d) Special rules
(1) Methods of calculation
(2) Computer software
(A) In general
(B) Qualified computer softwareFor purposes of this paragraph, the term “qualified computer software” means software—
(i) for which the software designer has certified that the software meets all procedures and detailed methods for calculating energy and power consumption and costs as required by the Secretary,
(ii) which provides such forms as required to be filed by the Secretary in connection with energy efficiency of property and the deduction allowed under this section, and
(iii) which provides a notice form which documents the energy efficiency features of the building and its projected annual energy costs.
(3) Allocation of deduction by certain tax-exempt entities
(A) In general
(B) Specified tax-exempt entityFor purposes of this paragraph, the term “specified tax-exempt entity” means—
(i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing,
(ii) an Indian tribal government (as defined in section 30D(g)(9)) or Alaska Native Corporation (as defined in section 3 of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)),1
1 So in original. Another closing parenthesis probably should precede the comma.
and
(iii) any organization exempt from tax imposed by this chapter.
(4) Notice to owner
(5) Certification
(A) In general
(B) Procedures
(C) Qualified individuals
(e) Basis reduction
(f) Alternative deduction for energy efficient building retrofit property
(1) In generalIn the case of a taxpayer which elects (at such time and in such manner as the Secretary may provide) the application of this subsection with respect to any qualified building, there shall be allowed as a deduction for the taxable year which includes the date of the qualifying final certification with respect to the qualified retrofit plan of such building, an amount equal to the lesser of—
(A) the excess described in subsection (b) (determined by substituting “energy use intensity” for “total annual energy and power costs” in paragraph (2) thereof), or
(B) the aggregate adjusted basis (determined after taking into account all adjustments with respect to such taxable year other than the reduction under subsection (e)) of energy efficient building retrofit property placed in service by the taxpayer pursuant to such qualified retrofit plan.
(2) Qualified retrofit planFor purposes of this subsection, the term “qualified retrofit plan” means a written plan prepared by a qualified professional which specifies modifications to a building which, in the aggregate, are expected to reduce such building’s energy use intensity by 25 percent or more in comparison to the baseline energy use intensity of such building. Such plan shall provide for a qualified professional to—
(A) as of any date during the 1-year period ending on the date on which the property installed pursuant to such plan is placed in service, certify the energy use intensity of such building as of such date,
(B) certify the status of property installed pursuant to such plan as meeting the requirements of subparagraphs (B) and (C) of paragraph (3), and
(C) as of any date that is more than 1 year after the date on which the property installed pursuant to such plan is placed in service, certify the energy use intensity of such building as of such date.
(3) Energy efficient building retrofit propertyFor purposes of this subsection, the term “energy efficient building retrofit property” means property—
(A) with respect to which depreciation (or amortization in lieu of depreciation) is allowable,
(B) which is installed on or in any qualified building,
(C) which is installed as part of—
(i) the interior lighting systems,
(ii) the heating, cooling, ventilation, and hot water systems, or
(iii) the building envelope, and
(D) which is certified in accordance with paragraph (2)(B) as meeting the requirements of subparagraphs (B) and (C).
(4) Qualified buildingFor purposes of this subsection, the term “qualified building” means any building which—
(A) is located in the United States, and
(B) was originally placed in service not less than 5 years before the establishment of the qualified retrofit plan with respect to such building.
(5) Qualifying final certification
(6) Baseline energy use intensity
(A) In general
(B) Determination of adjustment
(7) Other definitionsFor purposes of this subsection—
(A) Energy use intensity
(B) Qualified professional
(8) Coordination with deduction otherwise allowed under subsection (a)
(A) In general
(B) Certain rules not applicable
(i) In general
(ii) Allocation of deduction by certain tax-exempt entities
(g) Inflation adjustmentIn the case of a taxable year beginning after 2022, each dollar amount in subsection (b) shall be increased by an amount equal to—
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2021” for “calendar year 2016” in subparagraph (A)(ii) thereof.
Any increase determined under the preceding sentence which is not a multiple of 1 cent shall be rounded to the nearest cent.
(h) RegulationsThe Secretary shall promulgate such regulations as necessary—
(1) to take into account new technologies regarding energy efficiency and renewable energy for purposes of determining energy efficiency and savings under this section, and
(2) to provide for a recapture of the deduction allowed under this section if the plan described in subsection (c)(1)(D) is not fully implemented.
(Added Pub. L. 109–58, title XIII, § 1331(a), Aug. 8, 2005, 119 Stat. 1020; amended Pub. L. 109–432, div. A, title II, § 204, Dec. 20, 2006, 120 Stat. 2945; Pub. L. 110–343, div. B, title III, § 303, Oct. 3, 2008, 122 Stat. 3845; Pub. L. 113–295, div. A, title I, § 158(a), Dec. 19, 2014, 128 Stat. 4022; Pub. L. 114–113, div. Q, title I, § 190(a), title III, § 341(a), (b), Dec. 18, 2015, 129 Stat. 3075, 3113; Pub. L. 115–123, div. D, title I, § 40413(a), Feb. 9, 2018, 132 Stat. 151; Pub. L. 115–141, div. U, title IV, § 401(a)(54), Mar. 23, 2018, 132 Stat. 1186; Pub. L. 116–94, div. Q, title I, § 131(a), Dec. 20, 2019, 133 Stat. 3232; Pub. L. 116–260, div. EE, title I, § 102(a)–(c), Dec. 27, 2020, 134 Stat. 3039, 3040; Pub. L. 117–169, title I, § 13303(a), (c), Aug. 16, 2022, 136 Stat. 1947, 1952.)

CITE AS: 26 USC 179D

§ 179E. Election to expense advanced mine safety equipment
(a) Treatment as expenses
(b) Election
(1) In general
(2) Election irrevocable
(c) Qualified advanced mine safety equipment property
For purposes of this section, the term “qualified advanced mine safety equipment property” means any advanced mine safety equipment property for use in any underground mine located in the United States—
(1) the original use of which commences with the taxpayer, and
(2) which is placed in service by the taxpayer after the date of the enactment of this section.
(d) Advanced mine safety equipment property
For purposes of this section, the term “advanced mine safety equipment property” means any of the following:
(1) Emergency communication technology or device which is used to allow a miner to maintain constant communication with an individual who is not in the mine.
(2) Electronic identification and location device which allows an individual who is not in the mine to track at all times the movements and location of miners working in or at the mine.
(3) Emergency oxygen-generating, self-rescue device which provides oxygen for at least 90 minutes.
(4) Pre-positioned supplies of oxygen which (in combination with self-rescue devices) can be used to provide each miner on a shift, in the event of an accident or other event which traps the miner in the mine or otherwise necessitates the use of such a self-rescue device, the ability to survive for at least 48 hours.
(5) Comprehensive atmospheric monitoring system which monitors the levels of carbon monoxide, methane, and oxygen that are present in all areas of the mine and which can detect smoke in the case of a fire in a mine.
(e) Coordination with section 179
(f) Reporting
(g) Termination
(Added Pub. L. 109–432, div. A, title IV, § 404(a), Dec. 20, 2006, 120 Stat. 2955; amended Pub. L. 110–343, div. C, title III, § 311, Oct. 3, 2008, 122 Stat. 3869; Pub. L. 111–312, title VII, § 743(a), Dec. 17, 2010, 124 Stat. 3319; Pub. L. 112–240, title III, § 316(a), Jan. 2, 2013, 126 Stat. 2331; Pub. L. 113–295, div. A, title I, § 128(a), Dec. 19, 2014, 128 Stat. 4018; Pub. L. 114–113, div. Q, title I, § 168(a), Dec. 18, 2015, 129 Stat. 3067; Pub. L. 115–123, div. D, title I, § 40307(a), Feb. 9, 2018, 132 Stat. 146.)

