To amend the Internal Revenue Code of 1986 to allow a deduction for the portion of any equity investment used to buy down debt on commercial real property.

Summary: Community Recovery and Enhancement Act of 2010 or the CRE Act of 2010 - Amends the Internal Revenue Code to allow a new tax deduction for 50% of equity investment in a partnership (qualified debt reduction equity investment) and 50% of any payment on commercial real property (qualified debt reduction payment) made to reduce the principal amount of the qualified indebtedness of such partnership or commercial property. Defines "qualified indebtedness" to mean any indebtedness incurred or assumed by a partnership or other taxpayer before January 1, 2009, which is secured by commercial real property. Requires a recapture in income of any deduction taken by a partnership if such partnership incurs additional indebtedness within three years after receiving a qualified debt reduction equity investment under this Act.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Community Recovery and Enhancement 
Act of 2010'' or the ``CRE Act of 2010''.

SEC. 2. DEDUCTION FOR EQUITY INVESTMENTS USED TO BUY DOWN DEBT ON 
              COMMERCIAL REAL PROPERTY.

    (a) In General.--Part VI of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals and corporations) is amended by adding at 
the end the following new section:

``SEC. 199A. DEDUCTION FOR EQUITY INVESTMENTS USED TO BUY DOWN DEBT ON 
              COMMERCIAL REAL PROPERTY.

    ``(a) In General.--There shall be allowed as a deduction an amount 
equal to--
            ``(1) 50 percent of any qualified debt reduction equity 
        investment made during the taxable year by the taxpayer in a 
        partnership, and
            ``(2) 50 percent of any qualified debt reduction payment 
        made during the taxable year by the taxpayer with respect to 
        qualified indebtedness on commercial real property held by the 
        taxpayer.
Paragraph (2) shall not apply to any qualified debt reduction payment 
made by a partnership.
    ``(b) Maximum Deduction.--The deduction allowed by subsection (a) 
for any taxable year shall not exceed, with respect to each commercial 
real property, the excess (if any) of--
            ``(1) the amount of the qualified indebtedness secured by 
        such property as of the beginning of such taxable year, over
            ``(2) the lesser of--
                    ``(A) 50 percent of the amount described in 
                paragraph (1), or
                    ``(B) the adjusted basis of such property (in the 
                hands of the partnership or the taxpayer, as the case 
                may be) as of the close of such taxable year 
                (determined without regard to qualified debt reduction 
                equity investments and qualified debt reduction 
                payments made during the taxable year and depreciation 
                for such year).
    ``(c) Qualified Debt Reduction Equity Investment; Qualified Debt 
Reduction Payment.--For purposes of this section--
            ``(1) Qualified debt reduction equity investment.--
                    ``(A) In general.--The term `qualified debt 
                reduction equity investment' means the amount of any 
                qualified equity investment which is used by the 
                partnership to reduce the principal amount of qualified 
                indebtedness of the partnership.
                    ``(B) Qualified equity investment.--The term 
                `qualified equity investment' means any equity 
                investment (as defined in section 45D(b)(6)) in a 
                partnership if--
                            ``(i) such investment is acquired by the 
                        taxpayer at its original issue (directly or 
                        through an underwriter) solely in exchange for 
                        cash,
                            ``(ii) at least 80 percent of such cash is 
                        used by the partnership to reduce the principal 
                        amount of qualified indebtedness of the 
                        partnership,
                            ``(iii) the portion of such cash not so 
                        used is used by the partnership for 
                        improvements to commercial real property held 
                        by the partnership, and
                            ``(iv) the person or persons otherwise 
                        entitled to depreciation on such property 
                        consent to the basis reduction under subsection 
                        (f)(1).
                    ``(C) Redemptions.--A rule similar to the rule of 
                section 1202(c)(3) shall apply for purposes of this 
                paragraph.
            ``(2) Qualified debt reduction payment.--In the case of 
        commercial real property held by a taxpayer other than a 
        partnership, the term `qualified debt reduction payment' means 
        the amount of cash paid by the taxpayer during the taxable year 
        to reduce the principal amount of qualified indebtedness of the 
        taxpayer.
    ``(d) Other Definitions.--For purposes of this section--
            ``(1) Qualified indebtedness.--
                    ``(A) Partnerships.--The term `qualified 
                indebtedness' means, with respect to a partnership, any 
                indebtedness--
                            ``(i) incurred or assumed by the 
                        partnership on or before January 1, 2009, and
                            ``(ii) which is secured by commercial real 
                        property held by the partnership at the time 
                        the qualified debt reduction equity investment 
                        is made by the taxpayer.
                    ``(B) Other taxpayers.--In the case of a taxpayer 
                other than a partnership, the term `qualified 
                indebtedness' has the meaning given to such term by 
                subparagraph (A) determined by substituting--
                            ``(i) `taxpayer' for `partnership', and
                            ``(ii) `qualified debt reduction payment' 
                        for `qualified debt reduction equity 
                        investment'.
            ``(2) Commercial real property.--The term `commercial real 
        property' means section 1250 property (as defined in section 
        1250(c)); except that such term shall not include residential 
        rental property (as defined in section 168(e)(2)) unless the 
        building contains at least 3 dwelling units.
    ``(e) Application of Section 1250.--For purposes of determining the 
depreciation adjustments under section 1250 with respect to any 
property--
            ``(1) the deduction allowed by this section shall be 
        treated as a deduction for depreciation, and
            ``(2) the depreciation adjustments in respect of such 
        property shall include all deductions allowed by this section 
        to all taxpayers by reason of reducing the debt secured by such 
        property.
    ``(f) Special Rules.--
            ``(1) Basis reduction.--The basis of any property with 
        respect to which any qualified debt reduction equity investment 
        or qualified debt reduction payment is made shall be reduced by 
        the amount of the deduction allowed by this section by reason 
        of such investment or payment.
            ``(2) Refinancings.--The indebtedness described in 
        subsection (d)(1)(A)(i) shall include indebtedness resulting 
        from the refinancing of indebtedness described in such 
        subsection (or this sentence), but only to the extent it does 
        not exceed the amount of the indebtedness being refinanced.
            ``(3) Debt reduction must be in excess of scheduled 
        payments.--Only amounts paid in excess of the amounts required 
        to be paid under the terms of the loan may be taken into 
        account under this section.
            ``(4) Denial of deduction for debt-financed investments, 
        etc.--No deduction shall be allowed by this section for any 
        qualified debt reduction equity investment or any qualified 
        debt reduction payment to the extent indebtedness is incurred 
        or continued to make such investment or payment.
            ``(5) Recapture of deduction if additional debt within 3 
        years.--
                    ``(A) In general.--If a partnership incurs any 
                additional debt within 3 years after the date that the 
                partnership received a qualified debt reduction equity 
                investment, the ordinary income of the taxpayer making 
                such investment shall be increased by the applicable 
                percentage of the recaptured deduction.
                    ``(B) Recaptured deduction.--For purposes of this 
                paragraph, the recaptured deduction is the excess of--
                            ``(i) the deduction allowed by subsection 
                        (a) on account of a qualified debt reduction 
                        equity investment, over
                            ``(ii) the deduction which would have been 
                        so allowed if such investment had been reduced 
                        by such investment's share of the additional 
                        debt.
                    ``(C) Applicable percentage.--The applicable 
                percentage shall be determined in accordance with the 
                following table:

