I 

111TH CONGRESS 

2D SESSION H. R. 5943 

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. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 29, 2010 

Ms. BERKLEY (for herself, Mr. NUNES, and Mr. CROWLEY) 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 the portion of any equity investment used 

to buy down 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 2010’’ or the ‘‘CRE Act of 

6 2010’’. 


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1 SEC. 2. DEDUCTION FOR EQUITY INVESTMENTS USED TO 

2 BUY DOWN DEBT ON COMMERCIAL REAL 

3 PROPERTY. 

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 EQUITY INVESTMENTS USED 

10 TO BUY DOWN DEBT ON COMMERCIAL REAL 

11 PROPERTY. 

12 ‘‘(a) IN GENERAL.—There shall be allowed as a de13 duction an amount equal to— 

14 ‘‘(1) 50 percent of any qualified debt reduction 

15 equity investment made during the taxable year by 

16 the taxpayer in a partnership, and 

17 ‘‘(2) 50 percent of any qualified debt reduction 

18 payment made during the taxable year by the tax19 payer with respect to qualified indebtedness on com20 mercial real property held by the taxpayer. 

21 Paragraph (2) shall not apply to any qualified debt reduc22 tion payment made by a partnership. 

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

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

25 with respect to each commercial real property, the excess 

26 (if any) of— 


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1 ‘‘(1) the amount of the qualified indebtedness 

2 secured by such property as of the beginning of such 

3 taxable year, over 

4 ‘‘(2) the lesser of— 

5 ‘‘(A) 50 percent of the amount described 

6 in paragraph (1), or 

7 ‘‘(B) the adjusted basis of such property 

8 (in the hands of the partnership or the tax9 payer, as the case may be) as of the close of 

10 such taxable year (determined without regard to 

11 qualified debt reduction equity investments and 

12 qualified debt reduction payments made during 

13 the taxable year and depreciation for such 

14 year). 

15 ‘‘(c) QUALIFIED DEBT REDUCTION EQUITY INVEST16 MENT; QUALIFIED DEBT REDUCTION PAYMENT.—For 

17 purposes of this section— 

18 ‘‘(1) QUALIFIED DEBT REDUCTION EQUITY IN19 VESTMENT.— 

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

21 debt reduction equity investment’ means the 

22 amount of any qualified equity investment 

23 which is used by the partnership to reduce the 

24 principal amount of qualified indebtedness of 

25 the partnership. 


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1 ‘‘(B) QUALIFIED EQUITY INVESTMENT.— 

2 The term ‘qualified equity investment’ means 

3 any equity investment (as defined in section 

4 45D(b)(6)) in a partnership if— 

5 ‘‘(i) such investment is acquired by 

6 the taxpayer at its original issue (directly 

7 or through an underwriter) solely in ex8 change for cash, 

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

10 is used by the partnership to reduce the 

11 principal amount of qualified indebtedness 

12 of the partnership, 

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

14 used is used by the partnership for im15 provements to commercial real property 

16 held by the partnership, and 

17 ‘‘(iv) the person or persons otherwise 

18 entitled to depreciation on such property 

19 consent to the basis reduction under sub20 section (f)(1). 

21 ‘‘(C) REDEMPTIONS.—A rule similar to the 

22 rule of section 1202(c)(3) shall apply for pur23 poses of this paragraph. 

24 ‘‘(2) QUALIFIED DEBT REDUCTION PAYMENT.— 

25 In the case of commercial real property held by a 


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1 taxpayer other than a partnership, the term ‘quali2 fied debt reduction payment’ means the amount of 

3 cash paid by the taxpayer during the taxable year to 

4 reduce the principal amount of qualified indebted5 ness of the taxpayer. 

6 ‘‘(d) OTHER DEFINITIONS.—For purposes of this 

7 section— 

8 ‘‘(1) QUALIFIED INDEBTEDNESS.— 

9 ‘‘(A) PARTNERSHIPS.—The term ‘qualified 

10 indebtedness’ means, with respect to a partner11 ship, any indebtedness— 

12 ‘‘(i) incurred or assumed by the part13 nership on or before January 1, 2009, and 

14 ‘‘(ii) which is secured by commercial 

15 real property held by the partnership at 

16 the time the qualified debt reduction equity 

17 investment is made by the taxpayer. 

18 ‘‘(B) OTHER TAXPAYERS.—In the case of 

19 a taxpayer other than a partnership, the term 

20 ‘qualified indebtedness’ has the meaning given 

21 to such term by subparagraph (A) determined 

22 by substituting— 

23 ‘‘(i) ‘taxpayer’ for ‘partnership’, and 


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1 ‘‘(ii) ‘qualified debt reduction pay2 ment’ for ‘qualified debt reduction equity 

3 investment’. 

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

5 ‘commercial real property’ means section 1250 prop6 erty (as defined in section 1250(c)); except that such 

7 term shall not include residential rental property (as 

8 defined in section 168(e)(2)) unless the building con9 tains at least 3 dwelling units. 