CITE AS: 26 USC 179E

§ 180. Expenditures by farmers for fertilizer, etc.
(a) In general
(b) Land used in farming
(c) Election
(Added Pub. L. 86–779, § 6(a), Sept. 14, 1960, 74 Stat. 1001; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)

CITE AS: 26 USC 180

§ 181. Treatment of certain qualified film and television and live theatrical productions
(a) Election to treat costs as expenses
(1) In general
(2) Dollar limitation
(A) In general
(B) Higher dollar limitation for productions in certain areasIn the case of any qualified film or television production or any qualified live theatrical production the aggregate cost of which is significantly incurred in an area eligible for designation as—
(i) a low-income community under section 45D, or
(ii) a distressed county or isolated area of distress by the Delta Regional Authority established under section 2009aa–1 of title 7, United States Code,
subparagraph (A) shall be applied by substituting “$20,000,000” for “$15,000,000”.
(b) No other deduction or amortization deduction allowable
(c) Election
(1) In general
(2) Revocation of election
(d) Qualified film or television productionFor purposes of this section—
(1) In general
(2) Production
(A) In general
(B) Special rules for television seriesIn the case of a television series—
(i) each episode of such series shall be treated as a separate production, and
(ii) only the first 44 episodes of such series shall be taken into account.
(C) Exception
(3) Qualified compensationFor purposes of paragraph (1)—
(A) In general
(B) Participations and residuals excluded
(e) Qualified live theatrical productionFor purposes of this section—
(1) In general
(2) Production
(A) In general
(B) Touring companies, etc.In the case of multiple live staged productions—
(i) for which the election under this section would be allowable to the same taxpayer, and
(ii) which are—(I) separate phases of a production, or(II) separate simultaneous stagings of the same production in different geographical locations (not including multiple performance locations of any one touring production),
each such live staged production shall be treated as a separate production.
(C) PhaseFor purposes of subparagraph (B), the term “phase” with respect to any qualified live theatrical production refers to each of the following, but only if each of the following is treated by the taxpayer as a separate activity for all purposes of this title:
(i) The initial staging of a live theatrical production.
(ii) Subsequent additional stagings or touring of such production which are produced by the same producer as the initial staging.
(D) Seasonal productions
(i) In general
(ii) Short taxable years
(E) Exception
(f) Application of certain other rules
(g) Termination
(Added Pub. L. 108–357, title II, § 244(a), Oct. 22, 2004, 118 Stat. 1445; amended Pub. L. 109–135, title IV, § 403(e)(1), Dec. 21, 2005, 119 Stat. 2623; Pub. L. 110–343, div. C, title V, § 502(a), (b), (d), Oct. 3, 2008, 122 Stat. 3876, 3877; Pub. L. 111–312, title VII, § 744(a), Dec. 17, 2010, 124 Stat. 3319; Pub. L. 112–240, title III, § 317(a), Jan. 2, 2013, 126 Stat. 2331; Pub. L. 113–295, div. A, title I, § 129(a), Dec. 19, 2014, 128 Stat. 4018; Pub. L. 114–113, div. Q, title I, § 169(a)–(b)(2), (c), Dec. 18, 2015, 129 Stat. 3067, 3068; Pub. L. 115–123, div. D, title I, § 40308(a), Feb. 9, 2018, 132 Stat. 146; Pub. L. 116–94, div. Q, title I, § 117(a), Dec. 20, 2019, 133 Stat. 3229; Pub. L. 116–260, div. EE, title I, § 116(a), Dec. 27, 2020, 134 Stat. 3051.)

CITE AS: 26 USC 181

[§ 182. Repealed. Pub. L. 99–514, title IV, § 402(a), Oct. 22, 1986, 100 Stat. 2221]

CITE AS: 26 USC 182

§ 183. Activities not engaged in for profit
(a) General rule
(b) Deductions allowable
In the case of an activity not engaged in for profit to which subsection (a) applies, there shall be allowed—
(1) the deductions which would be allowable under this chapter for the taxable year without regard to whether or not such activity is engaged in for profit, and
(2) a deduction equal to the amount of the deductions which would be allowable under this chapter for the taxable year only if such activity were engaged in for profit, but only to the extent that the gross income derived from such activity for the taxable year exceeds the deductions allowable by reason of paragraph (1).
(c) Activity not engaged in for profit defined
(d) Presumption
(e) Special rule
(1) In general
(2) Initial period
(3) Election
(4) Time for assessing deficiency attributable to activity
(Added Pub. L. 91–172, title II, § 213(a), Dec. 30, 1969, 83 Stat. 571; amended Pub. L. 92–178, title III, § 311(a), Dec. 10, 1971, 85 Stat. 525; Pub. L. 94–455, title II, § 214(a), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1549, 1834; Pub. L. 97–354, § 5(a)(23), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 99–514, title I, § 143(a), Oct. 22, 1986, 100 Stat. 2120; Pub. L. 100–647, title I, § 1001(h)(3), Nov. 10, 1988, 102 Stat. 3352; Pub. L. 113–295, div. A, title II, § 221(a)(36), Dec. 19, 2014, 128 Stat. 4042.)

