HR 6873 — Geothermal Tax Parity Act

(a) General rule There 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 For determination of depreciation deduction in case of property to which section 168 applies, see section 168. (c) Basis for depreciation (1) In general The basis on which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the adjusted basis provided in section 1011, for the purpose of determining the gain on the sale or other disposition of such property. (2) Special rule for property subject to lease If 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 In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each. In the case of an estate, the allowable deduction shall be apportioned between the estate and the heirs, legatees, and devisees on the basis of the income of the estate allocable to each. (e) Certain term interests not depreciable (1) In general No depreciation deduction shall be allowed under this section (and no depreciation or amortization deduction shall be allowed under any other provision of this subtitle) to the taxpayer for any term interest in property for any period during which the remainder interest in such property is held (directly or indirectly) by a related person. (2) Coordination with other provisions (A) Section 273 This subsection shall not apply to any term interest to which section 273 applies. (B) Section 305(e) This subsection shall not apply to the holder of the dividend rights which were separated from any stripped preferred stock to which section 305(e)(1) applies. (3) Basis adjustments If, 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 remainderman No 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) If, but for this subsection, a depreciation or amortization deduction would be allowable to any person with respect to any term interest in property, the principles of subsection (d) shall apply to such person with respect to such term interest. (5) Definitions For purposes of this subsection— (A) Term interest in property The term “term interest in property” has the meaning g...

(a) Disallowance (1) In general If for any taxable year the taxpayer is described in paragraph (2), neither— (A) the passive activity loss, nor (B) the passive activity credit, for the taxable year shall be allowed. (2) Persons described The following are described in this paragraph: (A) any individual, estate, or trust, (B) any closely held C corporation, and (C) any personal service corporation. (b) Disallowed loss or credit carried to next year Except as otherwise provided in this section, any loss or credit from an activity which is disallowed under subsection (a) shall be treated as a deduction or credit allocable to such activity in the next taxable year. (c) Passive activity defined For purposes of this section— (1) In general The term “passive activity” means any activity— (A) which involves the conduct of any trade or business, and (B) in which the taxpayer does not materially participate. (2) Passive activity includes any rental activity Except as provided in paragraph (7), the term “passive activity” includes any rental activity. (3) Working interests in oil and gas property (A) In general The term “passive activity” shall not include any working interest in any oil or gas property which the taxpayer holds directly or through an entity which does not limit the liability of the taxpayer with respect to such interest. (B) Income in subsequent years If any taxpayer has any loss for any taxable year from a working interest in any oil or gas property which is treated as a loss which is not from a passive activity, then any net income from such property (or any property the basis of which is determined in whole or in part by reference to the basis of such property) for any succeeding taxable year shall be treated as income of the taxpayer which is not from a passive activity. If the preceding sentence applies to the net income from any property for any taxable year, any credits allowable under subpart B (other than section 27) or D of part IV of subchapter A for such taxable year which are attributable to such property shall be treated as credits not from a passive activity to the extent the amount of such credits does not exceed the regular tax liability of the taxpayer for the taxable year which is allocable to such net income. (4) Material participation not required for paragraphs (2) and (3) Paragraphs (2) and (3) shall be applied without regard to whether or not the taxpayer materially participates in the activity. (5) Trade or business includes research and experimentation activity For purposes of paragraph (1)(A), the term “trade or business” includes any activity involving research or experimentation (within the meaning of section 174). (6) Activity in connection with trade or business or production of income To the extent provided in regulations, for purposes of paragraph (1)(A), the term “trade or business” includes— (A) any activity in connection with a trade or business, or (B) any activity with respect to which expenses are allowable as a deduction under section 212. (7) Special rules for taxpayers in real property business (A) In general If this paragraph applies to any taxpayer for a taxable year— (i) paragraph (2) shall not apply to any rental real estate activity of such taxpayer for such taxable year, and (ii) this section shall be applied as if each interest of the taxpayer in rental real estate were a separate activity. Notwithstanding clause (ii), a taxpayer may elect to treat all interests in rental real estate as one activity. Nothing in the preceding provisions of this subparagraph shall be construed as affecting the determination of whether the taxpayer materially participates with respect to any interest in a limited partnership as a limited partner. (B) Taxpayers to whom paragraph applies This paragraph shall apply to a taxpayer for a taxable year if— (i) more than one-half of the personal services performed in trades or businesses by the taxpayer during such taxable year are performed in rea...