§ 108. Deductions not subject to allocation. (a) In computing
unincorporated business taxable income, there shall be allowed (without
allocation under section one hundred seven) deductions for reasonable
compensation not in excess of five thousand dollars for personal
services of the proprietor and of each partner actively engaged in the
unincorporated business, but the aggregate of such deductions shall not
exceed twenty per centum of the unincorporated business taxable income
computed without the benefit of any deductions under this section or the
unincorporated business exemptions under section one hundred nine.

(b) At the election of the taxpayer there shall also be allowed
(without allocation under section one hundred seven) either or both of
the items set forth in paragraphs one and two of this subdivision,
except that only one of such items shall be allowed with respect to any
one item of property.

(1) Depreciation with respect to any property such as described in
paragraph three of this subdivision, not exceeding twice the
depreciation allowed with respect to the same property for federal
income tax purposes. Such deduction shall be allowed only upon
condition that no deduction shall be allowed pursuant to section one
hundred six for depreciation of the same property, and the total of all
deductions allowed pursuant to this paragraph in any taxable year or
years with respect to any property shall not exceed its cost or other
basis.

(2) Expenditures paid or incurred during the taxable year for the
construction, reconstruction, erection or acquisition of any property
such as described in paragraph three of this subdivision which is used
or to be used for purposes of research or development in the
experimental or laboratory sense. Such purposes shall not be deemed to
include the ordinary testing or inspection of materials or products for
quality control, efficiency surveys, management studies, consumer
surveys, advertising, promotions or research in connection with
literary, historical or similar projects. Such deduction shall be
allowed only on condition that, for the taxable year and all succeeding
taxable years, no deduction shall be allowed pursuant to section one
hundred six on account of such expenditures or on account of
depreciation of the same property, except to the extent that its basis
may be attributable to factors other than such expenditures, or in case
a deduction is allowable pursuant to this paragraph for only a part of
such expenditures, on condition that any deduction allowable for federal
income tax purposes on account of such expenditures or on account of
depreciation of the same property shall be proportionately reduced in
determining the deductions allowable pursuant to section one hundred six
for the taxable year and all succeeding taxable years. With respect to
property which is used or to be used for research and development only
in part, or during only part of its useful life, the deduction allowable
pursuant to this paragraph shall be limited to a proportionate part of
the expenditures relating thereto. If a deduction shall have been
allowed pursuant to this paragraph for all or part of such expenditures
with respect to any property, and such property is used for purposes
other than research and development to a greater extent than originally
reported, the taxpayer shall report such use in the taxpayer's return
for the first taxable year during which it occurs, and the director of
finance may recompute the tax for the year or years for which such
deduction was allowed, and may assess any additional tax resulting from
such recomputation within the time fixed by subdivision (c) of section
one hundred thirty-one.

(3) Such deductions shall be allowed only with respect to tangible
property which is depreciable pursuant to section one hundred
sixty-seven of the internal revenue code, having a situs in the city and
used in the taxpayer's trade or business, (A) the construction,
reconstruction or erection of which is completed after December
thirty-first, nineteen hundred sixty-five, and then only with respect to
that portion of the basis thereof or the expenditures relating thereto
which is properly attributable to such construction, reconstruction or
erection after December thirty-first, nineteen hundred sixty-five, or
(B) acquired after December thirty-first, nineteen hundred sixty-five by
purchase as defined in section one hundred seventy-nine (d) of the
internal revenue code, if the original use of such property commenced
with the taxpayer, commenced in the city and commenced after such date.

(4) If the deductions allowable for any taxable year pursuant to this
subdivision exceed the taxpayer's unincorporated business taxable
income, determined without the allowance of such deductions, the excess
may be carried over to the following taxable year or years and may be
deducted (without allocation under section one hundred seven) in
computing unincorporated business taxable income for such year or years.

(5) In any taxable year when property is sold or otherwise disposed
of, with respect to which a deduction has been allowed pursuant to
paragraph one or two of this subdivision, the basis of such property
shall be adjusted to reflect the deductions so allowed, and if the basis
as so adjusted is lower than the adjusted basis of the same property for
federal income tax purposes, there shall be added to federal gross
income the amount of the difference between such adjusted bases.