III. Business Provisions Section 179 – The new law extends for two more years the increased §179 deduction, the expense deduction for off-the-shelf computer software, and the election to revoke the deduction on prior year’s returns. Thus, for tax years beginning in 2003, 2004, 2005, 2006, and 2007, the dollar limitation is $100,000 and the investment limitation is $400,000. Both these amounts are indexed for inflation in years after 2003. In 2004, the §179 limit is $102,000 and the investment limit is $410,000. For tax years beginning in 2008, these limits return to the $25,000 and $200,000 levels, respectively. SUVs – The new law limits the cost of a sport utility vehicle (SUV) that may be expensed under §179 to $25,000. The new law does not eliminate the exemption from the luxury auto depreciation limits under §280F for SUVs or other vehicles

with a gross vehicle weight rating in excess of 6,000 pounds. For this purpose, an SUV is defined as a four-wheeled vehicle with a gross vehicle weight of more than 6,000 pounds, but less than 14,000 pounds.

Because this definition would include heavy pickup trucks, vans, and small buses in addition to SUVs, the term "sport utility vehicle" is further defined to exclude any of the following vehicles:

1. 1. A vehicle designed to have a seating capacity of more than nine persons behind the driver's seat.
2. 2. A vehicle equipped with a cargo area of at least six feet in interior length that is an open area and is not readily accessible directly from the passenger compartment.
3. 3. A vehicle equipped with a cargo area of at least six feet in interior length that is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment.
4. 4. A vehicle with 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.

This provision is effective for vehicles placed in service after the date of enactment.

Leasehold improvements – "Qualified leasehold improvement property" placed in service after October 22, 2004, and before January 1, 2006, is 15-year MACRS property with a 15-year recovery period. This provision is not elective. If the requirements for qualification are met, then the improvement must be depreciated over 15 years using the straight-line method. A taxpayer; however, could effectively avoid the provision by electing the alternative depreciation system (ADS) and depreciating the improvements over 39 years. However, the ADS election would also apply to any other MACRS 15-year property that the taxpayer happened to place in service in the same tax year.

Qualified leasehold improvement property is any improvement to an interior portion of nonresidential real property if the following requirements are satisfied:

1. 1. The improvement is made under or pursuant to a lease by the lessee, any sublessee, or the lessor. A commitment to enter into a lease is treated as a lease for this purpose.
2. 2. The lease is not between related persons.
3. 3. The building (or portion that the improvement is made to) is occupied exclusively by the lessee or sublessee.

Summary provided by National Association of Tax Professionals (NATP).

1. 4. The improvement is section 1250 property (i.e., a structural component).
2. 5. The improvement is placed into service more than three years after the date that the building was first placed into service.

Depreciation period of qualified restaurant property – The new law assigns a 15-year MACRS recovery period to "qualified restaurant property" placed in service after the October 22, 2004, and before January 1, 2006. The straight-line method applies to such property. If the MACRS alternative depreciation system (ADS) is elected or otherwise applies, the applicable MACRS recovery period is 39 years and the straight-line method applies. Whether or not ADS is elected, the applicable convention is the half-year convention, unless the mid-quarter convention applies. The 15-year recovery period is not elective. However, a taxpayer could effectively elect out by making an ADS election. An ADS election, however, would apply to all MACRS 15-year property placed in service by the taxpayer during the tax year.

Qualified restaurant property is any §1250 property which is an improvement to a building if the improvement is placed in service more than three years after the date the building was first placed in service and more than 50 percent of the building's square footage is devoted to preparation of and seating for on-premises consumption of prepared meals.

Bonus depreciation on noncommercial aircraft – An aircraft that is not used in the trade or business of transporting persons or property (other than for agricultural or firefighting purposes) will qualify for bonus deprecation and the extended January 1, 2006, placed-in-service date, if the following requirements are met:

1. 1. The original use of the aircraft commences with the taxpayer after September 10, 2001; and either;
   1. o The aircraft was acquired by the taxpayer after September 10, 2001, and before January 1, 2005 and no written binding contract for the acquisition was in effect before September 11, 2001, or
   2. o The aircraft was acquired pursuant to a written binding contract entered into after September 10, 2001, and before January 1, 2005.
2. 2. The aircraft is purchased and the at the time of the contract for purchase, the purchaser made a nonrefundable deposit at least equal to 10 percent of the cost or $100,000.
3. 3. The aircraft has an estimated production period exceeding four months and a cost exceeding $200,000.

Deduction for $5,000 of start-up and organizational expenditures – Effective for amounts paid or incurred after October 22, 2004, the new law allows taxpayers to

Summary provided by National Association of Tax Professionals (NATP).

elect to deduct up to $5,000 of start-up expenditures in the tax year in which their trade or business begins. The $5,000 amount must be reduced (but not below zero) by the amount by which the start-up expenditures exceed $50,000. The remainder of any start-up expenditures, those that are not deductible in the year in which the trade or business begins, must be ratably amortized over the 180-month period (15 years) beginning with the month in which the active trade or business begins. Similarly, partnerships and corporations may elect to deduct up to $5,000 of start-up and organizational expenditures for the tax year in which the partnership or corporation begins business. The $5,000 amount must also be reduced by the amount by which the organizational expenditures exceed $50,000. The corporation may deduct any remainder of organizational expenditures ratably over the 180-month period beginning with the month in which the corporation begins business.