I 

112TH CONGRESS 

1ST SESSION H. R. 1147 

To amend the Internal Revenue Code of 1986 to allow a deduction for 

certain payments made to reduce debt on commercial real property. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 17, 2011 

Mr. NUNES (for himself and Ms. BERKLEY) introduced the following bill; 

which was referred to the Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to allow a 

deduction for certain payments made to reduce debt on 

commercial real property. 

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 ‘‘Community Recovery 

5 and Enhancement Act of 2011’’ or the ‘‘CRE Act of 

6 2011’’. 


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1 SEC. 2. DEDUCTION FOR CERTAIN PAYMENTS MADE RE2 DUCE DEBT ON COMMERCIAL REAL PROP3 ERTY. 

4 (a) IN GENERAL.—Part VI of subchapter B of chap5 ter 1 of the Internal Revenue Code of 1986 (relating to 

6 additional itemized deductions for individuals and corpora7 tions) is amended by adding at the end the following new 

8 section: 

9 ‘‘SEC. 199A. DEDUCTION FOR PAYMENTS MADE TO REDUCE 

10 DEBT ON COMMERCIAL REAL PROPERTY. 

11 ‘‘(a) IN GENERAL.—There shall be allowed as a de12 duction an amount equal to 50 percent of any qualified 

13 debt reduction payment made during the taxable year by 

14 the taxpayer with respect to qualified indebtedness on eli15 gible commercial real property held by the taxpayer. 

16 ‘‘(b) MAXIMUM DEDUCTION.—The deduction allowed 

17 by subsection (a) for any taxable year shall not exceed, 

18 with respect to each eligible commercial real property, 

19 whichever of the following amounts is the least: 

20 ‘‘(1) The amount equal to 50 percent of the ex21 cess (if any) of— 

22 ‘‘(A) the amount of the qualified indebted23 ness secured by such property as of the begin24 ning of such taxable year (reduced by amounts 

25 required to be paid under the terms of the loan 

26 during such taxable year), over 


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1 ‘‘(B) 50 percent of the fair market value of 

2 such property as of the close of the taxable 

3 year. 

4 ‘‘(2) $10,000,000. 

5 ‘‘(3) The adjusted basis of such property as of 

6 the close of such taxable year (determined without 

7 regard to qualified debt reduction payments made 

8 during the taxable year and depreciation for such 

9 year). 

10 ‘‘(c) ELIGIBLE COMMERCIAL REAL PROPERTY.—For 

11 purposes of this section, the term ‘eligible commercial real 

12 property’ means any commercial real property if— 

13 ‘‘(1) as of the beginning of the taxable year, the 

14 amount of the qualified indebtedness secured by 

15 such property is at least equal to 85 percent of the 

16 fair market value of the property, or 

17 ‘‘(2) such property is, or is reasonably expected 

18 to be, treated as being in an in-substance foreclosure 

19 by the Comptroller of the Currency. 

20 ‘‘(d) QUALIFIED DEBT REDUCTION PAYMENT.—For 

21 purposes of this section, the term ‘qualified debt reduction 

22 payment’ means the amount of cash paid by the taxpayer 

23 during the taxable year to reduce the principal amount 

24 of qualified indebtedness of the taxpayer but only to the 


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1 extent such amount exceeds the amounts required to be 

2 paid under the terms of the loan during such taxable year. 

3 ‘‘(e) PROPERTY HELD BY A PARTNERSHIP.— 

4 ‘‘(1) IN GENERAL.—In the case of property 

5 held by a partnership, a qualified debt reduction 

6 payment by the partnership may be taken into ac7 count under this section only if— 

8 ‘‘(A) such payment is attributable to a 

9 qualified equity investment made by a partner 

10 in such partnership, and 

11 ‘‘(B) any deduction under this section 

12 which is attributable to such investment is 

13 properly allocated to such partner under section 

14 704(b). 

