Capitalization and inclusion in inventory costs of certain expenses

In the case of any property to which this section applies, any costs described in paragraph (2)— The costs described in this paragraph with respect to any property are— Except as otherwise provided in this section, this section shall apply to— Real or tangible personal property produced by the taxpayer. Real or personal property described in section 1221(a)(1) which is acquired by the taxpayer for resale. This section shall not apply to any property produced by the taxpayer for use by the taxpayer other than in a trade or business or an activity conducted for profit. This section shall not apply to any amount allowable as a deduction under section 174 or 174A. This section shall not apply to any cost allowable as a deduction under section 167(h), 179B, 263(c), 263(i), 291(b)(2), 616, or 617. This section shall not apply to any property produced by the taxpayer pursuant to a long-term contract. This section shall not apply to— Paragraphs (2) and (3) shall apply to any amount allowable as a deduction under section 59(e) for qualified expenditures described in subparagraphs (B), (C), (D), and (E) of paragraph (2) thereof. This section shall not apply to any amount allowed as a deduction by reason of section 168(k)(5) (relating to special rules for certain plants bearing fruits and nuts). This section shall not apply to any of the following which is produced by the taxpayer in a farming business: Subparagraph (A) shall not apply to any corporation, partnership, or tax shelter required to use an accrual method of accounting under section 447 or 448(a)(3). If plants bearing an edible crop for human consumption were lost or damaged (while in the hands of the taxpayer) by reason of freezing temperatures, disease, drought, pests, or casualty, this section shall not apply to any costs of the taxpayer of replanting plants bearing the same type of crop (whether on the same parcel of land on which such lost or damaged plants were located or any other parcel of land of the same acreage in the United States). Subparagraph (A) shall apply to amounts paid or incurred by a person (other than the taxpayer described in subparagraph (A)) if— In the case of the replanting of citrus plants, subparagraph (A) shall apply to amounts paid or incurred by a person (other than the taxpayer described in subparagraph (A)) if— Clause (i) shall not apply to any cost paid or incurred after the date which is 10 years after the date of the enactment of the Tax Cuts and Jobs Act. If a taxpayer makes an election under this paragraph, this section shall not apply to any plant produced in any farming business carried on by such taxpayer. No election may be made under this paragraph by a corporation, partnership, or tax shelter, if such corporation, partnership, or tax shelter is required to use an accrual method of accounting under section 447 or 448(a)(3). An election under this paragraph shall not apply with respect to any item which is attributable to the planting, cultivation, maintenance, or development of any citrus or almond grove (or part thereof) and which is incurred before the close of the 4th taxable year beginning with the taxable year in which the trees were planted. For purposes of the preceding sentence, the portion of a citrus or almond grove planted in 1 taxable year shall be treated separately from the portion of such grove planted in another taxable year. Unless the Secretary otherwise consents, an election under this paragraph may be made only for the taxpayer’s 1st taxable year which begins after December 31, 1986, and during which the taxpayer engages in a farming business. Any such election, once made, may be revoked only with the consent of the Secretary. In the case of any plant with respect to which amounts would have been capitalized under subsection (a) but for an election under subsection (d)(3)— For purposes of subparagraph (A), the term “recapture amount” means any amount allowable as a deduction to the taxpayer which, but for an election under subsection (d)(3), would have been capitalized with respect to the plant. If the taxpayer (or any related person) makes an election under subsection (d)(3), the provisions of section 168(g)(2) (relating to alternative depreciation) shall apply to all property of the taxpayer used predominantly in the farming business and placed in service in any taxable year during which any such election is in effect. For purposes of subparagraph (A), the term “related person” means— For purposes of this paragraph, the term “family” means the taxpayer, the spouse of the taxpayer, and any of their children who have not attained age 18 before the close of the taxable year. For purposes of this section, the term “preproductive period” means— In the case of a plant grown in commercial quantities in the United States, the preproductive period for such plant if grown in the United States shall be based on the nationwide weighted average preproductive period for such plant. For purposes of this section— The term “farming business” means the trade or business of farming. The term “farming business” shall include the trade or business of— The Secretary shall by regulations permit the taxpayer to use reasonable inventory valuation methods to compute the amount required to be capitalized under subsection (a) in the case of any plant. Subsection (a) shall only apply to interest costs which are— allocable to property which is described in subsection (b)(1) and which has— In determining the amount of interest required to be capitalized under subsection (a) with respect to any property— Subparagraph (A) shall not apply to any qualified residence interest (within the meaning of section 163(h)). Except as provided in regulations, in the case of any flow-through entity, this paragraph shall be applied first at the entity level and then at the beneficiary level. This subsection shall apply to any interest on indebtedness allocable (as determined under paragraph (2)) to property used to produce property to which this subsection applies to the extent such interest is allocable (as so determined) to the produced property. For purposes of this subsection, the production period shall not include the aging period for— For purposes of this subsection— Property has a long useful life if such property is— The term “production period” means, when used with respect to any property, the period— The term “production expenditures” means the costs (whether or not incurred during the production period) required to be capitalized under subsection (a) with respect to the property. For purposes of this section— The term “produce” includes construct, build, install, manufacture, develop, or improve. The taxpayer shall be treated as producing any property produced for the taxpayer under a contract with the taxpayer; except that only costs paid or incurred by the taxpayer (whether under such contract or otherwise) shall be taken into account in applying subsection (a) to the taxpayer. Nothing in this section shall require the capitalization of any qualified creative expense. For purposes of this subsection, the term “qualified creative expense” means any expense— For purposes of this subsection— The term “writer” means any individual if the personal efforts of such individual create (or may reasonably be expected to create) a literary manuscript, musical composition (including any accompanying words), or dance score. The term “photographer” means any individual if the personal efforts of such individual create (or may reasonably be expected to create) a photograph or photographic negative or transparency. The term “artist” means any individual if the personal efforts of such individual create (or may reasonably be expected to create) a picture, painting, sculpture, statue, etching, drawing, cartoon, graphic design, or original print edition. In determining whether any expense is paid or incurred in the trade or business of being an artist, the following criteria shall be taken into account: If— For purposes of this subparagraph, the term “qualified employee-owner” means any individual who is an employee-owner of the corporation (as defined in section 269A(b)(2)) and who is a writer, photographer, or artist. In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, this section shall not apply with respect to such taxpayer for such taxable year. In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership. Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including—