‘‘(C) SPECIFIED
HUD
PROGRAMS.—For
purposes of subparagraph (A), a project is as-
sisted under a specified HUD program if such
project was financed by a loan or mortgage
which—
‘‘(i) is insured or held by the Sec-
retary of Housing and Urban Development
under section 221(d)(3) of the National
Housing Act (12 U.S.C. 1715l(d)(3)) and
bears interest at a rate determined under
the proviso of section 221(d)(5) of such
Act,
‘‘(ii) is insured, assisted, or held by
such Secretary or a State or State agency
under section 236 of such Act (12 U.S.C.
1715z–1),
‘‘(iii) is insured or held by such Sec-
retary under section 221(d)(3) of such Act
and receiving assistance under section 8 of
the United States Housing Act of 1937
(42 U.S.C. 1437f), or
‘‘(iv) is insured or held by such Sec-
retary under section 221(d)(4) of the Na-
tional Housing Act.
‘‘(D) SUBSTANTIALLY REHABILITATED.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A), a project is substan-
tially rehabilitated if the amount of the re-
habilitation expenditures with respect to
such project during the 24-month period
beginning on the date the taxpayer ac-
quired his interest in such project equals
or exceeds 10 percent of the aggregate ad-
justed bases (as of the beginning of such
24-month period) of the residential rental
property which is part of such project.
‘‘(ii) 
REHABILITATION
EXPENDI-
TURES.—
‘‘(I) IN GENERAL.—For purposes
of clause (i), the term ‘rehabilitation
expenditures’ means amounts charge-
able to capital account and incurred
for property (or additions or improve-
ments to property) of a character sub-
ject to the allowance for depreciation
in connection with the rehabilitation
of a building. Such term shall not in-
clude the cost of acquiring the build-
ing (or any interest therein).
‘‘(II) SPECIAL
RULE.—An ex-
penditure may be taken into account
only if it benefits the low-income units
in the project at least in proportion to
the total number of units in such
project which are low-income units.
For purposes of the preceding sen-
tence, the term ‘low-income units’
means units with respect to which the
requirements of subparagraph (A)(ii)
are met.
‘‘(E) 
INCOME
DETERMINATIONS.—For
purposes of subparagraph (A), income of indi-
viduals and area median gross income shall be
determined as provided in section 142(d)(2)(B).
‘‘(F) PURCHASE.—For purposes of sub-
paragraph (A), the term ‘purchase’ has the
meaning given to such term by section
179(d)(2); except that such term shall not in-
clude any acquisition where the basis of the
property acquired is determined in whole or in
part by reference to the basis of other property
held at any time by the person acquiring the
property.
‘‘(G) TREATMENT OF UNITS OCCUPIED BY
INDIVIDUALS
WHOSE
INCOMES
RISE
ABOVE
LIMIT.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), notwithstanding an in-
crease in the income of the occupants of a
low-income unit above the income limita-
tion applicable under subparagraph (A)(ii),
such unit shall continue to be treated as a
low-income unit if the income of such occu-
pants initially met such income limitation.
‘‘(ii) NEXT AVAILABLE UNIT MUST BE
RENTED TO LOW-INCOME TENANT IF IN-
COME RISES ABOVE 140 PERCENT OF IN-
COME LIMIT.—If the income of the occu-
pants of the unit increases above 140 per-
cent of the income limitation applicable
under subparagraph (A)(ii), clause (i) shall
cease to apply to any such unit if any resi-
dential unit in the project (of a size com-
parable to, or smaller than, such unit) is
occupied by a new resident whose income
exceeds such income limitation. In the case
of 
a 
project 
described 
in 
section
142(d)(4)(B), the preceding sentence shall
be applied by substituting ‘170 percent’ for
‘140 percent’ and by substituting ‘any low-
income unit in the project is occupied by
a new resident whose income exceeds 40
percent of area median gross income’ for
‘any residential unit in the project (of a
size comparable to, or smaller than, such
unit) is occupied by a new resident whose
income exceeds such income limitation’.
‘‘(H) RECAPTURE RULES.—
‘‘(i) SUBSTANTIALLY REHABILITATION
REQUIREMENTS.—If the requirements of
subparagraph (D) are not satisfied with re-
spect to any project—
‘‘(I) such project shall not be
treated as a qualified low-income
housing project for any period (includ-
ing periods before the close of the 24-
month period set forth in subpara-
graph (D)(i)), and
‘‘(II) the statutory period for the
assessment of any deficiency attrib-
utable to the failure of the project to
meet such requirements shall not ex-
pire before the date prescribed by sec-
tion 6501 for the assessment of a de-
ficiency for the taxable year in which
the 24-month period set forth in sub-
paragraph (D)(i) ends.
‘‘(ii) CROSS REFERENCE.—
‘‘For treatment of subsequent failure to meet
other requirements after initial qualification, see
paragraph (5) of this subsection.’’
SEC. 3. EXEMPTION FROM PASSIVE LOSS LIMITATIONS.
Section 469 of the Internal Revenue Code of 1986
(relating to limitation on passive activity losses and cred-
its) is amended—
(1) by redesignating subsections (j), (k), (l),
and (m) as subsections (k), (l), (m), and (n), respec-
tively, and
(2) by inserting after subsection (i) the follow-
ing new subsection:
‘‘(j) $50,000 OFFSET FOR CERTAIN LOW-INCOME
HOUSING ACTIVITIES.—
‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply to that portion of the passive activity loss for
any taxable year which is attributable to rental ac-
tivities with respect to residential rental property
which is part of a qualified low-income housing
project (as defined in section 168(i)(14)).
‘‘(2) DOLLAR
LIMITATION.—The aggregate
amount to which paragraph (1) applies for any tax-
able year shall not exceed $50,000 ($25,000 in the
case of a separate return by a married individual).
‘‘(3) COORDINATION WITH SUBSECTION (i).—
This subsection shall be applied before the applica-
tion of subsection (i).’’
SEC. 4. MINIMUM TAX TREATMENT.
(a) GENERAL RULE.—Paragraph (1) of section 56(a)
of the Internal Revenue Code of 1986 (relating to depre-
ciation deduction) is amended—
(1) by redesignating subparagraphs (C) and
(D) as subparagraphs (D) and (E), respectively, and
(2) by inserting after subparagraph (B) the fol-
lowing new subparagraph:
‘‘(C) SPECIAL RULE FOR CERTAIN LOW-IN-
COME HOUSING PROJECTS.—In the case of resi-
dential rental property which is part of a quali-
fied low-income housing project (as defined in
section 168(i)(14))—
‘‘(i) the depreciation deduction with
respect to 50 percent of the adjusted basis
of such property shall be determined as
provided in subparagraph (A), and
‘‘(ii) the depreciation deduction with
respect to the other 50 percent of such ad-
justed basis shall be determined under the
method applicable in computing the regu-
lar tax.’’
(b) CONFORMING AMENDMENT.—Clause (i) of sec-
tion 56(g)(4)(A) of such Code is amended by inserting be-
fore the period at the end the following: ‘‘or, if applicable,
the rules of subsection (a)(1)(C)’’.
SEC. 5. EFFECTIVE DATE.
The amendments made by this section shall apply to
property placed in service after December 31, 1997.
Æ