I 
112TH CONGRESS 
1ST SESSION H. R. 1147 
To amend the Internal Revenue Code of 1986 to allow a deduction for 
certain payments made to reduce debt on commercial real property. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 17, 2011 
Mr. NUNES (for himself and Ms. BERKLEY) 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 certain payments made to reduce debt on 
commercial real property. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Community Recovery 
and Enhancement Act of 2011’’ or the ‘‘CRE Act of 
2011’’. 
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SEC. 2. DEDUCTION FOR CERTAIN PAYMENTS MADE RE-
DUCE DEBT ON COMMERCIAL REAL PROP-
ERTY. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
additional itemized deductions for individuals and corpora-
tions) is amended by adding at the end the following new 
section: 
‘‘SEC. 199A. DEDUCTION FOR PAYMENTS MADE TO REDUCE 
DEBT ON COMMERCIAL REAL PROPERTY. 
‘‘(a) IN GENERAL.—There shall be allowed as a de-
duction an amount equal to 50 percent of any qualified 
debt reduction payment made during the taxable year by 
the taxpayer with respect to qualified indebtedness on eli-
gible commercial real property held by the taxpayer. 
‘‘(b) MAXIMUM DEDUCTION.—The deduction allowed 
by subsection (a) for any taxable year shall not exceed, 
with respect to each eligible commercial real property, 
whichever of the following amounts is the least: 
‘‘(1) The amount equal to 50 percent of the ex-
cess (if any) of— 
‘‘(A) the amount of the qualified indebted-
ness secured by such property as of the begin-
ning of such taxable year (reduced by amounts 
required to be paid under the terms of the loan 
during such taxable year), over 
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‘‘(B) 50 percent of the fair market value of 
such property as of the close of the taxable 
year. 
‘‘(2) $10,000,000. 
‘‘(3) The adjusted basis of such property as of 
the close of such taxable year (determined without 
regard to qualified debt reduction payments made 
during the taxable year and depreciation for such 
year). 
‘‘(c) ELIGIBLE COMMERCIAL REAL PROPERTY.—For 
purposes of this section, the term ‘eligible commercial real 
property’ means any commercial real property if— 
‘‘(1) as of the beginning of the taxable year, the 
amount of the qualified indebtedness secured by 
such property is at least equal to 85 percent of the 
fair market value of the property, or 
‘‘(2) such property is, or is reasonably expected 
to be, treated as being in an in-substance foreclosure 
by the Comptroller of the Currency. 
‘‘(d) QUALIFIED DEBT REDUCTION PAYMENT.—For 
purposes of this section, the term ‘qualified debt reduction 
payment’ means the amount of cash paid by the taxpayer 
during the taxable year to reduce the principal amount 
of qualified indebtedness of the taxpayer but only to the 
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extent such amount exceeds the amounts required to be 
paid under the terms of the loan during such taxable year. 
‘‘(e) PROPERTY HELD BY A PARTNERSHIP.— 
‘‘(1) IN
GENERAL.—In the case of property 
held by a partnership, a qualified debt reduction 
payment by the partnership may be taken into ac-
count under this section only if— 
‘‘(A) such payment is attributable to a 
qualified equity investment made by a partner 
in such partnership, and 
‘‘(B) any deduction under this section 
which is attributable to such investment is 
properly allocated to such partner under section 
704(b). 
‘‘(2) QUALIFIED
EQUITY
INVESTMENT.—For 
purposes of this section— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
equity investment’ means any equity investment 
(as defined in section 45D(b)(6)) in a partner-
ship if— 
‘‘(i) such investment is acquired by 
the partner at its original issue (directly or 
through an underwriter) solely in exchange 
for cash, 
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‘‘(ii) at least 80 percent of such cash 
is used by the partnership to reduce the 
principal amount of qualified indebtedness 
of the partnership, 
‘‘(iii) the portion of such cash not so 
used is used by the partnership for im-
provements to commercial real property 
held by the partnership, and 
‘‘(iv) the person or persons otherwise 
entitled to depreciation with respect to the 
portion of the basis of the property being 
reduced under subsection (g)(1) consent to 
such reduction. 
‘‘(B) REDEMPTIONS.—A rule similar to 
the rule of section 1202(c)(3) shall apply for 
purposes of this paragraph. 
‘‘(f) OTHER DEFINITIONS.—For purposes of this sec-
tion— 
‘‘(1) QUALIFIED
INDEBTEDNESS.—The term 
‘qualified indebtedness’ means any indebtedness— 
‘‘(A) which is incurred or assumed by the 
taxpayer on or before January 1, 2009, and 
‘‘(B) which is secured by commercial real 
property held by the taxpayer at the time the 
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qualified debt reduction equity payment is made 
by the taxpayer. 
‘‘(2) COMMERCIAL REAL PROPERTY.—The term 
‘commercial real property’ means section 1250 prop-
erty (as defined in section 1250(c)); except that such 
term shall not include residential rental property (as 
defined in section 168(e)(2)) unless the building con-
tains at least 3 dwelling units. 
‘‘(g) APPLICATION OF SECTION 1250.—For purposes 
of determining the depreciation adjustments under section 
1250 with respect to any property— 
‘‘(1) the deduction allowed by this section shall 
be treated as a deduction for depreciation, and 
‘‘(2) the depreciation adjustments in respect of 
such property shall include all deductions allowed by 
this section to all taxpayers by reason of reducing 
the debt secured by such property. 