15 ‘‘(2) QUALIFIED EQUITY INVESTMENT.—For 

16 purposes of this section— 

17 ‘‘(A) IN GENERAL.—The term ‘qualified 

18 equity investment’ means any equity investment 

19 (as defined in section 45D(b)(6)) in a partner20 ship if— 

21 ‘‘(i) such investment is acquired by 

22 the partner at its original issue (directly or 

23 through an underwriter) solely in exchange 

24 for cash, 


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1 ‘‘(ii) at least 80 percent of such cash 

2 is used by the partnership to reduce the 

3 principal amount of qualified indebtedness 

4 of the partnership, 

5 ‘‘(iii) the portion of such cash not so 

6 used is used by the partnership for im7 provements to commercial real property 

8 held by the partnership, and 

9 ‘‘(iv) the person or persons otherwise 

10 entitled to depreciation with respect to the 

11 portion of the basis of the property being 

12 reduced under subsection (g)(1) consent to 

13 such reduction. 

14 ‘‘(B) REDEMPTIONS.—A rule similar to 

15 the rule of section 1202(c)(3) shall apply for 

16 purposes of this paragraph. 

17 ‘‘(f) OTHER DEFINITIONS.—For purposes of this sec18 tion— 

19 ‘‘(1) QUALIFIED INDEBTEDNESS.—The term 

20 ‘qualified indebtedness’ means any indebtedness— 

21 ‘‘(A) which is incurred or assumed by the 

22 taxpayer on or before January 1, 2009, and 

23 ‘‘(B) which is secured by commercial real 

24 property held by the taxpayer at the time the 


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1 qualified debt reduction equity payment is made 

2 by the taxpayer. 

3 ‘‘(2) COMMERCIAL REAL PROPERTY.—The term 

4 ‘commercial real property’ means section 1250 prop5 erty (as defined in section 1250(c)); except that such 

6 term shall not include residential rental property (as 

7 defined in section 168(e)(2)) unless the building con8 tains at least 3 dwelling units. 

9 ‘‘(g) APPLICATION OF SECTION 1250.—For purposes 

10 of determining the depreciation adjustments under section 

11 1250 with respect to any property— 

12 ‘‘(1) the deduction allowed by this section shall 

13 be treated as a deduction for depreciation, and 

14 ‘‘(2) the depreciation adjustments in respect of 

15 such property shall include all deductions allowed by 

16 this section to all taxpayers by reason of reducing 

17 the debt secured by such property. 

18 ‘‘(h) SPECIAL RULES.— 

19 ‘‘(1) BASIS REDUCTION.—The basis of any 

20 property with respect to which any qualified debt re21 duction payment is made shall be reduced by the 

22 amount of the deduction allowed by this section by 

23 reason of such payment. 

24 ‘‘(2) REFINANCINGS.—The indebtedness de25 scribed in subsection (f)(1)(A) shall include indebtVerDate Mar 15 2010 05:43 Mar 18, 2011 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H1147.IH H1147

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1 edness resulting from the refinancing of indebted2 ness described in such subsection (or this sentence), 

3 but only to the extent it does not exceed the amount 

4 of the indebtedness being refinanced. 

5 ‘‘(3) DENIAL OF DEDUCTION FOR DEBT-FI6 NANCED PAYMENTS.—No deduction shall be allowed 

7 by this section for any qualified debt reduction pay8 ment— 

9 ‘‘(A) to the extent indebtedness is incurred 

10 or continued by the taxpayer to make such pay11 ment, and 

12 ‘‘(B) in the case of a qualified debt reduc13 tion payment made by a partnership on quali14 fied indebtedness on commercial real property 

15 held by the partnership, to the extent of indebt16 edness— 

17 ‘‘(i) which is incurred or continued by 

18 any partner to whom such payment is allo19 cable, and 

20 ‘‘(ii) which is secured by such part21 ner’s interest in the partnership or by such 

22 commercial real property. 

23 ‘‘(4) TREATMENT OF AMOUNTS REQUIRED TO

24 BE PAID BY REASON OF LOAN DEFAULT.—For pur25 poses of subsections (b)(1)(A) and (d), accelerated 


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1 payments required to be made under the terms of a 

2 loan solely by reason of a default on the loan shall 

3 not be taken into account. 

