II

104TH CONGRESS

1ST SESSION S. 354

To amend the Internal Revenue Code of 1986 to provide tax incentives

to encourage the preservation of low-income housing.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 3 (legislative day, JANUARY 30), 1995

Mr. BREAUX (for himself, Mr. JOHNSTON, Mr. SIMON, and Mr. BUMPERS)

introduced the following bill; which was read twice and referred to the

Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

tax incentives to encourage the preservation of low-income housing.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Low-Income Housing

5 Preservation Act of 1995’’.

6 SEC. 2. 15-YEAR RECOVERY PERIOD.

7 (a) GENERAL RULE.—Subsection (c) of section 168

8 of the Internal Revenue Code of 1986 (relating to applica9 ble recovery period) is amended—
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1 (1) by striking ‘‘as provided in paragraph (2)’’

2 in paragraph (1) and inserting ‘‘as otherwise pro3 vided in this subsection’’,

4 (2) by redesignating paragraph (2) as para5 graph (3), and

6 (3) by inserting after paragraph (1) the follow7 ing new paragraph:

8 ‘‘(2) LOW-INCOME HOUSING.—In the case of

9 any residential rental property which is part of a

10 qualified low-income housing project (as defined in

11 subsection (i)(14)), the applicable recovery period

12 shall be 15 years.’’

13 (b) QUALIFIED LOW-INCOME HOUSING PROJECT.—

14 Subsection (i) of section 168 of such Code is amended by

15 adding at the end the following new paragraph:

16 ‘‘(14) QUALIFIED LOW-INCOME HOUSING

17 PROJECT.—

18 ‘‘(A) IN GENERAL.—For purposes of this

19 section, the term ‘qualified low-income housing

20 project’ means any project for residential rental

21 property if—

22 ‘‘(i) such project is assisted under a

23 specified HUD program,

24 ‘‘(ii) 50 percent or more of the resi25 dential units in such project—
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1 ‘‘(I) in the case of a project de2 scribed in clause (i) or (ii) of subpara3 graph (C), are occupied by individuals

4 whose income (at the time of their ini5 tial occupancy in such project) was

6 less than 80 percent of the area me7 dian gross income (as of such time),

8 or

9 ‘‘(II) in the case of a project de10 scribed in clause (iii) or (iv) of sub11 paragraph (C), are units with respect

12 to which rental assistance is provided

13 under section 8 of the United States

14 Housing Act of 1937 (42 U.S.C.

15 1437f),

16 ‘‘(iii) such project was originally

17 placed in service at least 10 years before

18 the taxpayer acquired an interest in such

19 project,

20 ‘‘(iv) such project is substantially re21 habilitated,

22 ‘‘(v) the taxpayer acquired such tax23 payer’s interest in such project by pur24 chase, and
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1 ‘‘(vi) such project was not previously

2 placed in service by the taxpayer or by any

3 person who was a related person (as de4 fined in section 42(d)(2)(D)(iii)) with re5 spect to the taxpayer as of the time pre6 viously placed in service.

7 ‘‘(B) DENIAL OF DOUBLE BENEFIT.—A

8 project shall not be treated as a qualified low9 income housing project if the taxpayer (or any

10 other person holding an interest in such

11 project) claims any benefits with respect to

12 such project under—

13 ‘‘(i) section 42 (relating to low-income

14 housing credit),

15 ‘‘(ii) section 47 (relating to rehabilita16 tion credit),

17 ‘‘(iii) the Low-Income Housing Pres18 ervation and Resident Homeownership Act

19 of 1990 (12 U.S.C. 4101 et seq.), or

20 ‘‘(iv) the Emergency Low-Income

21 Housing Preservation Act of 1987 pursu22 ant to section 604 of the Cranston-Gon23 zalez National Affordable Housing Act (12

24 U.S.C. 4101 note).
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1 ‘‘(C) SPECIFIED HUD PROGRAMS.—For

2 purposes of subparagraph (A), a project is as3 sisted under a specified HUD program if such

4 project was financed by a loan or mortgage

5 which—

6 ‘‘(i) is insured or held by the Sec7 retary of Housing and Urban Development

8 under section 221(d)(3) of the National

9 Housing Act (12 U.S.C. 1715l(d)(3)) and

10 bears interest at a rate determined under

11 the proviso of section 221(d)(5) of such

12 Act,

13 ‘‘(ii) is insured, assisted, or held by

14 such Secretary or a State or State agency

15 under section 236 of such Act (12 U.S.C.