‘‘(h) SPECIAL RULES.— 
‘‘(1) BASIS
REDUCTION.—The basis of any 
property with respect to which any qualified debt re-
duction payment is made shall be reduced by the 
amount of the deduction allowed by this section by 
reason of such payment. 
‘‘(2) REFINANCINGS.—The indebtedness de-
scribed in subsection (f)(1)(A) shall include indebt-
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edness resulting from the refinancing of indebted-
ness described in such subsection (or this sentence), 
but only to the extent it does not exceed the amount 
of the indebtedness being refinanced. 
‘‘(3) DENIAL
OF
DEDUCTION
FOR
DEBT-FI-
NANCED PAYMENTS.—No deduction shall be allowed 
by this section for any qualified debt reduction pay-
ment— 
‘‘(A) to the extent indebtedness is incurred 
or continued by the taxpayer to make such pay-
ment, and 
‘‘(B) in the case of a qualified debt reduc-
tion payment made by a partnership on quali-
fied indebtedness on commercial real property 
held by the partnership, to the extent of indebt-
edness— 
‘‘(i) which is incurred or continued by 
any partner to whom such payment is allo-
cable, and 
‘‘(ii) which is secured by such part-
ner’s interest in the partnership or by such 
commercial real property. 
‘‘(4) TREATMENT OF AMOUNTS REQUIRED TO 
BE PAID BY REASON OF LOAN DEFAULT.—For pur-
poses of subsections (b)(1)(A) and (d), accelerated 
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payments required to be made under the terms of a 
loan solely by reason of a default on the loan shall 
not be taken into account. 
‘‘(5) RECAPTURE
OF
DEDUCTION
IF
ADDI-
TIONAL DEBT WITHIN 3 YEARS.— 
‘‘(A) IN GENERAL.—If a taxpayer incurs 
any additional debt within 3 years after the 
date that the taxpayer made a qualified debt re-
duction payment, the ordinary income of the 
taxpayer making such payment shall be in-
creased by the applicable percentage of the re-
captured deduction. 
‘‘(B) 
RECAPTURED
DEDUCTION.—For 
purposed of this paragraph, the recaptured de-
duction is the excess of— 
‘‘(i) the deduction allowed by sub-
section (a) on account of a qualified debt 
reduction payment, over 
‘‘(ii) the deduction which would have 
been so allowed if such payment had been 
reduced by the additional debt. 
‘‘(C) APPLICABLE PERCENTAGE.—The ap-
plicable percentage shall be determined in ac-
cordance with the following table: 
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‘‘If, of the 3 years referred to in 
The applicable 
subparagraph (A), the additional 
percentage is: 
debt occurs during the: 
1st such year ................................................................................
100
2d such year .................................................................................
66 2/3
3d such year .................................................................................
33 1/3. 
‘‘(D) PARTNERSHIPS.— 
‘‘(i) ALLOCATION OF INCOME INCLU-
SION.—Any increase in the ordinary in-
come of a partnership by reason of this 
paragraph shall be allocated (under regula-
tions prescribed by the Secretary) among 
the partners receiving a deduction under 
this section by reason of making qualified 
equity investments in the partnership. 
‘‘(ii) DEBT-FINANCED
EQUITY
IN-
VESTMENT BY PARTNER.—Rules similar to 
the rules of the paragraph shall apply in 
cases where additional debt is incurred by 
a partner making a qualified equity invest-
ment in a partnership. 
‘‘(E) SUBSEQUENT
DEPRECATION.—The 
deductions under section 168 for periods after 
a recaptured deduction under this paragraph 
shall be determined as if the portion of the 
qualified debt reduction payment allocable to 
the recaptured deduction had never been made. 
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‘‘(6) RECAPTURE WHERE PARTNER DISPOSES 
OF INTEREST IN PARTNERSHIP.—If any partner to 
whom a deduction under this section is allocable by 
reason of making a qualified equity investment in a 
partnership disposes of any portion of such partner’s 
interest in the partnership within 1 year after the 
date such investment was made, the ordinary income 
of such partner shall be increased by the amount 
which bears the same ratio to the deduction allowed 
on account of such investment as such portion bears 
to such partner’s interest in the partnership imme-
diately before such disposition. 
‘‘(7) 
EXEMPTION
FROM
PASSIVE
LOSS 
RULES.—Section 469 shall not apply to the deduc-
tion allowed by this section. 
‘‘(i) APPLICATION OF SECTION.—This section shall 
apply to qualified debt reduction payments made within 
the 2-year period beginning on the day after the date of 
the enactment of this section.’’. 
(b) EARNINGS AND PROFITS.—Subsection (k) of sec-
tion 312 of such Code is amended by adding at the end 
the following new paragraph: 
‘‘(6) TREATMENT
OF
SECTION
199A.—Para-
graphs (1) and (3) shall not apply to the deduction 
allowed by section 199A.’’. 
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(c) CLERICAL AMENDMENT.—The table of sections 
for part VI of subchapter B of chapter 1 of such Code 
is amended by adding at the end the following new item: 
‘‘Sec. 199A. Deduction for payments made to reduce debt on commercial real 
property.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after the 
date of the enactment of this Act. 
Æ 
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