4 ‘‘(5) RECAPTURE OF DEDUCTION IF ADDI5 TIONAL DEBT WITHIN 3 YEARS.— 

6 ‘‘(A) IN GENERAL.—If a taxpayer incurs 

7 any additional debt within 3 years after the 

8 date that the taxpayer made a qualified debt re9 duction payment, the ordinary income of the 

10 taxpayer making such payment shall be in11 creased by the applicable percentage of the re12 captured deduction. 

13 ‘‘(B) RECAPTURED DEDUCTION.—For 

14 purposed of this paragraph, the recaptured de15 duction is the excess of— 

16 ‘‘(i) the deduction allowed by sub17 section (a) on account of a qualified debt 

18 reduction payment, over 

19 ‘‘(ii) the deduction which would have 

20 been so allowed if such payment had been 

21 reduced by the additional debt. 

22 ‘‘(C) APPLICABLE PERCENTAGE.—The ap23 plicable percentage shall be determined in ac24 cordance with the following table: 


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‘‘If, of the 3 years referred to in The applicable 

subparagraph (A), the additional percentage is: 

debt occurs during the: 

1st such year ................................................................................ 100

2d such year ................................................................................. 66 2/3

3d such year ................................................................................. 33 1/3. 

1 ‘‘(D) PARTNERSHIPS.— 

2 ‘‘(i) ALLOCATION OF INCOME INCLU3 SION.—Any increase in the ordinary in4 come of a partnership by reason of this 

5 paragraph shall be allocated (under regula6 tions prescribed by the Secretary) among 

7 the partners receiving a deduction under 

8 this section by reason of making qualified 

9 equity investments in the partnership. 

10 ‘‘(ii) DEBT-FINANCED EQUITY IN11 VESTMENT BY PARTNER.—Rules similar to 

12 the rules of the paragraph shall apply in 

13 cases where additional debt is incurred by 

14 a partner making a qualified equity invest15 ment in a partnership. 

16 ‘‘(E) SUBSEQUENT DEPRECATION.—The 

17 deductions under section 168 for periods after 

18 a recaptured deduction under this paragraph 

19 shall be determined as if the portion of the 

20 qualified debt reduction payment allocable to 

21 the recaptured deduction had never been made. 


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1 ‘‘(6) RECAPTURE WHERE PARTNER DISPOSES

2 OF INTEREST IN PARTNERSHIP.—If any partner to 

3 whom a deduction under this section is allocable by 

4 reason of making a qualified equity investment in a 

5 partnership disposes of any portion of such partner’s 

6 interest in the partnership within 1 year after the 

7 date such investment was made, the ordinary income 

8 of such partner shall be increased by the amount 

9 which bears the same ratio to the deduction allowed 

10 on account of such investment as such portion bears 

11 to such partner’s interest in the partnership imme12 diately before such disposition. 

13 ‘‘(7) EXEMPTION FROM PASSIVE LOSS

14 RULES.—Section 469 shall not apply to the deduc15 tion allowed by this section. 

16 ‘‘(i) APPLICATION OF SECTION.—This section shall 

17 apply to qualified debt reduction payments made within 

18 the 2-year period beginning on the day after the date of 

19 the enactment of this section.’’. 

20 (b) EARNINGS AND PROFITS.—Subsection (k) of sec21 tion 312 of such Code is amended by adding at the end 

22 the following new paragraph: 

23 ‘‘(6) TREATMENT OF SECTION 199A.—Para24 graphs (1) and (3) shall not apply to the deduction 

25 allowed by section 199A.’’. 


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1 (c) CLERICAL AMENDMENT.—The table of sections 

2 for part VI of subchapter B of chapter 1 of such Code 

3 is amended by adding at the end the following new item: 

‘‘Sec. 199A. Deduction for payments made to reduce debt on commercial real 

property.’’. 

4 (d) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to taxable years ending after the 

6 date of the enactment of this Act. 

Æ 


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