10 ‘‘(e) APPLICATION OF SECTION 1250.—For purposes 

11 of determining the depreciation adjustments under section 

12 1250 with respect to any property— 

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

14 be treated as a deduction for depreciation, and 

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

16 such property shall include all deductions allowed by 

17 this section to all taxpayers by reason of reducing 

18 the debt secured by such property. 

19 ‘‘(f) SPECIAL RULES.— 

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

21 property with respect to which any qualified debt re22 duction equity investment or qualified debt reduction 

23 payment is made shall be reduced by the amount of 

24 the deduction allowed by this section by reason of 

25 such investment or payment. 


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1 ‘‘(2) REFINANCINGS.—The indebtedness de2 scribed in subsection (d)(1)(A)(i) shall include in3 debtedness resulting from the refinancing of indebt4 edness described in such subsection (or this sen5 tence), but only to the extent it does not exceed the 

6 amount of the indebtedness being refinanced. 

7 ‘‘(3) DEBT REDUCTION MUST BE IN EXCESS OF

8 SCHEDULED PAYMENTS.—Only amounts paid in ex9 cess of the amounts required to be paid under the 

10 terms of the loan may be taken into account under 

11 this section. 

12 ‘‘(4) DENIAL OF DEDUCTION FOR DEBT-FI13 NANCED INVESTMENTS, ETC.—No deduction shall be 

14 allowed by this section for any qualified debt reduc15 tion equity investment or any qualified debt reduc16 tion payment to the extent indebtedness is incurred 

17 or continued to make such investment or payment. 

18 ‘‘(5) RECAPTURE OF DEDUCTION IF ADDI19 TIONAL DEBT WITHIN 3 YEARS.— 

20 ‘‘(A) IN GENERAL.—If a partnership in21 curs any additional debt within 3 years after 

22 the date that the partnership received a quali23 fied debt reduction equity investment, the ordi24 nary income of the taxpayer making such inVerDate Mar 15 2010 00:27 Jul 31, 2010 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H5943.IH H5943

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1 vestment shall be increased by the applicable 

2 percentage of the recaptured deduction. 

3 ‘‘(B) RECAPTURED DEDUCTION.—For pur4 poses of this paragraph, the recaptured deduc5 tion is the excess of— 

6 ‘‘(i) the deduction allowed by sub7 section (a) on account of a qualified debt 

8 reduction equity investment, over 

9 ‘‘(ii) the deduction which would have 

10 been so allowed if such investment had 

11 been reduced by such investment’s share of 

12 the additional debt. 

13 ‘‘(C) APPLICABLE PERCENTAGE.—The ap14 plicable percentage shall be determined in ac15 cordance with the following table: 

‘‘If, of the 3 years referred to in 

subparagraph (A), the additional debt occurs during the: 

The applicable percentage 

is: 

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

2d such year ................................................................................. 66 2⁄3

3d such year ................................................................................. 33 1⁄3

16 ‘‘(D) INVESTMENT’S SHARE OF ADDI17 TIONAL DEBT.—A qualified debt reduction eq18 uity investment’s share of additional debt is the 

19 amount which bears the same ratio to such ad20 ditional debt as such taxpayer’s qualified debt 

21 reduction equity investment bears to the aggre22 gate qualified debt reduction equity investments 


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1 of all such taxpayers to which subparagraph 

2 (A) applies by reason of such additional debt. 

3 ‘‘(E) SUBSEQUENT DEPRECIATION.—The 

4 partnership’s deductions under section 168 for 

5 periods after a recaptured deduction under this 

6 paragraph shall be determined as if the portion 

7 of the qualified debt reduction equity invest8 ment allocable to the recaptured deduction had 

9 never been made. 

10 ‘‘(F) SIMILAR RULES FOR QUALIFIED

11 DEBT REDUCTION PAYMENTS.—Rules similar to 

12 the rules of the preceding provisions of this 

13 paragraph shall apply to qualified debt reduc14 tion payments. 

15 ‘‘(6) EXEMPTION FROM PASSIVE LOSS

16 RULES.—Section 469 shall not apply to the deduc17 tion allowed by this section. 

18 ‘‘(g) APPLICATION OF SECTION.—This section shall 

19 apply to qualified debt reduction equity investments and 

20 qualified debt reduction payments made after the date of 

21 the enactment of this section and before January 1, 

22 2013.’’. 

23 (b) EARNINGS AND PROFITS.—Subsection (k) of sec24 tion 312 of such Code is amended by adding at the end 

25 the following new paragraph: 


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1 ‘‘(6) TREATMENT OF SECTION 199A.—Para2 graphs (1) and (3) shall not apply to the deduction 

3 allowed by section 199A.’’. 

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

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

6 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.’’. 

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

8 this section shall apply to taxable years ending after the 

9 date of the enactment of this Act. 

Æ 


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