II

103D CONGRESS

2D SESSION S. 1986

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

MARCH 25 (legislative day, FEBRUARY 22), 1994

Mr. BREAUX 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 lowincome 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 1994’’.

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 thereof 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,

15 ‘‘(iii) such project was originally

16 placed in service at least 10 years before

17 the taxpayer acquired an interest in such

18 project,

19 ‘‘(iv) such project is substantially re20 habilitated,

21 ‘‘(v) the taxpayer acquired such tax22 payer’s interest in such project by pur23 chase, and

24 ‘‘(vi) such project was not previously

25 placed in service by the taxpayer or by any
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1 person who was a related person (as de2 fined in section 42(d)(2)(D)(iii)) with re3 spect to the taxpayer as of the time pre4 viously placed in service.

5 ‘‘(B) DENIAL OF DOUBLE BENEFIT.—A

6 project shall not be treated as a qualified low7 income housing project if the taxpayer (or any

8 other person holding an interest in such

9 project) claims any benefits with respect to

10 such project under—

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

12 housing credit),

13 ‘‘(ii) the Low-Income Housing Preser14 vation and Resident Homeownership Act of

15 1990, or

16 ‘‘(iii) the Emergency Low-Income

17 Housing Preservation Act of 1987 pursu18 ant to section 604 of the Cranston-Gon19 zalez National Affordable Housing Act.

20 ‘‘(C) SPECIFIED HUD PROGRAMS.—For

21 purposes of subparagraph (A), a project is as22 sisted under a specified HUD program if such

23 project was financed by a loan or mortgage

24 which—
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1 ‘‘(i) is insured or held by the Sec2 retary of Housing and Urban Development

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

4 Housing Act and bears interest at a rate

5 determined under the proviso of section

6 221(d)(5) of such Act.

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

8 such Secretary of a State or State agency

9 under section 236 of such Act,

10 ‘‘(iii) is insured or held by such Sec11 retary under section 221(d)(3) of such Act

12 and receiving assistance under section 8 of

13 the United States Housing Act of 1937, or

14 ‘‘(iv) is insured or held by such Sec15 retary under section 221(d)(4) of the Na16 tional Housing Act.

17 ‘‘(D) SUBSTANTIALLY REHABILITATED.—

18 ‘‘(i) IN GENERAL.—For purposes of

19 subparagraph (A), a project is substan20 tially rehabilitated if the amount of the re21 habilitation expenditures with respect to

22 such project during the 24-month period

23 beginning on the date the taxpayer ac24 quired his interest in such project equals

25 or exceeds 10 percent of the aggregate ad-
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1 justed bases (as of the beginning of such

2 24-month period) of the residential rental

3 property which is part of such project.

4 ‘‘(ii) REHABILITATION EXPENDI5 TURES.—

6 ‘‘(I) IN GENERAL.—For purposes

7 of clause (i), the term ‘rehabilitation

8 expenditures’ means amounts charge9 able to capital account and incurred

10 for property (or additions or improve11 ments to property) of a character sub12 ject to the allowance for depreciation

13 in connection with the rehabilitation

14 of a building. Such term shall not in15 clude the cost of acquiring the build16 ing (or any interest therein).

17 ‘‘(II) SPECIAL RULE.—An ex18 penditure may be taken into account

19 only if it benefits the low-income units

20 in the project at least in proportion to

21 the total number of units in such

22 project which are low-income units.

23 For purposes of the preceding sen24 tence, the term ‘low-income units’

25 means units with respect to which the
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1 requirements of subparagraph (A)(ii)

2 are met.

3 ‘‘(E) INCOME DETERMINATIONS.—For

4 purposes of subparagraph (A), income of indi5 viduals and area median gross income shall be

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

7 ‘‘(F) PURCHASE.—For purposes of sub8 paragraph (A), the term ‘purchase’ has the

9 meaning given to such term by section

10 179(d)(2); except that such term shall not in11 clude any acquisition where the basis of the

12 property acquired is determined in whole or in

13 part by reference to the basis of other property

14 held at any time by the person acquiring the

15 property.’’.

16 SEC. 3. EXEMPTION FROM PASSIVE LOSS LIMITATIONS.

17 Section 469 of the Internal Revenue Code of 1986

18 (relating to limitation on passive activity losses and cred19 its) is amended—

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

21 and (m) as subsections (k), (l), (m), and (n), respec22 tively, and

23 (2) by inserting after subsection (i) the follow24 ing new subsection:
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1 ‘‘(j) $50,000 OFFSET FOR CERTAIN LOW-INCOME

2 HOUSING ACTIVITIES.—

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

4 apply to that portion of the passive activity loss for

5 any taxable year which is attributable to rental ac6 tivities with respect to residential rental property

7 which is part of a qualified low-income housing

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

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

10 amount to which paragraph (1) applies for any tax11 able year shall not exceed $50,000 ($25,000 in the

12 case if a separate return by a married individual).

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

14 This subsection shall be applied before the applica15 tion of subsection (i).’’.

16 SEC. 4. MINIMUM TAX TREATMENT.

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

18 of the Internal Revenue Code of 1986 (relating to depre19 ciation deduction) is amended—

20 (1) by redesignating subparagraphs (C) and

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

22 (2) by inserting after subparagraph (B) the fol23 lowing new subparagraph:

24 ‘‘(C) SPECIAL RULE FOR CERTAIN LOW25 INCOME HOUSING PROJECTS.—In the case of
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1 residential rental property which is part of a

2 qualified low-income housing project (as defined

3 in section 168(i)(14))—

4 ‘‘(i) the depreciation deduction with

5 respect to 50 percent of the adjusted basis

6 of such property shall be determined as

7 provided in subparagraph (A), and

8 ‘‘(ii) the depreciation deduction with

9 respect to the other 50 percent of such ad10 justed basis shall be determined under the

11 method applicable in computing the regu12 lar tax.’’.

13 (b) CONFORMING AMENDMENT.—Clause (i) of sec14 tion 56(g)(4)(A) of such Code is amended by inserting be15 fore the period at the end thereof the following: ‘‘or, if

16 applicable, the rules of subsection (a)(1)(C)’’.

17 SEC. 5. EFFECTIVE DATE.

18 The amendments made by this section shall apply to

19 property placed in service after December 31, 1994.

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