a) General rule

    In determining the amount of the deduction allowable to a lessee for
exhaustion, wear and tear, obsolescence, or amortization in respect of
any cost of acquiring the lease, the term of the lease shall be treated
as including all renewal options (and any other period for which the
parties reasonably expect the lease to be renewed) if less than 75
percent of such cost is attributable to the period of the term of the
lease remaining on the date of its acquisition.

(b) Certain periods excluded

    For purposes of subsection (a), in determining the period of the
term of the lease remaining on the date of acquisition, there shall not
be taken into account any period for which the lease may subsequently be
renewed, extended, or continued pursuant to an option exercisable by the
lessee.

(Added Pub. L. 85-866, title I, Sec. 15(a), Sept. 2, 1958, 72 Stat.
1612; amended Pub. L. 99-514, title II, Sec. 201(d)(2)(A), title XVIII,
Sec. 1812(c)(4)(B), Oct. 22, 1986, 100 Stat. 2139, 2835; Pub. L. 100-
647, title I, Sec. 1002(a)(9), Nov. 10, 1988, 102 Stat. 3354.)


                               Amendments

    1988--Subsec. (a). Pub. L. 100-647 substituted ``the deduction
allowable to a lessee for exhaustion, wear and tear, obsolescence, or
amortization'' for ``the deduction allowable to a lessee of a lease for
any taxable year for amortization under section 167, 169, 179, 185, 190,
193, or 194''.
    1986--Pub. L. 99-514, Sec. 201(d)(2)(A), in amending section
generally, substituted provision relating to amortization of cost of
acquiring a lease, subsec. (a) setting out a general rule and subsec.
(b) excluding certain periods, for former provision for depreciation or
amortization of improvements made by lessee on lessor's property,
subsec. (a) setting out a general rule, subsec. (b), in case of related
lessee and lessor, setting out a general rule in par. (1) and defining
related persons in par. (2), and subsec. (c) setting out a reasonable
certainty test.
    Subsec. (b)(2)(B). Pub. L. 99-514, Sec. 1812(c)(4)(B), inserted
before the period ``and subsection (f)(1)(A) of such section shall not
apply''.


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of 1986,
Pub. L. 99-514, to which such amendment relates, see section 1019(a) of
Pub. L. 100-647, set out as a note under section 1 of this title.


                    Effective Date of 1986 Amendment

    Amendment by section 201(d)(2)(A) of Pub. L. 99-514 applicable to
property placed in service after Dec. 31, 1986, in taxable years ending
after such date, with exceptions, see sections 203 and 204 of Pub. L.
99-514, set out as a note under section 168 of this title.
    Amendment by section 201(d)(2)(A) of Pub. L. 99-514 not applicable
to any property placed in service before Jan. 1, 1994, if such property
placed in service as part of specified rehabilitations, and not
applicable to certain additional rehabilitations, see section 251(d)(2),
(3) of Pub. L. 99-514, set out as a note under section 46 of this title.
    Amendment by section 1812(c)(4)(B) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of the
Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note under
section 48 of this title.


                             Effective Date

    Section 15(c) of Pub. L. 85-866 provided that: ``The amendments made
by this section [enacting this section and amending analysis preceding
section 161 of this title] shall apply with respect to costs of
acquiring a lease incurred, and improvements begun, after July 28, 1958
(other than improvements which, on July 28, 1958, and at all times
thereafter, the lessee was under a binding legal obligation to make).''


           Plan Amendments Not Required Until January 1, 1989

    For provisions directing that if any amendments made by subtitle A
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII
[Secs. 1800-1899A] of Pub. L. 99-514 require an amendment to any plan,
such plan amendment shall not be required to be made before the first
plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub.
L. 99-514, as amended, set out as a note under section 401 of this
title.