period in clause (i) is necessary to the or-
derly leasing or liquidation of the trust’s
interest in such qualified health care prop-
erty, the Secretary may grant 1 or more
extensions of the grace period for such
qualified health care property.
Any such extension shall not extend the grace
period beyond the date which is 6 years after
the date such trust acquired such qualified
health care property.
‘‘(C) INCOME
FROM
INDEPENDENT
CON-
TRACTORS.—For purposes of applying para-
graph (4)(C) with respect to qualified health
care property which is foreclosure property, in-
come derived or received by the trust from an
independent contractor shall be disregarded to
the extent such income is attributable to—
‘‘(i) leases existing on the date the
real estate investment trust acquired the
qualified health care property, or
‘‘(ii) leases extended or entered into
after the trust acquired such property from
lessees pursuant to terms set forth in such
existing leases or on terms under which the
trust receives a substantially similar or
lesser benefit in comparison to the previous
lease for such property.
‘‘(D) QUALIFIED
HEALTH
CARE
PROP-
ERTY.—The term ‘qualified health care prop-
erty’ means any real property (including inter-
ests therein), and any personal property inci-
dent to such real property, which—
‘‘(i) is a health care facility, or
‘‘(ii) is necessary or incidental to the
use of a health care facility.
For purposes of the preceding sentence, the
term ‘health care facility’ means a hospital,
nursing facility, assisted living facility, or other
licensed health care facility which extends medi-
cal or nursing or ancillary services to patients
and which, immediately before the termination,
expiration, default, or breach of the lease of or
mortgage secured by such facility, was operated
by a provider of such services which was eligible
for participation in the Medicare program
under title XVIII of the Social Security Act
with respect to such facility.’’.
SEC. 304. PAYMENTS UNDER HEDGING INSTRUMENTS.
Section 856(c)(6)(G) (relating to treatment of certain
interest rate agreements) is amended to read as follows:
‘‘(G) TREATMENT OF CERTAIN HEDGING
INSTRUMENTS.—Except to the extent provided
by regulations, any—
‘‘(i) payment to a real estate invest-
ment trust under an interest rate swap or
cap agreement, option, futures contract,
forward rate agreement, or any similar fi-
nancial instrument, entered into by the
trust in a transaction to reduce the inter-
est rate risks with respect to any indebted-
ness incurred or to be incurred by the
trust to acquire or carry real estate assets,
and
‘‘(ii) gain from the sale or other dis-
position of any instrument described in
clause (i),
shall be treated as income qualifying under
paragraph (2).’’
SEC. 305. EXCESS NONCASH INCOME.
Section 857(e)(2) (relating to determination of
amount of excess noncash income) is amended—
(1) by striking subparagraph (B),
(2) by striking the period at the end of sub-
paragraph (C) and inserting a comma,
(3) by redesignating subparagraph (C) (as
amended by paragraph (2)) as subparagraph (B),
and
(4) by adding at the end the following new sub-
paragraphs:
‘‘(C) the amount (if any) by which—
‘‘(i) the amounts includible in gross
income with respect to instruments to
which section 860E(a) or 1272 applies, ex-
ceed
‘‘(ii) the amount of money and the
fair market value of other property re-
ceived during the taxable year under such
instruments, and
‘‘(D) amounts includible in income by rea-
son of cancellation of indebtedness.’’
SEC. 306. PROHIBITED TRANSACTION SAFE HARBOR.
(a) 
IN
GENERAL.—Clause 
(iii) 
of 
section
857(b)(6)(C) (relating to certain sales not to constitute
prohibited transactions) is amended by striking ‘‘(other
than foreclosure property)’’ each place it appears and in-
serting ‘‘(other than exempt property)’’.
(b) EXEMPT PROPERTY.—Subparagraph (D) of sec-
tion 857(b)(6) is amended by adding at the end the follow-
ing new clause:
‘‘(viii) The term ‘exempt property’
means—
‘‘(I) foreclosure property, and
‘‘(II) property which, while held
by the real estate investment trust,
was compulsorily or involuntarily con-
verted (within the meaning of section
1033)’’.
SEC. 307. SHARED APPRECIATION MORTGAGES.
(a) BANKRUPTCY SAFE HARBOR.—Section 856(j)
(relating to treatment of shared appreciation mortgages)
is amended by redesignating paragraph (4) as paragraph
(5) and by inserting after paragraph (3) the following new
paragraph:
‘‘(4) COORDINATION WITH 4-YEAR HOLDING PE-
RIOD.—
‘‘(A) IN GENERAL.—For purposes of sec-
tion 857(b)(6)(C), if a real estate investment
trust is treated as having sold secured property
under paragraph (3)(A), the trust shall be
treated as having held such property for at
least 4 years if—
‘‘(i) the secured property is sold or
otherwise disposed of pursuant to a case
under title 11 of the United States Code,
‘‘(ii) the seller is under the jurisdic-
tion of the court in such case, and
‘‘(iii) the disposition is required by the
court or is pursuant to a plan approved by
the court.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply if—
‘‘(i) the secured property was acquired
by the trust with the intent to evict or
foreclose, or
‘‘(ii) the trust knew or had reason to
know that default on the obligation de-
scribed in paragraph (5)(A) would occur.’’
(b) CLARIFICATION OF DEFINITION OF SHARED AP-
PRECIATION
PROVISION.—Clause 
(ii) 
of 
section
856(j)(5)(A) is amended by striking ‘‘gain’’ each place it
appears and inserting ‘‘gain or appreciation in value’’.
SEC. 308. WHOLLY OWNED SUBSIDIARIES.
Section 856(i)(2) (defining qualified REIT subsidi-
ary) is amended by striking ‘‘at all times during the period
such corporation was in existence’’.
Æ