CITE AS: 26 USC 183

[§ 184. Repealed. Pub. L. 101–508, title XI, § 11801(a)(12), Nov. 5, 1990, 104 Stat. 1388–520]

CITE AS: 26 USC 184

[§ 185. Repealed. Pub. L. 99–514, title II, § 242(a), Oct. 22, 1986, 100 Stat. 2181]

CITE AS: 26 USC 185

§ 186. Recoveries of damages for antitrust violations, etc.
(a) Allowance of deductionIf a compensatory amount which is included in gross income is received or accrued during the taxable year for a compensable injury, there shall be allowed as a deduction for the taxable year an amount equal to the lesser of—
(1) the amount of such compensatory amount, or
(2) the amount of the unrecovered losses sustained as a result of such compensable injury.
(b) Compensable injuryFor purposes of this section, the term “compensable injury” means—
(1) injuries sustained as a result of an infringement of a patent issued by the United States,
(2) injuries sustained as a result of a breach of contract or a breach of fiduciary duty or relationship, or
(3) injuries sustained in business, or to property, by reason of any conduct forbidden in the antitrust laws for which a civil action may be brought under section 4 of the Act entitled “An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes”, approved October 15, 1914 (commonly known as the Clayton Act).
Compensatory amount
(d) Unrecovered losses
(1) In generalFor purposes of this section, the amount of any unrecovered loss sustained as a result of any compensable injury is—
(A) the sum of the amount of the net operating losses (as determined under section 172) for each taxable year in whole or in part within the injury period, to the extent that such net operating losses are attributable to such compensable injury, reduced by
(B) the sum of—
(i) the amount of the net operating losses described in subparagraph (A) which were allowed for any prior taxable year as a deduction under section 172 as a net operating loss carryback or carryover to such taxable year, and
(ii) the amounts allowed as a deduction under subsection (a) for any prior taxable year for prior recoveries of compensatory amounts for such compensable injury.
(2) Injury periodFor purposes of paragraph (1), the injury period is—
(A) with respect to any infringement of a patent, the period in which such infringement occurred,
(B) with respect to a breach of contract or breach of fiduciary duty or relationship, the period during which amounts would have been received or accrued but for the breach of contract or breach of fiduciary duty or relationship, and
(C) with respect to injuries sustained by reason of any conduct forbidden in the antitrust laws, the period in which such injuries were sustained.
(3) Net operating losses attributable to compensable injuriesFor purposes of paragraph (1)—
(A) a net operating loss for any taxable year shall be treated as attributable to a compensable injury to the extent of the compensable injury sustained during such taxable year, and
(B) if only a portion of a net operating loss for any taxable year is attributable to a compensable injury, such portion shall (in applying section 172 for purposes of this section) be considered to be a separate net operating loss for such year to be applied after the other portion of such net operating loss.
(e) Effect on net operating loss carryoversIf for the taxable year in which a compensatory amount is received or accrued any portion of a net operating loss carryover to such year is attributable to the compensable injury for which such amount is received or accrued, such portion of such net operating loss carryover shall be reduced by an amount equal to—
(1) the deduction allowed under subsection (a) with respect to such compensatory amount, reduced by
(2) any portion of the unrecovered losses sustained as a result of the compensable injury with respect to which the period for carryover under section 172 has expired.
(Added Pub. L. 91–172, title IX, § 904(a), Dec. 30, 1969, 83 Stat. 711.)

CITE AS: 26 USC 186

[§ 187. Repealed. Pub. L. 94–455, title XIX, § 1901(a)(31), Oct. 4, 1976, 90 Stat. 1769]

CITE AS: 26 USC 187

[§ 188. Repealed. Pub. L. 101–508, title XI, § 11801(a)(13), Nov. 5, 1990, 104 Stat. 1388–520]

CITE AS: 26 USC 188

[§ 189. Repealed. Pub. L. 99–514, title VIII, § 803(b)(1), Oct. 22, 1986, 100 Stat. 2355]

CITE AS: 26 USC 189

§ 190. Expenditures to remove architectural and transportation barriers to the handicapped and elderly
(a) Treatment as expenses
(1) In general
(2) Election
(b) Definitions
For purposes of this section—
(1) Architectural and transportation barrier removal expenses
(2) Qualified architectural and transportation barrier removal expenses
(3) Handicapped individual
(c) Limitation
(Added Pub. L. 94–455, title XXI, § 2122(a), Oct. 4, 1976, 90 Stat. 1914; amended Pub. L. 98–369, div. A, title X, § 1062(a)(1), (b), July 18, 1984, 98 Stat. 1047; Pub. L. 99–514, title II, § 244, Oct. 22, 1986, 100 Stat. 2183; Pub. L. 101–508, title XI, §§ 11611(c), 11801(a)(14), Nov. 5, 1990, 104 Stat. 1388–503, 1388–520.)

CITE AS: 26 USC 190

[§ 191. Repealed. Pub. L. 97–34, title II, § 212(d)(1), Aug. 13, 1981, 95 Stat. 239]

CITE AS: 26 USC 191

§ 192. Contributions to black lung benefit trust
(a) Allowance of deduction
(b) Limitation
The maximum amount of the deduction allowed by subsection (a) for any taxpayer for any taxable year shall not exceed the greater of—
(1) the amount necessary to fund (with level funding) the remaining unfunded liability of the taxpayer for black lung claims filed (or expected to be filed) by (or with respect to) past or present employees of the taxpayer, or
(2) the aggregate amount necessary to increase each trust described in section 501(c)(21) to the amount required to pay all amounts payable out of such trust for the taxable year.
(c) Special rules
(1) Method of determining amounts referred to in subsection (b)
(A) In general
(B) Funding period
Except as provided in subparagraph (C), the funding period for purposes of subsection (b)(1) shall be the greater of—
(i) the average remaining working life of miners who are present employees of the taxpayer, or
(ii) 10 taxable years.
For purposes of the preceding sentence, the term “miner” has the same meaning as such term has when used in section 402(d) of the Black Lung Benefits Act (30 U.S.C. 902(d)).
(C) Different funding periods
To the extent that—
(i) regulations prescribed by the Secretary provide for a different period, or
(ii) the Secretary consents to a different period proposed by the taxpayer,
such different period shall be substituted for the funding period provided in subparagraph (B).
(2) Benefit payments taken into account
(3) Time when contributions deemed made
(4) Contributions to be in cash or certain other items
(5) Denial of section 162 deduction with respect to liability
(d) Carryover of excess contributions
(e) Definition of black lung benefit claim
(Added Pub. L. 95–227, § 4(b)(1), Feb. 10, 1978, 92 Stat. 16; amended Pub. L. 95–488, § 1(a)–(c), Oct. 20, 1978, 92 Stat. 1637; Pub. L. 96–222, title I, § 108(b)(2)(B), Apr. 1, 1980, 94 Stat. 226; Pub. L. 102–486, title XIX, § 1940(c), Oct. 24, 1992, 106 Stat. 3035.)

