II 

109TH CONGRESS 

2D SESSION S. 3616 

To amend the Internal Revenue Code of 1986 to provide an incentive to 

preserve affordable housing in multifamily housing units which are sold 

or exchanged. 

IN THE SENATE OF THE UNITED STATES 

JUNE 29, 2006 

Mr. SCHUMER (for himself, Mr. SMITH, Mr. BOND, Mr. REED, Mrs. MURRAY, 

and Mr. SARBANES) 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 

an incentive to preserve affordable housing in multifamily 

housing units which are sold or exchanged. 

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 ‘‘Affordable Housing 

5 Preservation Act of 2006’’. 


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1 SEC. 2. EXCLUSION OF GAIN FROM SALES OF AFFORDABLE 

2 HOUSING WHICH IS ATTRIBUTABLE TO DE3 PRECIATION. 

4 (a) IN GENERAL.—Part I of subchapter P of chapter 

5 1 of the Internal Revenue Code of 1986 (relating to treat6 ment of capital gains) is amended by inserting after sec7 tion 1202 the following new section: 

8 ‘‘SEC. 1203. EXCLUSION OF GAIN FROM QUALIFIED SALES 

9 OF MULTIFAMILY HOUSING. 

10 ‘‘(a) IN GENERAL.—Gross income shall not include 

11 gain from the qualified sale or exchange of eligible multi12 family housing property. 

13 ‘‘(b) EXCLUSION LIMITED TO DEPRECIATION.—The 

14 amount of gain excluded from gross income under sub15 section (a) with respect to any property shall not exceed 

16 the depreciation adjustments (as defined in section 

17 1250(b)(3)) in respect of such property. 

18 ‘‘(c) QUALIFIED SALE OR EXCHANGE.—For purposes 

19 of this section— 

20 ‘‘(1) IN GENERAL.—The term ‘qualified sale or 

21 exchange’ means a sale of eligible multifamily hous22 ing property to or an exchange of such property with 

23 a preservation entity which agrees to maintain af24 fordability and use restrictions regarding the prop25 erty that are— 


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1 ‘‘(A) for a term of not less than the ex2 tended use period, 

3 ‘‘(B) legally enforceable, and 

4 ‘‘(C) consistent with the requirements of 

5 paragraph (2). 

6 Such restrictions shall be binding on all successors 

7 of the preservation entity and shall be recorded as 

8 a restrictive covenant on the property pursuant to 

9 State law. 

10 ‘‘(2) AFFORDABILITY AND USE RESTRIC11 TIONS.— 

12 ‘‘(A) IN GENERAL.—Affordability and use 

13 restrictions regarding a property are consistent 

14 with this paragraph if— 

15 ‘‘(i) in the case of property with re16 spect to which assistance described in sub17 section (d) is still in effect (as determined 

18 by the Secretary), such property satisfies 

19 the affordability and use restrictions in 

20 connection with such assistance, or 

21 ‘‘(ii) in the case of any other property, 

22 such property is maintained as affordable 

23 housing. 

24 ‘‘(B) AFFORDABLE HOUSING.—The term 

25 ‘affordable housing’ means housing which would 


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1 be a qualified low-income housing project (as 

2 defined in section 42(g)) if subparagraph (A) of 

3 section 42(g)(1) did not apply and subpara4 graph (B) of such section were applied by sub5 stituting ‘51 percent’ for ‘40 percent’. Eligible 

6 multifamily housing property shall not fail to be 

7 treated as affordable housing solely because 

8 residents of such property (while such property 

9 was described in subparagraph (A)(i)) continue 

10 to reside in such property. 

11 ‘‘(3) CERTIFICATION BY PROGRAM ADMINIS12 TRATOR.—The term ‘qualified sale or exchange’ 

13 shall not include any sale or exchange of property 

14 unless the housing agency certifies— 

15 ‘‘(A) that the transferee with respect to 

16 such property is a qualified preservation entity, 

17 ‘‘(B) that affordability and use restrictions 

18 will be maintained with respect to such property 

19 during the extended use period, 

20 ‘‘(C) that new capital will be expended that 

21 restores the condition of the property and funds 

22 adequate reserves, and 

23 ‘‘(D) the amount of gain which the trans24 feror will be allowed to exclude from gross in25 come under subsection (a) (determined at the 


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1 entity level in the case of a partnership or S 

2 corporation). 

3 ‘‘(4) EXTENDED USE PERIOD.—The term ‘ex4 tended use period’ means the period beginning on 

5 the date of sale and ending on the earlier of— 

6 ‘‘(A) 30 years after the close of the sale, 

7 or 

8 ‘‘(B) the date that the property is acquired 

9 by foreclosure (or instrument in lieu of fore10 closure). 

11 Subparagraph (B) shall not apply if the Secretary 

12 determines that the acquisition described therein is 

13 part of an arrangement with the owner a purpose of 

14 which is to terminate the extended use period. 