16 1715z–1),

17 ‘‘(iii) is insured or held by such Sec18 retary under section 221(d)(3) of such Act

19 and receiving assistance under section 8 of

20 the United States Housing Act of 1937

21 (42 U.S.C. 1437f), or

22 ‘‘(iv) is insured or held by such Sec23 retary under section 221(d)(4) of the Na24 tional Housing Act.

25 ‘‘(D) SUBSTANTIALLY REHABILITATED.—
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1 ‘‘(i) IN GENERAL.—For purposes of

2 subparagraph (A), a project is substan3 tially rehabilitated if the amount of the re4 habilitation expenditures with respect to

5 such project during the 24-month period

6 beginning on the date the taxpayer ac7 quired his interest in such project equals

8 or exceeds 10 percent of the aggregate ad9 justed bases (as of the beginning of such

10 24-month period) of the residential rental

11 property which is part of such project.

12 ‘‘(ii) REHABILITATION EXPENDI13 TURES.—

14 ‘‘(I) IN GENERAL.—For purposes

15 of clause (i), the term ‘rehabilitation

16 expenditures’ means amounts charge17 able to capital account and incurred

18 for property (or additions or improve19 ments to property) of a character sub20 ject to the allowance for depreciation

21 in connection with the rehabilitation

22 of a building. Such term shall not in23 clude the cost of acquiring the build24 ing (or any interest therein).
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1 ‘‘(II) SPECIAL RULE.—An ex2 penditure may be taken into account

3 only if it benefits the low-income units

4 in the project at least in proportion to

5 the total number of units in such

6 project which are low-income units.

7 For purposes of the preceding sen8 tence, the term ‘low-income units’

9 means units with respect to which the

10 requirements of subparagraph (A)(ii)

11 are met.

12 ‘‘(E) INCOME DETERMINATIONS.—For

13 purposes of subparagraph (A), income of indi14 viduals and area median gross income shall be

15 determined as provided in section 142(d)(2)(B).

16 ‘‘(F) PURCHASE.—For purposes of sub17 paragraph (A), the term ‘purchase’ has the

18 meaning given to such term by section

19 179(d)(2); except that such term shall not in20 clude any acquisition where the basis of the

21 property acquired is determined in whole or in

22 part by reference to the basis of other property

23 held at any time by the person acquiring the

24 property.
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1 ‘‘(G) TREATMENT OF UNITS OCCUPIED BY

2 INDIVIDUALS WHOSE INCOMES RISE ABOVE

3 LIMIT.—

4 ‘‘(i) IN GENERAL.—Except as pro5 vided in clause (ii), notwithstanding an in6 crease in the income of the occupants of a

7 low-income unit above the income limita8 tion applicable under subparagraph (A)(ii),

9 such unit shall continue to be treated as a

10 low-income unit if the income of such occu11 pants initially met such income limitation.

12 ‘‘(ii) NEXT AVAILABLE UNIT MUST BE

13 RENTED TO LOW-INCOME TENANT IF IN14 COME RISES ABOVE 140 PERCENT OF IN15 COME LIMIT.—If the income of the occu16 pants of the unit increases above 140 per17 cent of the income limitation applicable

18 under subparagraph (A)(ii), clause (i) shall

19 cease to apply to any such unit if any resi20 dential unit in the project (of a size com21 parable to, or smaller than, such unit) is

22 occupied by a new resident whose income

23 exceeds such income limitation. In the case

24 of a project described in section

25 142(d)(4)(B), the preceding sentence shall
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1 be applied by substituting ‘170 percent’ for

2 ‘140 percent’ and by substituting ‘any low3 income unit in the project is occupied by a

4 new resident whose income exceeds 40 per5 cent of area median gross income’ for ‘any

6 residential unit in the project (of a size

7 comparable to, or smaller than, such unit)

8 is occupied by a new resident whose in9 come exceeds such income limitation’.