CITE AS: 26 USC 192

§ 193. Tertiary injectants
(a) Allowance of deduction
(b) Qualified tertiary injectant expenses
For purposes of this section—
(1) In general
(2) Hydrocarbon injectant
(3) Tertiary recovery method
The term “tertiary recovery method” means—
(A) any method which is described in subparagraphs (1) through (9) of section 212.78(c) of the June 1979 energy regulations (as defined by section 4996(b)(8)(C) as in effect before its repeal), or
(B) any other method to provide tertiary enhanced recovery which is approved by the Secretary for purposes of this section.
(c) Application with other deductions
No deduction shall be allowed under subsection (a) with respect to any expenditure—
(1) with respect to which the taxpayer has made an election under section 263(c), or
(2) with respect to which a deduction is allowed or allowable to the taxpayer under any other provision of this chapter.
(Added Pub. L. 96–223, title II, § 251(a)(1), Apr. 2, 1980, 94 Stat. 286; amended Pub. L. 97–448, title II, § 202(b), Jan. 12, 1983, 96 Stat. 2396; Pub. L. 100–418, title I, § 1941(b)(7), Aug. 23, 1988, 102 Stat. 1324.)

CITE AS: 26 USC 193

§ 194. Treatment of reforestation expenditures
(a) Allowance of deduction
(b) Treatment as expenses
(1) Election to treat certain reforestation expenditures as expenses
(A) In general
(B) Dollar limitation
The aggregate amount of reforestation expenditures which may be taken into account under subparagraph (A) with respect to each qualified timber property for any taxable year shall not exceed—
(i) except as provided in clause (ii) or (iii), $10,000,
(ii) in the case of a separate return by a married individual (as defined in section 7703), $5,000, and
(iii) in the case of a trust, zero.
(2) Allocation of dollar limit
(A) Controlled group
For purposes of applying the dollar limitation under paragraph (1)(B)—
(i) all component members of a controlled group shall be treated as one taxpayer, and
(ii) the Secretary shall, under regulations prescribed by him, apportion such dollar limitation among the component members of such controlled group.
For purposes of the preceding sentence, the term “controlled group” has the meaning assigned to it by section 1563(a), except that the phrase “more than 50 percent” shall be substituted for the phrase “at least 80 percent” each place it appears in section 1563(a)(1).
(B) Partnerships and S corporations
(c) Definitions and special rule
For purposes of this section—
(1) Qualified timber property
(2) Amortizable basis
(3) Reforestation expenditures
(A) In general
The term “reforestation expenditures” means direct costs incurred in connection with forestation or reforestation by planting or artificial or natural seeding, including costs—
(i) for the preparation of the site;
(ii) of seeds or seedlings; and
(iii) for labor and tools, including depreciation of equipment such as tractors, trucks, tree planters, and similar machines used in planting or seeding.
(B) Cost-sharing programs
(4) Treatment of trusts and estates
(5) Application with other deductions
(d) Life tenant and remainderman
(Added Pub. L. 96–451, title III, § 301(a), Oct. 14, 1980, 94 Stat. 1989; amended Pub. L. 97–354, § 3(g), Oct. 19, 1982, 96 Stat. 1689; Pub. L. 99–514, title XIII, § 1301(j)(8), Oct. 22, 1986, 100 Stat. 2658;

CITE AS: 26 USC 194

§ 194A. Contributions to employer liability trusts
(a) Allowance of deduction
There shall be allowed as a deduction for the taxable year an amount equal to the amount—
(1) which is contributed by an employer to a trust described in section 501(c)(22) (relating to withdrawal liability payment fund) which meets the requirements of section 4223(h) of the Employee Retirement Income Security Act of 1974, and
(2) which is properly allocable to such taxable year.
(b) Allocation to taxable year
(c) Disallowance of deduction
(Added Pub. L. 96–364, title II, § 209(c)(1), Sept. 26, 1980, 94 Stat. 1290, § 194; renumbered § 194A, Pub. L. 97–448, title III, § 305(b)(1), Jan. 12, 1983, 96 Stat. 2399.)

CITE AS: 26 USC 194A

§ 195. Start-up expenditures
(a) Capitalization of expenditures
(b) Election to deduct
(1) Allowance of deductionIf a taxpayer elects the application of this subsection with respect to any start-up expenditures—
(A) the taxpayer shall be allowed a deduction for the taxable year in which the active trade or business begins in an amount equal to the lesser of—
(i) the amount of start-up expenditures with respect to the active trade or business, or
(ii) $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, and
(B) the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins.
(2) Dispositions before close of amortization period
(3) Special rule for taxable years beginning in 2010In the case of a taxable year beginning in 2010, paragraph (1)(A)(ii) shall be applied—
(A) by substituting “$10,000” for “$5,000”, and
(B) by substituting “$60,000” for “$50,000”.
(c) DefinitionsFor purposes of this section—
(1) Start-up expendituresThe term “start-up expenditure” means any amount—
(A) paid or incurred in connection with—
(i) investigating the creation or acquisition of an active trade or business, or
(ii) creating an active trade or business, or
(iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and
(B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.
The term “start-up expenditure” does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174.
(2) Beginning of trade or business
(A) In general
(B) Acquired trade or business
(d) Election
(1) Time for making election
(2) Scope of election
(Added Pub. L. 96–605, title I, § 102(a), Dec. 28, 1980, 94 Stat. 3522; amended Pub. L. 98–369, div. A, title I, § 94(a), July 18, 1984, 98 Stat. 614; Pub. L. 108–357, title VIII, § 902(a), Oct. 22, 2004, 118 Stat. 1651; Pub. L. 111–240, title II, § 2031(a), Sept. 27, 2010, 124 Stat. 2559.)