15 ‘‘(d) ELIGIBLE MULTIFAMILY HOUSING PROP16 ERTY.—For purposes of this section, the term ‘eligible 

17 multifamily housing property’ means any section 1250 

18 property (as defined in section 1250(c))— 

19 ‘‘(1) which is assisted under section 221(d)(3) 

20 or section 236 of the National Housing Act (or fi21 nanced or assisted by direct loan or tax abatement 

22 under similar provisions of State or local laws) and 

23 with respect to which the owner is subject to the re24 strictions described in section 1039(b)(1)(B) (as in 


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1 effect on the day before the date of the enactment 

2 of the Revenue Reconciliation Act of 1990), 

3 ‘‘(2) which is described in section 512(2)(B) of 

4 the Multifamily Assisted Housing Reform and Af5 fordability Act of 1997 (42 U.S.C. 1437f note), or 

6 ‘‘(3) with respect to which a loan is made or in7 sured under title V of the Housing Act of 1949. 

8 Such term does not include any property with respect to 

9 which a credit under section 42 was allowed to the tax10 payer. 

11 ‘‘(e) PRESERVATION ENTITY.—For purposes of this 

12 section, the term ‘preservation entity’ means a housing 

13 agency or an organization approved by a housing agency 

14 that has the capacity and commitment to successfully ac15 quire and preserve eligible multifamily housing property. 

16 An organization shall not be treated as a preservation en17 tity with respect to any taxpayer if such organization is 

18 related (as defined in section 267) to such taxpayer. 

19 ‘‘(f) RESPONSIBILITIES OF HOUSING AGENCY.—The 

20 housing agency (or an agent or other private contractor 

21 of such agency) shall— 

22 ‘‘(1) determine whether the preservation enti23 ty’s plan for rehabilitation and operation restores 

24 the condition of the eligible multifamily housing 

25 property and is viable for no less than 30 years, 


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1 ‘‘(2) monitor the affordability and use restric2 tions for the eligible multifamily housing property, 

3 and 

4 ‘‘(3) notify the Internal Revenue Service as to 

5 any portion of such property which is out of compli6 ance. 

7 ‘‘(g) RECAPTURE FOR NONCOMPLIANCE.—If the Sec8 retary determines that all or a portion of the multifamily 

9 housing property acquired by a preservation entity in a 

10 transfer to which subsection (a) applied is out of compli11 ance with the requirements of this section, the preserva12 tion entity’s tax imposed under this chapter for the taxable 

13 year shall be increased by (or if such entity is not other14 wise subject to tax under this chapter, there shall be im15 posed on such entity a tax equal to) 12.5 percent of the 

16 amount which bears the same ratio to the amount certified 

17 under subsection (c)(3)(C) with respect to such property 

18 as such entity’s share of the portion of such property 

19 which is out of compliance bears to the entire property. 

20 The amount otherwise determined under this subsection 

21 (without regard to this sentence) shall be reduced by the 

22 product of 3.33 percent of such amount, multiplied by the 

23 number of years after the qualified sale or exchange that 

24 the property was in compliance with the requirements of 

25 this section. 


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1 ‘‘(h) COORDINATION WITH SECTION 1250.—In the 

2 case of a qualified sale or exchange of eligible multifamily 

3 housing property a portion of the gain from which is treat4 ed as ordinary income under section 1250, such portion 

5 of the gain shall be excluded from gross income under sub6 section (a) before any remaining portion of such gain. 

7 ‘‘(i) HOUSING AGENCY.—For purposes of this sec8 tion, the term ‘housing agency’ means, with respect to any 

9 eligible multifamily housing property, the State housing 

10 agency (or in the absence of a State housing agency, any 

11 Federal housing agency) which administers housing assist12 ance with respect to such property.’’. 

13 (b) CONFORMING AMENDMENTS.— 

14 (1) Subparagraph (B) of section 172(d)(2) of 

15 the Internal Revenue Code of 1986 is amended by 

16 striking ‘‘section 1202’’ and inserting ‘‘section 1202 

17 and 1203’’. 

18 (2) Paragraph (4) of section 642(c) of such 

19 Code is amended by striking the first sentence and 

20 inserting the following: ‘‘To the extent that the 

21 amount otherwise allowable as a deduction under 

22 this subsection consists of gain described in section 

23 1202(a) or 1203(a)), proper adjustment shall be 

24 made for any exclusion allowable to the estate or 


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1 trust under section 1202 or section 1203, as the 

2 case may be.’’. 

3 (3) Paragraph (3) of section 643(a) of such 

4 Code is amended by striking ‘‘section 1202’’ and in5 serting ‘‘sections 1202 and 1203’’. 

6 (4) Paragraph (4) of section 691(c) of such 

7 Code is amended by inserting ‘‘1203,’’ after 

8 ‘‘1202,’’. 

9 (5) Paragraph (2) of section 871(a) of such 

10 Code is amended by inserting ‘‘and 1203’’ after 

11 ‘‘section 1202’’. 

12 (6) The table of sections for part I of sub13 chapter P of chapter 1 of such Code is amended by 

14 inserting after the item relating to section 1202 the 

15 following new item: 

‘‘Sec. 1203. Exclusion of gain from qualified sales of multifamily housing.’’. 

16 (c) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to taxable years beginning after 

18 December 31, 2005. 

Æ 


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