LOW-INCOME HOUSING CREDIT EXEMPT FROM INCOME PHASE-OUT OF 125,000 EXEMPTION FROM PASSIVE LOSS RULES.

SEC. 7109. LOW-INCOME HOUSING CREDIT EXEMPT FROM INCOME PHASE-OUT OF 125,000 EXEMPTION FROM PASSIVE LOSS RULES. (a) In General.—Paragraph (3) of section 469(i) (relating to phase-out of exemption) is amended by redesignating subparagraph (D) as subparagraph (E) and by striking subparagraphs (B) and (C) and inserting the following new subparagraphs: “(B) Special phase-out of rehabilitation credit.—In the case of any portion of the passive activity credit for any taxable year which is attributable to the rehabilitation investment credit (within the meaning of section 48(o)), subparagraph (A) shall be applied by substituting ‘$200,000’ for ‘$100,000’. “(C) Exception for low-income housing credit.—Subparagraph (A) shall not apply to any portion of the passive activity credit for any taxable year which is attributable to any credit determined under section 42. “(D) Ordering rules to reflect exception and separate phase-out.—If subparagraph (B) or (C) applies for any taxable year, paragraph (1) shall be applied— “(i) first to the passive activity loss, “(ii) second to the portion of the passive activity credit to which subparagraph (B) or (C) does not apply, “(iii) third to the portion of such credit to which subparagraph (B) applies, and “(iv) then to the portion of such credit to which subparagraph (C) applies.” (b) Effective Date.— (1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to property placed in service after December 31, 1989, in taxable years ending after such date. (2) Special rule where interest held in pass-thru entity.—In the case of a taxpayer who holds an indirect interest in property described in paragraph (1), the amendments made by this section shall apply only if such interest is acquired after December 31, 1989.