CITE AS: 26 USC 195

§ 196. Deduction for certain unused business credits
(a) Allowance of deduction
(b) Taxpayer’s dying or ceasing to exist
(c) Qualified business credits
For purposes of this section, the term “qualified business credits” means—
(1) the investment credit determined under section 46 (but only to the extent attributable to property the basis of which is reduced by section 50(c)),
(2) the work opportunity credit determined under section 51(a),
(3) the alcohol fuels credit determined under section 40(a),
(4) the research credit determined under section 41(a) (other than such credit determined under section 280C(c)(3)) 1
1 See References in Text note below.
for taxable years beginning after December 31, 1988,
(5) the enhanced oil recovery credit determined under section 43(a),
(6) the empowerment zone employment credit determined under section 1396(a),
(7) the Indian employment credit determined under section 45A(a),
(8) the employer Social Security credit determined under section 45B(a),
(9) the new markets tax credit determined under section 45D(a),
(10) the small employer pension plan startup cost credit determined under section 45E(a),
(11) the biodiesel fuels credit determined under section 40A(a),
(12) the low sulfur diesel fuel production credit determined under section 45H(a),
(13) the new energy efficient home credit determined under section 45L(a), and
(14) the small employer health insurance credit determined under section 45R(a).
(d) Special rule for investment tax credit
(Added Pub. L. 97–248, title II, § 205(a)(2), Sept. 3, 1982, 96 Stat. 428; amended Pub. L. 98–369, div. A, title IV, § 474(r)(8)(A), July 18, 1984, 98 Stat. 840; Pub. L. 100–647, title IV, § 4008(b)(2), Nov. 10, 1988, 102 Stat. 3653; Pub. L. 101–239, title VII, §§ 7110(c)(2), 7814(e)(1), (2)(D), Dec. 19, 1989, 103 Stat. 2325, 2413, 2414; Pub. L. 101–508, title XI, §§ 11511(b)(3), 11813(b)(12), Nov. 5, 1990, 104 Stat. 1388–485, 1388–554; Pub. L. 103–66, title XIII, §§ 13302(b)(2), 13322(c)(2), Aug. 10, 1993, 107 Stat. 555, 563; Pub. L. 104–188, title I, § 1201(e)(1), Aug. 20, 1996, 110 Stat. 1772; Pub. L. 105–206, title VI, § 6020(a), July 22, 1998, 112 Stat. 823; Pub. L. 106–554, § 1(a)(7) [title I, § 121(c)], Dec. 21, 2000, 114 Stat. 2763, 2763A–610; Pub. L. 107–16, title VI, § 619(c)(2), June 7, 2001, 115 Stat. 110; Pub. L. 108–357, title III, §§ 302(c)(2), 339(e), Oct. 22, 2004, 118 Stat. 1465, 1484; Pub. L. 109–58, title XIII, § 1332(d), Aug. 8, 2005, 119 Stat. 1026; Pub. L. 111–148, title I, § 1421(d)(2), Mar. 23, 2010, 124 Stat. 242; Pub. L. 115–141, div. U, title IV, § 401(b)(16), Mar. 23, 2018, 132 Stat. 1202.)

CITE AS: 26 USC 196

§ 197. Amortization of goodwill and certain other intangibles
(a) General rule
(b) No other depreciation or amortization deduction allowable
(c) Amortizable section 197 intangibleFor purposes of this section—
(1) In generalExcept as otherwise provided in this section, the term “amortizable section 197 intangible” means any section 197 intangible—
(A) which is acquired by the taxpayer after the date of the enactment of this section, and
(B) which is held in connection with the conduct of a trade or business or an activity described in section 212.
(2) Exclusion of self-created intangibles, etc.The term “amortizable section 197 intangible” shall not include any section 197 intangible—
(A) which is not described in subparagraph (D), (E), or (F) of subsection (d)(1), and
(B) which is created by the taxpayer.
This paragraph shall not apply if the intangible is created in connection with a transaction (or series of related transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof.
(3) Anti-churning rules
(d) Section 197 intangibleFor purposes of this section—
(1) In generalExcept as otherwise provided in this section, the term “section 197 intangible” means—
(A) goodwill,
(B) going concern value,
(C) any of the following intangible items:
(i) workforce in place including its composition and terms and conditions (contractual or otherwise) of its employment,
(ii) business books and records, operating systems, or any other information base (including lists or other information with respect to current or prospective customers),
(iii) any patent, copyright, formula, process, design, pattern, knowhow, format, or other similar item,
(iv) any customer-based intangible,
(v) any supplier-based intangible, and
(vi) any other similar item,
(D) any license, permit, or other right granted by a governmental unit or an agency or instrumentality thereof,
(E) any covenant not to compete (or other arrangement to the extent such arrangement has substantially the same effect as a covenant not to compete) entered into in connection with an acquisition (directly or indirectly) of an interest in a trade or business or substantial portion thereof, and
(F) any franchise, trademark, or trade name.
(2) Customer-based intangible
(A) In generalThe term “customer-based intangible” means—
(i) composition of market,
(ii) market share, and
(iii) any other value resulting from future provision of goods or services pursuant to relationships (contractual or otherwise) in the ordinary course of business with customers.
(B) Special rule for financial institutions
(3) Supplier-based intangible
(e) ExceptionsFor purposes of this section, the term “section 197 intangible” shall not include any of the following:
(1) Financial interestsAny interest—
(A) in a corporation, partnership, trust, or estate, or
(B) under an existing futures contract, foreign currency contract, notional principal contract, or other similar financial contract.
(2) Land
(3) Computer software
(A) In generalAny—
(i) computer software which is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified, and
(ii) other computer software which is not acquired in a transaction (or series of related transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof.
(B) Computer software defined
(4) Certain interests or rights acquired separatelyAny of the following not acquired in a transaction (or series of related transactions) involving the acquisition of assets constituting a trade business or substantial portion thereof:
(A) Any interest in a film, sound recording, video tape, book, or similar property.
(B) Any right to receive tangible property or services under a contract or granted by a governmental unit or agency or instrumentality thereof.
(C) Any interest in a patent or copyright.
(D) To the extent provided in regulations, any right under a contract (or granted by a governmental unit or an agency or instrumentality thereof) if such right—
(i) has a fixed duration of less than 15 years, or
(ii) is fixed as to amount and, without regard to this section, would be recoverable under a method similar to the unit-of-production method.
(5) Interests under leases and debt instrumentsAny interest under—
(A) an existing lease of tangible property, or
(B) except as provided in subsection (d)(2)(B), any existing indebtedness.
(6) Mortgage servicing
(7) Certain transaction costs
(f) Special rules
(1) Treatment of certain dispositions, etc.
(A) In generalIf there is a disposition of any amortizable section 197 intangible acquired in a transaction or series of related transactions (or any such intangible becomes worthless) and one or more other amortizable section 197 intangibles acquired in such transaction or series of related transactions are retained—
(i) no loss shall be recognized by reason of such disposition (or such worthlessness), and
(ii) appropriate adjustments to the adjusted bases of such retained intangibles shall be made for any loss not recognized under clause (i).
(B) Special rule for covenants not to compete
(C) Special rule
(2) Treatment of certain transfers
(A) In general
(B) Transactions coveredThe transactions described in this subparagraph are—
(i) any transaction described in section 332, 351, 361, 721, 731, 1031, or 1033, and
(ii) any transaction between members of the same affiliated group during any taxable year for which a consolidated return is made by such group.
(3) Treatment of amounts paid pursuant to covenants not to compete, etc.
(4) Treatment of franchises, etc.
(A) Franchise
(B) Treatment of renewals
(C) Certain amounts not taken into account
(5) Treatment of certain reinsurance transactionsIn the case of any amortizable section 197 intangible resulting from an assumption reinsurance transaction, the amount taken into account as the adjusted basis of such intangible under this section shall be the excess of—
(A) the amount paid or incurred by the acquirer under the assumption reinsurance transaction, over
(B) the amount required to be capitalized under section 848 in connection with such transaction.
Subsection (b) shall not apply to any amount required to be capitalized under section 848.
(6) Treatment of certain subleases
(7) Treatment as depreciable
(8) Treatment of certain increments in value
(9) Anti-churning rulesFor purposes of this section—
(A) In generalThe term “amortizable section 197 intangible” shall not include any section 197 intangible which is described in subparagraph (A) or (B) of subsection (d)(1) (or for which depreciation or amortization would not have been allowable but for this section) and which is acquired by the taxpayer after the date of the enactment of this section, if—
(i) the intangible was held or used at any time on or after July 25, 1991, and on or before such date of enactment by the taxpayer or a related person,
(ii) the intangible was acquired from a person who held such intangible at any time on or after July 25, 1991, and on or before such date of enactment, and, as part of the transaction, the user of such intangible does not change, or
(iii) the taxpayer grants the right to use such intangible to a person (or a person related to such person) who held or used such intangible at any time on or after July 25, 1991, and on or before such date of enactment.
For purposes of this subparagraph, the determination of whether the user of property changes as part of a transaction shall be determined in accordance with regulations prescribed by the Secretary. For purposes of this subparagraph, deductions allowable under section 1253(d) shall be treated as deductions allowable for amortization.
(B) Exception where gain recognizedIf—
(i) subparagraph (A) would not apply to an intangible acquired by the taxpayer but for the last sentence of subparagraph (C)(i), and
(ii) the person from whom the taxpayer acquired the intangible elects, notwithstanding any other provision of this title—(I) to recognize gain on the disposition of the intangible, and(II) to pay a tax on such gain which, when added to any other income tax on such gain under this title, equals such gain multiplied by the highest rate of income tax applicable to such person under this title,
 then subparagraph (A) shall apply to the intangible only to the extent that the taxpayer’s adjusted basis in the intangible exceeds the gain recognized under clause (ii)(I).
(C) Related person definedFor purposes of this paragraph—
(i) Related personA person (hereinafter in this paragraph referred to as the “related person”) is related to any person if—(I) the related person bears a relationship to such person specified in section 267(b) or section 707(b)(1), or(II) the related person and such person are engaged in trades or businesses under common control (within the meaning of subparagraphs (A) and (B) of section 41(f)(1)).
 For purposes of subclause (I), in applying section 267(b) or 707(b)(1), “20 percent” shall be substituted for “50 percent”.
(ii) Time for making determination
(D) Acquisitions by reason of death
(E) Special rule for partnerships
(F) Anti-abuse rules
(10) Tax-exempt use property subject to lease
(g) Regulations
(Added Pub. L. 103–66, title XIII, § 13261(a), Aug. 10, 1993, 107 Stat. 532; amended Pub. L. 108–357, title VIII, §§ 847(b)(3), 886(a), Oct. 22, 2004, 118 Stat. 1602, 1641.)