``If, of the 3 years referred to in       The applicable percentage is:
        subparagraph (A), the 
        additional debt occurs 
        during the:
        1st such year......................................         100
        2d such year.......................................    66 \2/3\
        3d such year.......................................    33 \1/3\
                    ``(D) Investment's share of additional debt.--A 
                qualified debt reduction equity investment's share of 
                additional debt is the amount which bears the same 
                ratio to such additional debt as such taxpayer's 
                qualified debt reduction equity investment bears to the 
                aggregate qualified debt reduction equity investments 
                of all such taxpayers to which subparagraph (A) applies 
                by reason of such additional debt.
                    ``(E) Subsequent depreciation.--The partnership's 
                deductions under section 168 for periods after a 
                recaptured deduction under this paragraph shall be 
                determined as if the portion of the qualified debt 
                reduction equity investment allocable to the recaptured 
                deduction had never been made.
                    ``(F) Similar rules for qualified debt reduction 
                payments.--Rules similar to the rules of the preceding 
                provisions of this paragraph shall apply to qualified 
                debt reduction payments.
            ``(6) Exemption from passive loss rules.--Section 469 shall 
        not apply to the deduction allowed by this section.
    ``(g) Application of Section.--This section shall apply to 
qualified debt reduction equity investments and qualified debt 
reduction payments made after the date of the enactment of this section 
and before January 1, 2013.''.
    (b) Earnings and Profits.--Subsection (k) of section 312 of such 
Code is amended by adding at the end the following new paragraph:
            ``(6) Treatment of section 199a.--Paragraphs (1) and (3) 
        shall not apply to the deduction allowed by section 199A.''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 of such Code is amended by adding at the end 
the following new item:

``Sec. 199A. Deduction for equity investments used to buy down debt on 
                            commercial real property.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.