10 ‘‘(H) RECAPTURE RULES.—

11 ‘‘(i) SUBSTANTIALLY REHABILITATION

12 REQUIREMENTS.—If the requirements of

13 subparagraph (D) are not satisfied with re14 spect to any project—

15 ‘‘(I) such project shall not be

16 treated as a qualified low-income

17 housing project for any period (includ18 ing periods before the close of the 24-

19 month period set forth in subpara20 graph (D)(i)), and

21 ‘‘(II) the statutory period for the

22 assessment of any deficiency attrib23 utable to the failure of the project to

24 meet such requirements shall not ex25 pire before the date prescribed by sec-
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1 tion 6501 for the assessment of a de2 ficiency for the taxable year in which

3 the 24-month period set forth in sub4 paragraph (D)(i) ends.

5 ‘‘(ii) CROSS REFERENCE.—

‘‘For treatment of subsequent failure to meet

other requirements after initial qualification, see

paragraph (5) of this subsection.’’

6 SEC. 3. EXEMPTION FROM PASSIVE LOSS LIMITATIONS.

7 Section 469 of the Internal Revenue Code of 1986

8 (relating to limitation on passive activity losses and cred9 its) is amended—

10 (1) by redesignating subsections (j), (k), (l),

11 and (m) as subsections (k), (l), (m), and (n), respec12 tively, and

13 (2) by inserting after subsection (i) the follow14 ing new subsection:

15 ‘‘(j) $50,000 OFFSET FOR CERTAIN LOW-INCOME

16 HOUSING ACTIVITIES.—

17 ‘‘(1) IN GENERAL.—Subsection (a) shall not

18 apply to that portion of the passive activity loss for

19 any taxable year which is attributable to rental ac20 tivities with respect to residential rental property

21 which is part of a qualified low-income housing

22 project (as defined in section 168(i)(14)).

23 ‘‘(2) DOLLAR LIMITATION.—The aggregate

24 amount to which paragraph (1) applies for any tax-
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1 able year shall not exceed $50,000 ($25,000 in the

2 case of a separate return by a married individual).

3 ‘‘(3) COORDINATION WITH SUBSECTION (i).—

4 This subsection shall be applied before the applica5 tion of subsection (i).’’

6 SEC. 4. MINIMUM TAX TREATMENT.

7 (a) GENERAL RULE.—Paragraph (1) of section 56(a)

8 of the Internal Revenue Code of 1986 (relating to depre9 ciation deduction) is amended—

10 (1) by redesignating subparagraphs (C) and

11 (D) as subparagraphs (D) and (E), respectively, and

12 (2) by inserting after subparagraph (B) the fol13 lowing new subparagraph:

14 ‘‘(C) SPECIAL RULE FOR CERTAIN LOW-IN15 COME HOUSING PROJECTS.—In the case of resi16 dential rental property which is part of a quali17 fied low-income housing project (as defined in

18 section 168(i)(14))—

19 ‘‘(i) the depreciation deduction with

20 respect to 50 percent of the adjusted basis

21 of such property shall be determined as

22 provided in subparagraph (A), and

23 ‘‘(ii) the depreciation deduction with

24 respect to the other 50 percent of such ad25 justed basis shall be determined under the
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1 method applicable in computing the regu2 lar tax.’’

3 (b) CONFORMING AMENDMENT.—Clause (i) of sec4 tion 56(g)(4)(A) of such Code is amended by inserting be5 fore the period at the end the following: ‘‘or, if applicable,

6 the rules of subsection (a)(1)(C)’’.

7 SEC. 5. EFFECTIVE DATE.

8 The amendments made by this section shall apply to

9 property placed in service after December 31, 1995.

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