CITE AS: 26 USC 197

§ 198. Expensing of environmental remediation costs
(a) In general
(b) Qualified environmental remediation expenditure
For purposes of this section—
(1) In general
The term “qualified environmental remediation expenditure” means any expenditure—
(A) which is otherwise chargeable to capital account, and
(B) which is paid or incurred in connection with the abatement or control of hazardous substances at a qualified contaminated site.
(2) Special rule for expenditures for depreciable property
(c) Qualified contaminated site
For purposes of this section—
(1) In general
The term “qualified contaminated site” means any area—
(A) which is held by the taxpayer for use in a trade or business or for the production of income, or which is property described in section 1221(a)(1) in the hands of the taxpayer, and
(B) at or on which there has been a release (or threat of release) or disposal of any hazardous substance.
(2) National priorities listed sites not included
(3) Taxpayer must receive statement from State environmental agency
(4) Appropriate State agency
(d) Hazardous substance
For purposes of this section—
(1) In general
The term “hazardous substance” means—
(A) any substance which is a hazardous substance as defined in section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
(B) any substance which is designated as a hazardous substance under section 102 of such Act, and
(C) any petroleum product (as defined in section 4612(a)(3)).
(2) Exception
(e) Deduction recaptured as ordinary income on sale, etc.
Solely for purposes of section 1245, in the case of property to which a qualified environmental remediation expenditure would have been capitalized but for this section—
(1) the deduction allowed by this section for such expenditure shall be treated as a deduction for depreciation, and
(2) such property (if not otherwise section 1245 property) shall be treated as section 1245 property solely for purposes of applying section 1245 to such deduction.
(f) Coordination with other provisions
(g) Regulations
(h) Termination
(Added Pub. L. 105–34, title IX, § 941(a), Aug. 5, 1997, 111 Stat. 882; amended Pub. L. 106–170, title V, §§ 511, 532(c)(2)(A), Dec. 17, 1999, 113 Stat. 1924, 1930; Pub. L. 106–554, § 1(a)(7) [title I, § 162(a), (b)], Dec. 21, 2000, 114 Stat. 2763, 2763A–625; Pub. L. 108–311, title III, § 308(a), Oct. 4, 2004, 118 Stat. 1179; Pub. L. 109–432, div. A, title I, § 109(a), (b), Dec. 20, 2006, 120 Stat. 2939; Pub. L. 110–343, div. C, title III, § 318(a), Oct. 3, 2008, 122 Stat. 3873; Pub. L. 111–312, title VII, § 745(a), Dec. 17, 2010, 124 Stat. 3319.)

CITE AS: 26 USC 198

[§ 198A. Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(35), Dec. 19, 2014, 128 Stat. 4042]

CITE AS: 26 USC 198A

[§ 199. Repealed. Pub. L. 115–97, title I, § 13305(a), Dec. 22, 2017, 131 Stat. 2126]

CITE AS: 26 USC 199

§ 199A. Qualified business income
(a) Allowance of deductionIn the case of a taxpayer other than a corporation, there shall be allowed as a deduction for any taxable year an amount equal to the lesser of—
(1) the combined qualified business income amount of the taxpayer, or
(2) an amount equal to 20 percent of the excess (if any) of—
(A) the taxable income of the taxpayer for the taxable year, over
(B) the net capital gain (as defined in section 1(h)) of the taxpayer for such taxable year.
(b) Combined qualified business income amountFor purposes of this section—
(1) In generalThe term “combined qualified business income amount” means, with respect to any taxable year, an amount equal to—
(A) the sum of the amounts determined under paragraph (2) for each qualified trade or business carried on by the taxpayer, plus
(B) 20 percent of the aggregate amount of the qualified REIT dividends and qualified publicly traded partnership income of the taxpayer for the taxable year.
(2) Determination of deductible amount for each trade or businessThe amount determined under this paragraph with respect to any qualified trade or business is the lesser of—
(A) 20 percent of the taxpayer’s qualified business income with respect to the qualified trade or business, or
(B) the greater of—
(i) 50 percent of the W–2 wages with respect to the qualified trade or business, or
(ii) the sum of 25 percent of the W–2 wages with respect to the qualified trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property.
(3) Modifications to limit based on taxable income
(A) Exception from limit
(B) Phase-in of limit for certain taxpayers
(i) In generalIf—(I) the taxable income of a taxpayer for any taxable year exceeds the threshold amount, but does not exceed the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), and(II) the amount determined under paragraph (2)(B) (determined without regard to this subparagraph) with respect to any qualified trade or business carried on by the taxpayer is less than the amount determined under paragraph (2)(A) with respect such trade or business,
 then paragraph (2) shall be applied with respect to such trade or business without regard to subparagraph (B) thereof and by reducing the amount determined under subparagraph (A) thereof by the amount determined under clause (ii).
(ii) Amount of reductionThe amount determined under this subparagraph is the amount which bears the same ratio to the excess amount as—(I) the amount by which the taxpayer’s taxable income for the taxable year exceeds the threshold amount, bears to(II) $50,000 ($100,000 in the case of a joint return).
(iii) Excess amountFor purposes of clause (ii), the excess amount is the excess of—(I) the amount determined under paragraph (2)(A) (determined without regard to this paragraph), over(II) the amount determined under paragraph (2)(B) (determined without regard to this paragraph).
(4) Wages, etc.
(A) In general
(B) Limitation to wages attributable to qualified business income
(C) Return requirement
(5) Acquisitions, dispositions, and short taxable years
(6) Qualified propertyFor purposes of this section:
(A) In generalThe term “qualified property” means, with respect to any qualified trade or business for a taxable year, tangible property of a character subject to the allowance for depreciation under section 167—
(i) which is held by, and available for use in, the qualified trade or business at the close of the taxable year,
(ii) which is used at any point during the taxable year in the production of qualified business income, and
(iii) the depreciable period for which has not ended before the close of the taxable year.
(B) Depreciable periodThe term “depreciable period” means, with respect to qualified property of a taxpayer, the period beginning on the date the property was first placed in service by the taxpayer and ending on the later of—
(i) the date that is 10 years after such date, or
(ii) the last day of the last full year in the applicable recovery period that would apply to the property under section 168 (determined without regard to subsection (g) thereof).
(7) Special rule with respect to income received from cooperativesIn the case of any qualified trade or business of a patron of a specified agricultural or horticultural cooperative, the amount determined under paragraph (2) with respect to such trade or business shall be reduced by the lesser of—
(A) 9 percent of so much of the qualified business income with respect to such trade or business as is properly allocable to qualified payments received from such cooperative, or
(B) 50 percent of so much of the W–2 wages with respect to such trade or business as are so allocable.
(c) Qualified business incomeFor purposes of this section—
(1) In general
(2) Carryover of losses
(3) Qualified items of income, gain, deduction, and lossFor purposes of this subsection—
(A) In generalThe term “qualified items of income, gain, deduction, and loss” means items of income, gain, deduction, and loss to the extent such items are—
(i) effectively connected with the conduct of a trade or business within the United States (within the meaning of section 864(c), determined by substituting “qualified trade or business (within the meaning of section 199A)” for “nonresident alien individual or a foreign corporation” or for “a 1
1 So in original. The word “a” probably should not appear within the quoted text.
foreign corporation” each place it appears), and
(ii) included or allowed in determining taxable income for the taxable year.
(B) ExceptionsThe following items shall not be taken into account as a qualified item of income, gain, deduction, or loss:
(i) Any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss.
(ii) Any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G). Any amount described in section 1385(a)(1) shall not be treated as described in this clause.
(iii) Any interest income other than interest income which is properly allocable to a trade or business.
(iv) Any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1) (applied by substituting “qualified trade or business” for “controlled foreign corporation”).
(v) Any item of income, gain, deduction, or loss taken into account under section 954(c)(1)(F) (determined without regard to clause (ii) thereof and other than items attributable to notional principal contracts entered into in transactions qualifying under section 1221(a)(7)).
(vi) Any amount received from an annuity which is not received in connection with the trade or business.
(vii) Any item of deduction or loss properly allocable to an amount described in any of the preceding clauses.
(4) Treatment of reasonable compensation and guaranteed paymentsQualified business income shall not include—
(A) reasonable compensation paid to the taxpayer by any qualified trade or business of the taxpayer for services rendered with respect to the trade or business,
(B) any guaranteed payment described in section 707(c) paid to a partner for services rendered with respect to the trade or business, and
(C) to the extent provided in regulations, any payment described in section 707(a) to a partner for services rendered with respect to the trade or business.
(d) Qualified trade or businessFor purposes of this section—
(1) In generalThe term “qualified trade or business” means any trade or business other than—
(A) a specified service trade or business, or
(B) the trade or business of performing services as an employee.
(2) Specified service trade or businessThe term “specified service trade or business” means any trade or business—
(A) which is described in section 1202(e)(3)(A) (applied without regard to the words “engineering, architecture,”) or which would be so described if the term “employees or owners” were substituted for “employees” therein, or
(B) which involves the performance of services that consist of investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)).
(3) Exception for specified service businesses based on taxpayer’s income
(A) In generalIf, for any taxable year, the taxable income of any taxpayer is less than the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), then—
(i) any specified service trade or business of the taxpayer shall not fail to be treated as a qualified trade or business due to paragraph (1)(A), but
(ii) only the applicable percentage of qualified items of income, gain, deduction, or loss, and the W–2 wages and the unadjusted basis immediately after acquisition of qualified property, of the taxpayer allocable to such specified service trade or business shall be taken into account in computing the qualified business income, W–2 wages, and the unadjusted basis immediately after acquisition of qualified property of the taxpayer for the taxable year for purposes of applying this section.
(B) Applicable percentageFor purposes of subparagraph (A), the term “applicable percentage” means, with respect to any taxable year, 100 percent reduced (not below zero) by the percentage equal to the ratio of—
(i) the taxable income of the taxpayer for the taxable year in excess of the threshold amount, bears to
(ii) $50,000 ($100,000 in the case of a joint return).
(e) Other definitionsFor purposes of this section—
(1) Taxable income
(2) Threshold amount
(A) In general
(B) Inflation adjustmentIn the case of any taxable year beginning after 2018, the dollar amount in subparagraph (A) 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 “calendar year 2017” for “calendar year 2016” in subparagraph (A)(ii) thereof.
The amount of any increase under the preceding sentence shall be rounded as provided in section 1(f)(7).
(3) Qualified REIT dividendThe term “qualified REIT dividend” means any dividend from a real estate investment trust received during the taxable year which—
(A) is not a capital gain dividend, as defined in section 857(b)(3), and
(B) is not qualified dividend income, as defined in section 1(h)(11).
(4) Qualified publicly traded partnership incomeThe term “qualified publicly traded partnership income” means, with respect to any qualified trade or business of a taxpayer, the sum of—
(A) the net amount of such taxpayer’s allocable share of each qualified item of income, gain, deduction, and loss (as defined in subsection (c)(3) and determined after the application of subsection (c)(4)) from a publicly traded partnership (as defined in section 7704(a)) 2
2 So in original. Probably should be “7704(b))”.
which is not treated as a corporation under section 7704(c), plus
(B) any gain recognized by such taxpayer upon disposition of its interest in such partnership to the extent such gain is treated as an amount realized from the sale or exchange of property other than a capital asset under section 751(a).
(f) Special rules
(1) Application to partnerships and S corporations
(A) In generalIn the case of a partnership or S corporation—
(i) this section shall be applied at the partner or shareholder level,
(ii) each partner or shareholder shall take into account such person’s allocable share of each qualified item of income, gain, deduction, and loss, and
(iii) each partner or shareholder shall be treated for purposes of subsection (b) as having W–2 wages and unadjusted basis immediately after acquisition of qualified property for the taxable year in an amount equal to such person’s allocable share of the W–2 wages and the unadjusted basis immediately after acquisition of qualified property of the partnership or S corporation for the taxable year (as determined under regulations prescribed by the Secretary).
For purposes of clause (iii), a partner’s or shareholder’s allocable share of W–2 wages shall be determined in the same manner as the partner’s or shareholder’s allocable share of wage expenses. For purposes of such clause, partner’s or shareholder’s allocable share of the unadjusted basis immediately after acquisition of qualified property shall be determined in the same manner as the partner’s or shareholder’s allocable share of depreciation. For purposes of this subparagraph, in the case of an S corporation, an allocable share shall be the shareholder’s pro rata share of an item.
(B) Application to trusts and estates
(C) Treatment of trades or business in Puerto Rico
(i) In general
(ii) Special rule for applying limit
(2) Coordination with minimum tax
(3) Deduction limited to income taxes
(4) RegulationsThe Secretary shall prescribe such regulations as are necessary to carry out the purposes of this section, including regulations—
(A) for requiring or restricting the allocation of items and wages under this section and such reporting requirements as the Secretary determines appropriate, and
(B) for the application of this section in the case of tiered entities.
(g) Deduction for income attributable to domestic production activities of specified agricultural or horticultural cooperatives
(1) Allowance of deduction
(A) In generalIn the case of a taxpayer which is a specified agricultural or horticultural cooperative, there shall be allowed as a deduction an amount equal to 9 percent of the lesser of—
(i) the qualified production activities income of the taxpayer for the taxable year, or
(ii) the taxable income of the taxpayer for the taxable year.
(B) Limitation
(i) In general
(ii) W–2 wages
(C) Taxable income of cooperatives determined without regard to certain deductions
(2) Deduction allowed to patrons
(A) In generalIn the case of any eligible taxpayer who receives a qualified payment from a specified agricultural or horticultural cooperative, there shall be allowed as a deduction for the taxable year in which such payment is received an amount equal to the portion of the deduction allowed under paragraph (1) to such cooperative which is—
(i) allowed with respect to the portion of the qualified production activities income to which such payment is attributable, and
(ii) identified by such cooperative in a written notice mailed to such taxpayer during the payment period described in section 1382(d).
(B) Limitation based on taxable income
(C) Cooperative denied deduction for portion of qualified payments
(D) Eligible taxpayerFor purposes of this paragraph, the term “eligible taxpayer” means—
(i) a taxpayer other than a corporation, or
(ii) a specified agricultural or horticultural cooperative.
(E) Qualified paymentFor purposes of this section, the term “qualified payment” means, with respect to any eligible taxpayer, any amount which—
(i) is described in paragraph (1) or (3) of section 1385(a),
(ii) is received by such taxpayer from a specified agricultural or horticultural cooperative, and
(iii) is attributable to qualified production activities income with respect to which a deduction is allowed to such cooperative under paragraph (1).
(3) Qualified production activities incomeFor purposes of this subsection—
(A) In generalThe term “qualified production activities income” for any taxable year means an amount equal to the excess (if any) of—
(i) the taxpayer’s domestic production gross receipts for such taxable year, over
(ii) the sum of—(I) the cost of goods sold that are allocable to such receipts, and(II) other expenses, losses, or deductions (other than the deduction allowed under this subsection), which are properly allocable to such receipts.
(B) Allocation method
(C) Special rules for determining costs
(i) In general
(ii) Exports for further manufacture
(D) Domestic production gross receipts
(i) In general
(ii) Related persons(I) In general(II) Related person
(4) Specified agricultural or horticultural cooperativeFor purposes of this section—
(A) In generalThe term “specified agricultural or horticultural cooperative” means an organization to which part I of subchapter T applies which is engaged—
(i) in the manufacturing, production, growth, or extraction in whole or significant part of any agricultural or horticultural product, or
(ii) in the marketing of agricultural or horticultural products.
(B) Application to marketing cooperatives
(5) Definitions and special rules
(A) Special rule for affiliated groups
(i) In general
(ii) Partnerships owned by expanded affiliated groups
(iii) Expanded affiliated groupFor purposes of this subsection, the term “expanded affiliated group” means an affiliated group as defined in section 1504(a), determined—(I) by substituting “more than 50 percent” for “at least 80 percent” each place it appears, and(II) without regard to paragraphs (2) and (4) of section 1504(b).
(iv) Allocation of deduction
(B) Special rule for cooperative partners
(C) Trade or business requirement
(D) Unrelated business taxable income
(E) Special rule for cooperative with oil related qualified production activities income
(i) In generalIf a specified agricultural or horticultural cooperative has oil related qualified production activities income for any taxable year, the amount otherwise allowable as a deduction under paragraph (1) shall be reduced by 3 percent of the least of—(I) the oil related qualified production activities income of the cooperative for the taxable year,(II) the qualified production activities income of the cooperative for the taxable year, or(III) taxable income.
(ii) Oil related qualified production activities income
(6) Regulations
(h) Anti-abuse rulesThe Secretary shall—
(1) apply rules similar to the rules under section 179(d)(2) in order to prevent the manipulation of the depreciable period of qualified property using transactions between related parties, and
(2) prescribe rules for determining the unadjusted basis immediately after acquisition of qualified property acquired in like-kind exchanges or involuntary conversions.
(i) Termination
(Added Pub. L. 115–97, title I, § 11011(a), Dec. 22, 2017, 131 Stat. 2063; amended Pub. L. 115–141, div. T, § 101(a)(1), (2)(A), (C), (b), Mar. 23, 2018, 132 Stat. 1151, 1155.)

CITE AS: 26 USC 199A